A nominee director is appointed to ensure that the financial institution’s interests are effectively protected. In addition, the nominee director is responsible for the borrowing firm and its stakeholders. The nominee director will be responsible for the institution or investor, as well as monitoring the borrower firm or investee’s operations.

The conditions for appointing a nominee director under the Companies Act are as follows:

1. When a financial institution considers or decides to appoint a nominee directors, the appointment should be done in accordance with any applicable law or the conditions of the company’s agreement.
2. The director can be appointed by the federal or state governments, or by anybody else with the ability to do so under the relevant legal rules.
3. Nominee directors should represent the interests of the organization or institution to which they have been appointed.

Follow the steps outlined below before appointing the nominee director:

A. It must be determined whether the company’s articles contain the authority to nominate a nominee director in accordance with the provisions of the Companies Act, 2013.

B. If the article does not grant authorization in this circumstance, the corporation must amend the article to allow the candidate director to be appointed.

C. A nomination letter from the nominee director who has been nominated for appointment as a nominee director must also be obtained.

D. Check to see if the person has a Director Identification Number (DIN) in addition to the DIR-3.

E. Check whether the proposed director has given his or her written agreement to act as a director in form DIR-2 after verifying DIR-3.

The documents that must be attached to the DIN are as follows:

1. a copy of the applicant’s proof of identity
2. Proof of address copy

F. The proposed director shall make an intimation in form DIR-8 stating that he or she is not disqualified under section 164(2) of the Companies Act, 2013.

G. Following notice to all directors, the Board of Directors should vote a resolution authorizing the nominee director’s appointment during a board meeting. The notification must be sent to the directors within seven days of the meeting’s date. The crucial elements to remember before conducting the meeting are listed below.

1. The meeting’s agenda will be made public.
2. Pass a board resolution to nominate a nominee director under section 161 in order to conduct a board meeting (3).
3. Authorizing the company secretary to act in his or her place if the company secretary is unavailable.
4. Providing authority to sign and file the relevant paperwork with the Registrar of Companies (ROC).

H. Within 30 days of enacting the board resolution, the form DIR-12 must be filed with the Registrar of Companies as a return of appointment.

The following are the documents that must be attached to DIR-12:

1. The Nominee Director’s information, including his or her DIN.
2. The Nominee Director’s consent
3. True certified copies of the Board resolution approving the Nominee director’s appointment.
4. The letter of documents, as well as any other ancillary information that is required

I. Following the appointment, the nominee director must acquire disclosure, i.e., the nominee director must inform the other firms that he is the director in form MBP-1.

1. One Who Protects the Nominator’s Interests 

A nominated director supervises the company’s operations to ensure that policy decisions are made on good business lines and with enough protections to ensure that the nominator’s interests are not harmed.

2. A Link to the Past

The nominated director also serves as a connection between the investee company and the nominator to ensure that information is exchanged on a regular basis. It’s worth noting that the issue of the Nominee Director sharing sensitive information will come up.

3. Participation in the Making of Decisions

The nominee director participates actively in debates on the company’s financial performance, future strategies, fundraising, and so on. The goal is to apply his or her knowledge to the matters before the board in order to protect the nominator’s interests.

4. Confidentiality is Maintained

Though a nominee director owes his or her devotion to the nominator, he or she must always follow the code of conduct for directors and senior management people. When the investee company is a publicly-traded corporation, the obligation increases because there are compliance requirements for unpublished price-sensitive material.