How to appoint a nominee director in a company

Part two of the LexNova series tackles the director appointment process. Learn the step-by-step legal procedures for appointing a nominee director, including required documentation, board resolutions, and compliance filings—essential knowledge for corporate law practitioners managing growing companies.

Introduction

“So let me get this straight, we have just twelve days to appoint the nominee director, or the fund transfer gets delayed?“

Arjun sounded both frustrated and surprised as he leaned forward in his chair, looking directly at Anjali, the Head of Legal at LexNova.

We were sitting in the company’s glass-walled conference room—nicknamed “The Fishbowl” because employees often walked by and watched the lively debates happening inside.

Today’s discussion was especially intense because Indus Ventures wanted their nominee director added to LexNova’s board.

Anjali nodded calmly. She had been in her role for just three months, but already knew Arjun often reacted strongly to legal deadlines.

“The shareholders’ agreement is clear,” she said. “Clause 14.2 requires us to appoint their nominee director within 15 days from the closing date. We have already used up three days coordinating with different teams. But don’t worry, we can still get it done if we act quickly.”

Nearby, Meera was scrolling through calendar invites on her tablet.

Meera said, “Neha from Indus Ventures just confirmed their nominee, Mr. Ravi Kapoor. He will be joining our board as the nominee director, expanding our board from four to five directors. Ravi’s a partner at the firm and has a background in legal tech. He is also on six other boards, mostly for their portfolio companies.”

“Six boards?” Anjali raised an eyebrow and made a note. “We will need to check his compliance with Section 165 of the Companies Act. The law allows up to 20 directorships total, with a maximum of 10 in public companies. Since we’re a private company, this shouldn’t be an issue, but I will verify his total count.“

Welcome back to my company law series, where I am following LexNova’s corporate governance journey covering appointment, removal, resignation of directors, inter alia.

In my previous article, i.e., How to appoint directors in Indian startups, I explored how the rapidly growing startup needs to formalise its board structure after securing Series A funding.

Now comes the practical implementation wherein LexNova has to appoint its first investor nominee director. While this sounds straightforward on paper, the reality involves multiple procedures, documentation requirements, and potential pitfalls that would rarely be covered in law school.

Let us dive into the practical process of appointing a director, knowledge that will serve you well whether you are advising startups, established companies, or preparing board documentation yourself.

The legal framework: what the Companies Act requires

Before we follow Anjali through LexNova’s first director appointment, let us establish the legal framework that governs this process. The Companies Act, 2013, provides clear guidelines on how directors must be appointed.

The primary provisions relevant to director appointments include:

Section 152: Outlines the appointment process for directors.
Section 149(1): Establishes minimum director requirements (which we covered in our previous article).
Section 161: Covers additional, alternate, and nominee directors.

For LexNova, which is appointing a nominee director from its investor, the most relevant provisions for this purpose are found in section 161(3), which states:

“(3) 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.”

This means the nominee director may be appointed if LexNova’s Articles of Association (AoA) permit it and the nomination is made under the provisions of their investment agreement with Indus Ventures.

Step-by-step: The director appointment process

What makes a good corporate lawyer is not just knowing these provisions, but the ability to implement them as per the business requirement.

Having said that, let me break down the process as Anjali walks LexNova’s team through it.

Step 1: Verify the nominee’s eligibility and AoA compliance

“First things first,” Anjali explains to the founders. “We need to ensure Mr. Kapoor is eligible to be appointed and that our Articles of Association permit nominee director appointments.“

This means checking:

Does he have an active Director Identification Number (DIN)?
Is he disqualified under Section 164 of the Companies Act?
Has he exceeded the maximum number of directorships allowed under Section 165? (20 total, with a maximum of 10 in public companies)
Are there any potential conflicts of interest?
Does our AoA explicitly authorise nominee director appointments?

“I have already confirmed that Article 12.3 of our AoA permits the appointment of nominee directors as per shareholder agreements,” Anjali notes. “If it hadn’t, we would have needed to amend the AoA through a special resolution under Section 14, which would have added weeks to our timeline.“

“I will send him our standard director questionnaire,” Anjali tells the team. “It covers all these points and gives us documentation we can rely on later if needed.” Click the link to see the standard director questionnaire sent by Anjali to Mr. Kapoor.

