Board with Nominee Directors

[vidya g]

Can full board form with the Nominee Directors?
Is there any limits for the nominee directors strength?

Regards
Vidya  

[Jayashree Chandrasekaran]

such a situation is not possible...what abt the promoters of the company...

Jayashree

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C.JAYASHREE

PARTNER

S.GANESH&ASSOCIATES

CHENNAI

98840 17120

[Vivek Hegde]

Dear Members

In my view, the term "Nominee Director" is being wrongly used in the corporates. Suppose if two Companies form a JV and nominated their directors on the Board of newly formed Company will they become Nominee Directors? Or suppose VCs who have funded the organization appoints somebody on the Board, are they Nominee Director?

According to me they are not..! Only financial institutions/banks can appoint Nominee Directors.

Correct me if i am wrong. Contrary view solicited.

Vivek

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA
Company Secretary in Practice
No. 405, 4th Block, 7th Cross
Koramangala, Bangalore-560034
Mob: 09019756940/09900898223

[yoganand l]

i think nominee director is one who is nominated by some person entitled to it. and such a director acts accorrding to the whims and fancies of the nominating person. if nominating person is a company, if he resigns from that company, the company would obviously withdraw its nomination. thats the reason roc insists that a 'withdrawal of nomiination' letter be attached instead of a resignation letter in case of cessation of nominee director. i dont think there is anything in the Act which says that only FI / Bank etc. can appoint a nominee director. vivek ji, pls go through the wordings given in s.49 of CA - may be you might reconsider your answer...

 

regards,

yogan.

[Vivek Aggarwal]

Dear Vidya

 

I think such a situation is not preactically possible. In such a scenario who will look after the internal functions of the company & the company will not run properly.

 

Regards

CS Vivek Aggarwal

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From: vidya g <vidya...@gmail.com>
To: csmy...@googlegroups.com
Sent: Wed, 25 August, 2010 5:23:21 PM
Subject: [CSMysore] Board with Nominee Directors

[CS A Rengarajan]

Yes  Those who are appointed by financial institutions and banks who are funded the company and montoring the project are called nominee directors.  No doubt JV company nominate their representative, but they cannot be defined under nominee directors.  The Articles should provide appoint of  third person as nominee directors.

Please see write up nominee directors published few days ago which clarifies the doubts

Nominee Directors -  By  CS  A  RengarajanI

ntroduction: Before granting term loan or any other facility to the corporate,  the financial institution insist that their representative will be appointed as one of the Director of the board. Thus Nominee directors are appointed by third party i.e other than board and shareholders.

 

Appointment:  The Nominee Directors  are appointed in terms of Section 255 and 256 of the Companies Act, 1956 and also provisions contained in the Articles of Association. The Articles of Assoication should have power to appoint Nominee Directors. In the following circumstances, the Nominee directors can be appointed.

 

1)  Articles of Association of the company authorising  third parties to nominate directors

2)   Any statute or law which overrides the provisions of section 255 and 256 of Companies Act, 1956

 

The Articles of Association of the company either provide  that the company enter into agreement  for appointment of nominee directors or  empowering third parties to nominate  directors on the board.

 

Nominee directors should be given clearly-identified responsibilities in a few areas which are important for public policy. The illustrative lists of these are:

(a) Financial performance of the company;

(b) Payment of dues to the institutions;

(c) Payment of Government dues, including excise and customs duty, and statutory dues. Where the company feels that a particular tax demand is unjustified, nominee directors should satisfy themselves about the prima facie reasonableness of the company’s case;

(d) Inter-corporate investment in and loans to or from associated concerns in which the promoter group has significant interest;

(e) All transactions in shares;

(f) Expenditure being incurred by the company on management group; and

(g) Policies relating to the award of contracts and purchase and sale of raw materials, finished goods

 

The nominee directors regularly attend the board meeting and submit their report to their organisation.

 

Section 274 (1) (g) of Companies Act, 1956 : The Department of Company Affairs (DCA) has exempted nominee directors appointed by public financial institutions and companies from disqualification under section 274 (1) (g) of the Companies Act, 1956.   However  this will be subject to the conditions like to protect the interest of financial institutions, observance of good corporate governance practices,  ensuring conduct of the companies in keeping with the public policy and observing strict compliance of  all statutory provisions  of the Companies Act -  DCA Press release.                           To be continued

 

On Thu, Aug 26, 2010 at 10:39 AM, Vivek Hegde <vivekhe...@gmail.com> wrote:

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[yoganand l]

sir, is there any back up for your statement :
No doubt JV company nominate their representative, but they cannot be defined under nominee directors ???????????????????????????

