Subject to the articles of the Company, the Board may appoint any person as a Director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company. [Section 161(3)]
A Nominee Director is a director in a company who has been appointed by financial institutions, banks or investors to form part of the Board of Directors. A nominee director is nominated to ensure that the interests of the financial institution/interested party and for the stake of transparency.
Mandatory Requirements for appointment of Nominee Director
- When a financial institution contemplates the appointment of or decides to appoint a nominee director, the appointment should be made in pursuance of any law or terms of an agreement entered into by the company.
- The appointment of the director can be made by the Central/ State Government or by any other person in whom the authority is vested according to the relevant legal provisions.
- Total number of Directors in the Company shall not exceed the limit after appointing of a Nominee Director Section 149(1).
- The individual who will be appointed as a Nominee Director shall hold Active DIN. (Section 152(3)).
The Following Procedure is to be followed for “Appointment of Nominee Director”
- Check the AOA of the Company
Refer the AOA, if not authorized by the AOA then it needs to be altered for the appointment of the Nominee Director. [Refer Procedure for Alteration of Articles]
- Obtain Nomination Letter
Further, a nomination letter has to be obtained from the nominee director who is nominated for appointing as a nominee director.
- Obtaining DIN and Digital Signature Certificate
- If the person does not have Digital Signature, he shall obtain Digital Signature from Certifying Authority in India.
- The person shall have a valid DIN allotted by the Ministry of Corporate Affairs. At present, application for allotment of DIN can be submitted to MCA only through the company where he/she is proposed to be appointed.
- The Application for DIN is required to be countersigned by a Director of the Company and a copy of resolution approving the proposal of appointment is also to be submitted by the person in Form DIR-3 with MCA with his ID Proof & Address proof, duly digitally signed by him and a director of the company in which the person is intended to be appointed as director.
- Documents for DIR-3 are as follows
- One Passport Size Photo in JPG/JPEG Format
- Board Resolution proposing his appointment as director in an existing company
- Specimen signature duly verified
- ID Proof- Driving License/Passport/Election Voter ID Card
- Residence Proof- Utility Bill (Electricity Bill/Telephone Bill)/Bank Statement/Mobile Bill
- Other Mandatory Attachments- Income Tax PAN (For Indian National), Passport (For Foreign Nationals)
- Other Attachments- Aadhaar Card
- The Appointment of Nominee Director can be done in two ways
A. By passing of Resolution in Board Meeting, OR
B. By passing of Resolution through Circulation
A. Convene a Meeting of Board of Directors [As per section 173 Secretarial Standard-1 ( SS-1)]
- Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
- Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
- Hold a meeting of Board of Directors of the Company to discuss the agenda and deciding on the name of Nominee Director
- Pass Board Resolution after selecting the person to be appointed as a Nominee Director.
- Issue letter of appointment to the Nominee Director of the Company, mentioning terms and conditions of appointment and salary to be payable to him.
- Authorize Company Secretary or any Director to sign and file the relevant form with Registrar of Companies and to do such acts, deeds and things as may be necessary to give effect to the Board’s decision.
- Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation, Signing and Compilation of Minutes]
B. Appointment of Nominee Director by passing resolution through Circulation
- The Chairman of the Board or in his absence, the Managing Director or in their absence, any Director other than an Interested Director shall decide before the draft Resolution is circulated to all the Directors, whether the approval of the Board for a particular business shall be obtained by means of a Resolution by circulation.
- The drafted Resolution with all the necessary documents will be sent same-day through Speed Post/E-mail/By Hand/Registered Post/Courier or any recognized means to the registered postal addresses of all Directors.
- The Resolution should explain all details of the proposal, the material facts which explain the meaning, scope and implications of the proposal made and its nature.
- The Directors shall have to respond within seven days from the date of circulation.
- If the minimum of 1/3rdDirectors wants to decide the Resolution under circulation in a Board Meeting, then the Chairman should hold the Resolution by Circular under consideration at a Board Meeting.
- The Resolution is deemed to be passed when the majority of the Directors entitled to vote approves for the Resolution.
- Resolutions passed by circulation shall be noted at a subsequent Meeting of the Board and the text thereof with dissent or abstention, if any, shall be recorded in the Minutes of such Meeting.
Consent and Declaration from the Proposed Director
The Proposed Director has to submit Form DIR-2 (Consent to act as a Director) and Form DIR-8 (Intimation by Director about his disqualification) to the Company either before the Board Meeting or during the Board Meeting.
Filing of Returns with the ROC
After the Board meeting, a Return of Appointment of Directorship (Form DIR-12) is required to be filed with Registrar within 30 days of appointment with copy of Board Resolution along with Consent and Declaration. In case of Companies other than OPC and Small Company, the return is also to be certified by a Company Secretary/Chartered Accountant/Cost Accountant. Following documents will be required as an attachment with Form DIR-12:
- Certified True Copy of the Board Resolution passed
- DIR-2 Consent to Act as Director
- DIR-8 Declaration by Director
- Letter of Appointment.
Obtain Form MBP-1 from the Appointed Director
Obtain the declaration from the Appointed Director regarding his interest in other entities in Form MBP-1 within 30 days of appointment or at the first Board Meeting in which he participates as Director, Whichever is Earlier. (Section 184(1) Read with Section 189(2))
Making Necessary entries in Register of Directors
Company should make necessary entries in the Register of Director and Key Managerial Personals.
File Necessary Amendment Application under following Acts
- Goods and Services Act
- Shops & Establishment Act
- Factories Act
- Foreign Exchange Management Act
- Inter-State Migrant workmen Act
- Private Security Agency Act
- Other Labour Laws
- Industry Specific Laws