“Once we verify eligibility, we need his formal consent and declaration,” Anjali continues. “We need Form DIR-2, which is his consent to act as a director, and Form DIR-8, which is his declaration that he is not disqualified to act as a director.“

Form DIR-2 is a statutory form required under Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014. The nominee must:

Provide personal details
Declare their consent to act as a director
Confirm they meet the qualification requirements
Sign the form

Form DIR-8 is required under Rule 14(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014. In this form, the prospective director must:

Declare that they are not disqualified under Section 164(2) of the Companies Act.
Confirm they have not been debarred from holding a director position by SEBI or any other authority.
Sign the declaration.

“These forms are often overlooked or confused,” Anjali notes. “Companies sometimes collect only DIR-2 and forget about DIR-8, or use outdated forms, creating compliance issues later. We need both forms properly executed before proceeding with the appointment.“

With Ravi’s appointment, our board will expand to 5 directors: three executive directors who are also founders, one angel investor director, and one nominee director representing our institutional investor,*” Anjali explained to ensure everyone understood the new structure.

Step 3: Convene a Board Meeting

Next, we will need a formal board meeting to approve Ravi’s appointment,” Anjali explains.

The meeting process includes:

1. Send proper notice to all existing directors (minimum 7 days as per Section 173).

2. Prepare a detailed agenda specifying the proposed appointment.

3. Ensure quorum requirements are met.

4. Pass a resolution appointing the nominee director.

Rahul, expressing displeasure, said, “Seven days’ notice? That will push us dangerously close to our deadline.“

Anjali smiles. “Good catch. Fortunately, Section 173(3) allows shorter notice if at least one independent director is present, or if all directors agree to shorter notice in writing. Since we don’t have independent directors yet, we will need written consent from all three of you.“

Step 4: File form DIR-12 with the MCA

“The appointment is not complete until we file DIR-12,” Anjali emphasises. “This must be done within 30 days of the appointment.“

Form DIR-12 (Return of Appointment or Cessation of Directors) must be submitted to the Ministry of Corporate Affairs through the MCA portal. This requires:

Details of the newly appointed director
Attachments, including the director’s consent (DIR-2)
A certified copy of the board resolution
Digital signature of an authorised director or company secretary

Here is the instruction kit to help you file Form DIR-12 with the RoC.

“I assume you all have your Digital Signature Certificates active?” Anjali asks. “We will need the DSC of an authorised director or company secretary to file these forms.“

The three founders exchange glances.

“Mine expired last month,” Arjun admits. “I have been meaning to renew it.“

“Add that to our urgent list,” Anjali notes. “We need at least one active DSC from an authorised signatory to file these forms.“

Step 5: Update the register of directors and MBP-1 filing

Finally, we must update our Register of Directors and KMP as required under Section 170 and ask Mr. Kapoor to submit Form MBP-1 disclosing his interests in terms of Section 184(1) of the Companies Act,” Anjali concludes.

“MBP-1 is crucial as it requires every director to disclose their interests within 30 days of appointment, at the first board meeting they attend, and subsequently at the first board meeting in every financial year. This ensures transparency regarding any potential conflicts of interest that could affect board decisions.“

For details regarding the Register of Directors and KMP, refer to Rule 17 of Chapter XI of The Companies (Appointment and Qualifications of Directors) Rules, 2014, for complete information and details that must form part of the register.

“I have already prepared a new Register since our current one is… let us just say informal,” Anjali says tactfully, referring to the handwritten notebook the founders had been using.

The appointment in action: How LexNova navigated the process

With the process mapped out, LexNova begins the practical implementation.

Here is how the actual appointment unfolded:

Monday: Initial verification

Anjali sends the director a questionnaire to Ravi Kapoor and receives it back the same day. She immediately spots a potential issue.

“His DIN status shows as ‘Deactivated due to non-filing of DIR-3 KYC,’” she tells the founders. “We need this resolved before we can proceed.“

She contacts Ravi, who promises to file the necessary form immediately. This hiccup adds unexpected urgency to their timeline.

With his DIN reactivated, Ravi completes and returns Form DIR-2. Anjali drafts the board meeting notice and agenda, which includes:

Appointment of Ravi Kapoor as Nominee Director
Approval of the reporting structure for new hires
Update on Middle East expansion plans

All three founders provide written consent for the shorter notice period, allowing the meeting to be scheduled for Thursday.

Thursday: The board meeting

The meeting begins precisely at 10 AM, with all three founders physically present and Ravi joining via video conference— an option permitted under Section 173(2) of the Companies Act.

“I move that we appoint Mr. Ravi Kapoor as an additional Nominee Director of the company, pursuant to the nomination received from Indus Ventures under Clause 14.2 of the Shareholders’ Agreement dated April 15, 2023, thereby expanding our board composition,” Arjun states formally.

