[Opinion] Is Nominee Director Liable to Retire by Rotation?

CS Rutuja Umadikar – [2024] 166 taxmann.com 118 (Article)

1. Introduction

Companies Act 2013 (‘the Act’) provides for management of companies by the board of directors on behalf of shareholders. The Act also provides for appointment and retirement/resignation of directors. Generally speaking, all the directors are appointed by shareholders or even if appointed by board, then approved by the shareholders at general meetings. The only exception to this rule is, appointment of nominee director.

As per explanation to sub-section (7) of section 149 of the Act, Nominee director is a director who is appointed by the board on the recommendation of a financial institution, government or any other person to represent his interest.

Further as per sub-section (3) to section 161 board of directors have the power to appoint nominee director. Therefore, the Act does not mandate requirement of obtaining shareholder approval for appointment of nominee director. Hence there arises a question that whether nominee directors are liable to retire by rotation like all other directors as provided under sub-section (6) of section 152 of the Act. In this article we shall try to find out an answer to this question.

2. Retirement by rotation – the Act

Sub-section (6) of Section 152 of the Act says that unless articles of association provide for the retirement of all directors, a minimum of 2/3rd of the total directors, excluding independent directors, shall be liable to retire by rotation every year. An express exclusion from this section is provided only to the independent directors and no one else. Therefore, all directors, including nominee directors and excluding independent directors, shall be considered for calculating the number of directors liable to retire by rotation.

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