( Originally published on Jul 26, 2023 )
Decoding the role of nominee directors in a firm
Sahil Kanuga
The author is co-head - international dispute resolution and investigations practice at Nishith Desai Associates.
Maulin Salvi
The author is leader - corporate governance practice at Nishith Desai Associates.
Synopsis
Section 149(7) of the Companies Act 2013 defines nominee directors as directors nominated by financial institutions under laws or agreements, or appointed by the government or other entities to represent their interests. Nominee directors serve as non-executive board members, contributing to decision-making without involvement in the company's day-to-day affairs. The purpose of appointing nominee directors is to protect the investor's interests.
An experienced VC or PE investor can bring significant benefit to the board of an investee company and help avert governance issues by appointing a nominee director to a company's board along with negotiated control and voting rights. Nominee directors play a vital role in ensuring the company's decisions are in the shareholders' best interest. They bridge the gap between investor and company interests, allowing investors to participate in