[CS A Rengarajan]

Please see that nominee directors to be appointed by third parties not by board or share holders.  JV are coming under shareholding and they cannot be called as nominee directors.

Please see listing agreement also and  model article clause which facilitates for nominee director appointment provisions

Best Regards

[venkata ramana]

'nominee directors' by the very nomenclature and definition would mean exclusively those nominated by stakeholders of the category of banks and financial institutions lending substantial sums of capital and loans.Where the law is clear, no extra/additional/extraneous meanings can be attributed,pls. As such, it is incorrect and 'illegal' too for referring to JV--partners' representatives on the Board as 'nominee directors'.

On Thu, Aug 26, 2010 at 9:59 PM, yoganand l <cs.y...@gmail.com> wrote:

[yoganand l]

sir, such a definition is not given anywhere naa.....

 

how can you say it as illegal; i think we can call something illegal, if it is agaist law. when there is no law - how can you say it as illegal. pls clarify

 

regards,

yogan.

[venkata ramana]

dear mr,
pls.read through the GENERAL CLAUSES ACT in its entirety [incl. the
notes and debates in Parliament before the Bill was made into an Act
of Parliament and assent from the President was received and gazetted
under law].Your doubt would get dispelled.
Alternatively,you could answer what is 'legal,'lawful' and irregular'
and we shall arive at what you seek to get clarified.
best wishes,
PVR.

[CS A Rengarajan]

Dear sir

very brief reply

Thanks

regards

[yoganand l]

very brief. but no answer here.....

[CS A Rengarajan]

Dear Mr.Yogan

when you go to general clauses act, you can understand

This is for  your information please

[yoganand l]

i have read it sir. i didnt understand. pls help me out

 

regards,

yogan.

[pavithra madhwesh]

Dear members,

 

Can full board form with the Nominee Directors?

 

For private limited company (standalone):

 

1. It depends on AOA.
2. If AOA allows, then there is no bar in having full Board with Nominee Directors.
3. If AOA has specific mandate for Board composition, such mandate should be followed OR AOA needs to be modified to suit the requirement.
4. However, theoretically it may be possible, but practically i have not seen any company having Board in this fashion.

 

For public limited company and private limited company subsidiary of public company:

 

1. This is not possible.
2. Because, atleast 2/3 of the Board should be liable to retire by rotation. This means that 2/3 of the Board members should invariably stand for election from the shareholders. These directors become the directors directly appointed by the shareholders. (Section 255 and 256)
3. Whereas the nominee directors are the ones appointed by Financial Institutions...etc. Nominee directors can form only 1/3 (max) of the Board.
4. Public limited company do not have the flexibility to modify their AOA to this effect. (Section 255).

 

 

Is there any limits for the nominee directors strength?

 

1. As written earlier, for standalone private limited company - this is flexible.
2. For a public limited company,the nominee directors strength can be 1/3 of the Board maximum.

 

 

Member's views solicited.

 

 

Thanks and regards,

 

Pavithra and Madhwesh

 

9535574123 / 9972072349 / 9980672126

 

[esha sharma]

Hello Friend

I need some explanation on definition of nominee director , nominee directors usually are those who have been appointed by Banks and Financial Institutions.

So if it is correct then how it can be possible that a whole Board is comprised of nominee directors only?

So even in case of Private Company i don't think it is possible.

Even i'm not clear with the thing that whether nominee directors are also counted while calculating directors liable to be retirement by rotation.

Thanx & Regards

Acs Esha Sharma

[Vivek Aggarwal]

Dear Pavithra

 

I completely agree with you & it is not a practical situation as in such a case, the routine functioning of the company will be hampered.

Regards

CS Vivek Aggarwal

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From: pavithra madhwesh <pavithra...@gmail.com>
To: csmy...@googlegroups.com
Sent: Tue, 31 August, 2010 2:33:42 PM
Subject: Re: [CSMysore] Board with Nominee Directors