Nominee Director means a Director appointed to the Board of a Company to represent the interests of their appointer on the Board, nominated by any Financial Institution, Shareholder, Creditor, any Stakeholder or appointed by Government or any other person in pursuance of the provisions of any law for the time being in force, to represent its interests.

Further, as per section 161(3) of the Companies Act, 2013 (‘the Act’), subject to the articles of a Company, the Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government Company.

Any Company may come across a situation wherein a Nominee Director appointed on the Board may demand unaccommodating sitting fees for attending the Board Meetings of the Company.

As per provisions of Section 197 (5) of the Act

A Director may receive remuneration by way of sitting fees for attending Board/Committee meetings or for any other purpose as may be decided by the Board, provided that the amount of such fees shall not exceed the amount as may be prescribed. The Board may decide different sitting fees payable to independent and non-independent directors other than whole-time directors.

Please note that the word ‘may’ denotes that it is up to the discretion of the Board to pay sitting fees to a Director. Also, there has been no mention of the prescribed mode of payment of such fees to a separate fund or account of the institution represented by such Nominee Director. Moreover, payment of any monthly remuneration to a Nominee Director is prohibited by law. Nowhere in the Act, is it specified that payment of any kind of remuneration to Nominee Directors is mandatory. It depends on the discretion of the Board of Directors.

In view of the above, we can opine that it is at the discretion of the Board of Directors (Executive Directors) to pay sitting fees to Nominee Directors or not and the mode of payment thereof. If the Board feels appropriate, they may choose not to pay the sitting fees. However, if the sitting fees for attending the Board meeting are to be paid, it should be paid directly to the Nominee Directors and not in the account of the Body Corporate which they are representing.

However, in some cases, there may be an understanding between the Appointor and the Nominee Director upon accrual of such Sitting Fees, the benefit of which, if any, would be enjoyed by the Appointor and not by the Nominee Director. Such Nominee Director may choose to remit/ share such sitting fees with its Appointer. However, in such cases, it is still mandatory on the part of the Company to pay such sitting fees only to the Nominee Director into his Bank Account directly.

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Company: Mamta Binani and Associates
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May 2021