Nominee Director

A nominee director is a person placed on a company’s board to represent the interests of the institution, government or other person nominating or appointing them. Under the Companies Act, 2013, this representative role does not remove the duties that the person owes as a director of the company.

Statutory definition

The Explanation to Section 149 of the Companies Act, 2013 defines a nominee director, for the purposes of that section, through the following routes:

• A director may be nominated by a financial institution pursuant to the provisions of a law in force or an agreement.
• A director may be appointed by any Government or any other person to represent its interests.

Appointment to the board

Section 161(3) provides a specific mechanism for appointment by the board, subject to the company’s articles of association.

• The board may appoint a person nominated by an institution pursuant to a law in force or an agreement.
• It may also appoint a person nominated by the Central Government or a State Government by virtue of its shareholding in a Government company.
• The statutory definition and this appointment provision serve different purposes: the former identifies the category, while the latter enables specified appointments.

Representative role and directors’ duties

Representation does not mean unrestricted obedience to the nominator. A nominee director remains subject to the duties of directors under Section 166.

• The director must act in accordance with the company’s articles and in good faith to promote its objects for the benefit of its members as a whole.
• The director must exercise due and reasonable care, skill and diligence, and must exercise independent judgment.
• The director must avoid situations involving a direct or indirect interest that conflicts, or may conflict, with the company’s interests.
• Under Section 149(6), a nominee director is excluded from the category of independent directors; exercising independent judgment does not make the nominee an independent director.