A nominee director is formally appointed to represent the interests of an entity like a financial institution or government. Under Indian law, a nominee director is considered a full director with all attendant duties and liabilities. While a company cannot indemnify directors for negligence or breach of duty under prior law, the new Companies Act does not restrict this. A company's articles and directors' liability insurance can help cover liabilities of a nominee director as a non-executive director, whose responsibilities are already limited to acts done with their consent or without due diligence.

1. WHETHER A NOMINEE DIRECTOR CAN BE INDEMNIFIED BY THE COMPANY FROM STATUTORY
LIABILITIES?
First of all it is important to understand, who is a Director and who is Nominee Director under the
Corporate Laws and what is the scope under which he has to work. The term Nominee Director was not
defined anywhere in the Companies Act, 1956, but under the new Companies Act, 2013 a specific
definition is specified for the aforesaid term. Before understanding the definition of Nominee Director,
the word “Director” and its scope should be clear.
Section 2(34) of New Companies Act, 2013 defines Director as:
"Director" means a director appointed to the Board of a company;
The case law, Corporate Affairs Commission vs Drysdale (1979), further identifies the “de-jure” director
and “de-facto” director.
De-Jure Director - A de jure director is a director who is formally appointed and registered as a director
with the registrar of companies.
De-facto director - A de facto director is not formally appointed but carries out all the duties of and
makes decisions as a director.
Since the Nominee Director is appointed under the provisions of law, so he is included in the term Director.
Nominee Director – Definition- The explanation to Section 149(7) defines “Nominee Director” as a
director nominated by any financial institution in pursuance of the provisions of any law for the time
being in force, or of any agreement, or appointed by any Government, or any other person to represent
its interest.
Thus, if a director is appointed under an agreement (Shareholder’s Agreement/Share Purchase agreement
etc.), then he will be in covered under definition of Nominee Director.
Is Nominee Director an Independent Director?
Section 149(6) of the New Companies Act, 2013 specifically excludes the Nominee Director from the scope
of independent director. The said Section says “An independent director in relation to a company, means
a director other than a managing director or a whole-time director or a nominee director”.
The amended listing agreement issued by SEBI dated 17th
April, 2014, also excludes nominee director from
independent director’s definition. The extract of which is as follows:
Clause 49(II)(B)(1) of the Listing Agreement says, “for the purpose of the clause A, the expression
‘independent director’ shall mean a non-executive director, other than a nominee director of the
company”

2. Therefore, from the above definitions, the intention of law is very much clear that the Nominee Director
is considered as a full-fledged director with all duties, responsibilities and liabilities provided under the
law.
Moving further, the New Companies Act, 2013 specified duties of director very clearly.
Duties of Director-
Section 166- (1) Subject to the provisions of this Act, a director of a company shall act in accordance
with the articles of the company.
(2) A director of a company shall act in good faith in order to promote the objects of the company for
the benefit of its members as a whole, and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment.
(3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence
and shall exercise independent judgment.
(4) A director of a company shall not involve in a situation in which he may have a direct or indirect
interest that conflicts, or possibly may conflict, with the interest of the company.
(5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either
to himself or to his relatives, partners, or associates and if such director is found guilty of making any
undue gain, he shall be liable to pay an amount equal to that gain to the company.
(6) A director of a company shall not assign his office and any assignment so made shall be void.
Liabilities of Nominee Director –
Section 149(12) of the Companies Act, 2013 defines the liabilities of a non-executive director. The extract
of the said section is as follows:
“Notwithstanding anything contained in this Act,--
(i) an independent director;
(ii) a non-executive director not being promoter or key managerial personnel,
shall be held liable, only in respect of such acts of omission or commission by a company which had
occurred with his knowledge, attributable through Board processes, and with his consent or connivance
or where he had not acted diligently.“
Thus, the liability of the Nominee Director, who is a non-executive director is limited to the acts which
are occurred with his knowledge, attributable through Board processes and done through his consent in
the decision or where the NED has not acted with diligence.

3. Indemnification to Nominee Director allowed?
Section 201 of the Companies Act, 1956 had restricted the Company to indemnify the directors of the
Company. Section 201 reads as:
201. Avoidance of provisions relieving liability of officers and auditors of company.
(1) Save as provided in this section, any provision, whether contained in the articles of a company or in
an agreement with a company or in any other instrument, for exempting any officer of the company or
any person employed by the company as auditor from, or indemnifying him against, any liability which,
by virtue of any rule of law, would otherwise attach to him in respect of any negligence, default,
misfeasance, breach of duty or breach of trust of which he may be guilty in relation to the company,
shall be void;
Thus, for the acts of director before 01.04.2014, the Company cannot indemnify the director.
Though, New Companies Act, 2013 doesn’t not have any such restriction. Though, there is a provision
for taking Directors’ and Officers’ Liability Insurance as per section 197(13) of the New Companies Act,
2013 for liabilities of negligence, default, misfeasance, breach of duty or breach of trust. The articles of
the Company are also deciding factor in the issue.
Thus, taking into consideration all aspects, the liabilities of the Nominee Director who is a non-executive
director are already limited and that too can be covered by the Directors’ and Officers’ Liability Insurance.