Nominee Director

Nominee Directors
The Companies Act, 1956 does not speak about Nominee Directors. It is common for Companies to obtain financial assistance from financial institutions or banks or other lenders. Such financial institutions have to safeguard their interest and to ensure that the money is only used for the purpose for which it is used. In such situations, those institutions nominate a Director to represent and protect their interest in the Board. It is usual that the right and terms of nominate a Director should be included in the Agreement itself.
To appoint a nominee Director, there should be provision in the Memorandum of Association or Articles of Association of the company. Otherwise the company has to amend its Articles of Association.
Certain special legislations governing public financial institutions and state financial corporations envisage the appointment of certain directors on the Board of borrowing Companies and such a provision has an overriding applicability to the Companies Act, 1956. In such cases, the above referred institutions have overriding powers to appoint nominee directors notwithstanding anything contained in the articles or even the Companies Act. So in such cases provisions in Articles of Association and Memorandum of Association are not necessary to appoint Nominee Directors. To comply with Section 255 of the Companies Act, 1956, it should be ensured that the total number of non rotational Directors does not exceed one third of the total strength of the Board.
The articles of  a company may incorporate the following articles
1.	The Nominee Director may not be required to hold qualification shares.
2.	The nominee Director shall not liable to retire by rotation.
3.	Every such Director shall be entitled to attend all general meetings, Board Meetings and Committee meetings.
4.	The nominee Director shall be paid normal fees and expenses to which other Directors are entitled.
Normally the fees, commission, monies and remuneration to Nominee Director shall accrue to their mother institution, if such Director is an employee; otherwise, it shall pay to them directly.
Nominee Directors are in the same position and they owe same duties to the company as any other Director.
In British Murac Syndicate Limited v. Alperton Rubber Company Limited, it was held that the company shall be compelled to accept the appointment unless the appointee is unfit to act as Director. (Where he has conflicting interest). In Rama Fibres v. G R Hada, 2001, it was held that statutory provisions do not make any distiction between nominee directors and other directors and nominee director is not absolved of his obligations under the Act.
Sample Board resolution appointing a nominee Director.
"RESOLVED THAT pursuant to Article <> of the Articles of Association of the company and Section 255 of the Companies Act, 1956 Mr. <> representative of M/s. <> be and is hereby appointed as Nominee Director of the Company”. “RESOLVED FURTHER THAT Mr. <>  , Managing Director  of the Company be and is hereby authorized to take all such steps as may be necessary to give effect to the resolution including filing of Form 32 with the Registrar of Companies”.