Director in the company has different nomenclature such as independent director, managing director, whole-time director etc. A nominee director is one of the types of directors appointed in the company be it a private limited company or public limited company.
Each director has its own roles and duties, so the nominee director has its own. The purpose to have nominee director on the board is more like an Independent director. Nominee director has a fiduciary relationship with the company whose function is to look after the best interest of the company.
Be clear about one thing that he is not that type of director whose appointment is initiated from the board rather this is a kind of compulsion on the company to appoint the person so nominated by the third party which can be the investor in the company. As the name itself signifies nominee director is nominated by some other person who has some financial stake in the company. Therefore, to protect that financial interest his appoint is nominated by the investor namely banks and financial institution who lend monies to the company with the condition to appoint their nominee on the board of the company who can keep a close watch over the workings of the company and avoid any irregularities appeared to happen.
Appointment of nominee director seems to be quite easy but it is not so. There must be a power to appoint nominee director which is mentioned in the Articles of Association (AOA) of the company. If there is no such power in the AOA, then you have to amend the AOA by following the prescribed procedures, then the only appointment of nominee director shall be valid.
There is a practice of appointing only natural person can be appointed as director, not any incorporated entity because responsibilities and duties can not be assigned to the agency which is comprised of some individuals.
As we earlier stated that nominee director is like an independent director, therefore, nominee director does not have any pecuniary relationship with the company which can affect his judgement.
A nominee director is also held liable for such acts of omission which had occurred with his consent or where he had not acted diligently.