Appointment of Nominee Director under the Companies Act, 2013

Introduction

A nominee director is a director in a company who has been chosen to serve on the board of directors by financial institutions, banks, or investors. The appointment of nominee directors is governed and subject to the terms of the company’s articles of association. The purpose of a nominee director, the conditions for nominating a director and the procedure to appoint a nominee director are briefly discussed in this article.

What is the purpose of a Nominee Director?

The purpose of a nominee director is to ensure that the institution’s interests are effectively protected. The nominee director is also chosen to carry out his or her responsibilities to the borrower company and its stakeholders. The nominee director oversees the operations of the borrower firm or investee and will be accountable for the institution or investor.

What are the Conditions for Nominating the Director?

The following are the conditions for nominating the director under the Companies Act, 2013:

• When an institution considers or decides to appoint a nominee director, the appointment should be made according to any applicable laws or the conditions of an agreement entered into by the firm.

• According to the applicable legal provisions, the Central/State Government, as well as any other person to whom the authority is entrusted, may select the director.

• A Nominee director should reflect the interests of the organization or institution to which he is appointed.

What is the procedure to appoint a Nominee Director?

Consider the following method before appointing the nominee director:

Step 1: Determine whether the article of the company holds the authority to nominate the nominee director according to the provisions of the Companies Act of 2013.

Step 2: If the article does not grant authorization in such a circumstance, the firm must modify the article to allow it to appoint the nominee director.

Step 3: In addition, the nominee director who is being proposed for appointment as a nominee director must provide a nomination letter.

Step 4: Next, determine if the relevant individual also has a Director Identification Number (DIN) with the DIR-3.

Step 5: Following the DIR-3 verification, verify whether the proposed director has provided written authorization in form DIR-2 to serve as a director. The following documents must be submitted with the DIN:

• A copy of the applicant’s identity documentation
• Address proof copy

Step 6: The proposed director must certify in Form DIR-8 that he or she is not disqualified under Section 164(2) of the Companies Act, 2013.

Step 7: The following notice to all directors, the Board of Directors should pass a resolution approving the appointment of the nominee director at the board meeting. Within seven days of the meeting date, the directors must receive the notice. The key factors to keep in mind before conducting the meeting are listed below.

• Disclosure of the agenda of the meeting.

• Pass a board resolution to appoint a nominee director under Section 161(3) before holding a board meeting.

• In the absence of the company secretary, authorizing the general manager

• Providing authority to sign the relevant documents and file them with the Registrar of Companies (ROC).

Step 8: The form DIR-12 must be filed with the Registrar of Companies as a return of appointment within 30 days of the date the board resolution was passed.  The following list includes the documents that must be attached to DIR-12:

• Information about the Nominee Director, including DIN.

• The Nominee Director’s approval.

• Genuine-certified copies of the board resolution that approved the nominee director’s appointment.

• The letter of documents and any additional information needed.

Step 9: Immediately after the appointment, the disclosure must be obtained, i.e. the nominee director must notify the other firms in form MBP-1 that he is the director.

Conclusion

Directors should be aware that MBP-1 should not be filed prior to the appointment of a nominee director. A nominated director is chosen by the board to carry out a contract, comply with legislation, or be appointed by the federal or state governments. Without DIN, a person cannot become a director. The entire procedure can take anywhere from 3 days to 40–47 days.