Meera seconds the motion, and the resolutions are passed unanimously. The appointment of Mr. Ravi Kapoor is recorded in the minutes, noting that it will be effective from today’s date.

Click here to see the notice of the board meeting and here to see the resolution passed in the board meeting.

Friday: Filing and formalities

With Arjun’s Digital Signature Certificate now renewed, Anjali prepares for Form DIR-12 filings. She attaches:

For Ravi’s appointment:

The certified board resolution for the appointment
Ravi’s DIR-2 and DIR-8 consent forms
A copy of the relevant extract of the Shareholders’ Agreement

The form is submitted by the afternoon, and Anjali receives acknowledgements by evening. She promptly updates the Register of Directors.

“And with that, we have completed the process within the timeline required by the Shareholders’ Agreement,” she announces to the relieved founders.

Practical exercise: Test your knowledge

Let us test your understanding with a practical scenario:

Scenario: LexNova decides to appoint a new external director, Ms. Priya Singh (a marketing expert), as an additional director until the next Annual General Meeting.

Questions:

What form does Priya need to complete to provide consent?
What key sections of the Companies Act govern this type of appointment?
What would the board resolution language need to specify differently from the nominee director appointment we covered?
What is the maximum time period for which Priya can hold office as an additional director?

(Find answers at the end of this article)

Common pitfalls and how to avoid them

Throughout this process, Anjali steered LexNova clear of several common pitfalls that often trip up growing companies:

“About 30% of the director appointments I have handled had DIN complications,” Anjali tells the team during their debrief. “Either expired, deactivated, or in one memorable case, completely fabricated.“

How to avoid:

Verify DIN status on the MCA portal before initiating the appointment process
If inactive, ensure reactivation before proceeding with board approval
Maintain a reminder system for annual DIR-3 KYC filing deadlines

Many companies collect informal email consent rather than the statutory DIR-2 form, creating compliance issues later.

How to avoid:

Always use the current version of DIR-2
Ensure all fields are completed correctly
Obtain a physical or digital signature (not just a typed name)

3. Resolution of language errors

Vague or incomplete board resolutions can create ambiguity about the nature and terms of appointment.

How to avoid:

Specify the exact category of directorship (Executive, Non-Executive, Independent, Nominee)
Reference relevant legal provisions and agreements
Include authorisation for filing the necessary forms

4. Filing Deadline Misses

The 30-day deadline for DIR-12 filing is frequently missed, resulting in penalties.

How to avoid:

Set up an automated compliance calendar with alerts
Process filing paperwork immediately after the board meeting
Have backup signatories with active DSCs

The Aftermath: Integrating the new director

Once the legal formalities were complete, LexNova faced a new challenge: effectively integrating their new board member. This is where legal requirements meet business reality.

“Just because someone is legally appointed does not mean they are operationally effective,” Meera observes during their first board meeting with both Vikram and Ravi present. “We need to bring Ravi up to speed on our business, strategies, and challenges, while ensuring our expanded five-member board functions effectively.”

Anjali had anticipated this need and prepared a comprehensive director onboarding package, including:

Company history and milestones
Current strategic initiatives
Financial statements for the past two years
Key legal agreements and commitments
Board procedures and calendar

“This is not just about compliance,” Anjali explains to the founders. “It is about creating functional governance. A well-informed director is more valuable than one who is just technically appointed.“

Ravi appreciated the thorough onboarding. “In six of my director roles, only two companies provided this level of preparation. It speaks well of your governance mindset.“

Looking beyond compliance: Strategic director appointments

As LexNova settled into its expanded board structure, Anjali encouraged the founders to think strategically about future appointments.

She advised, “Every director should bring specific value. With our current five-member board including three founders, Vikram’s angel investor perspective, and Ravi’s institutional investor representation, let us consider what expertise gaps still exist.“

This sparked a productive discussion about potential independent directors who could add industry connections, regulatory knowledge, or international expansion experience.

“I had not thought of board composition as a strategic asset before,” Arjun admitted. “I have been seeing it purely as a compliance requirement.“

“That is a common misconception,” Anjali replied.

“In my previous company, our most valuable business development channel came through a strategic board appointment—someone with deep industry connections who opened doors we could not have accessed otherwise.“

Compliance checklist: director appointment

For quick reference, here is a compliance checklist for appointing new directors:

The plot thickens: preview of what’s next

As Anjali was completing the director appointment process, an unexpected email arrived in her inbox:

“Subject: Notice of Resignation – Confidential

Dear Anjali,

After much consideration, I have decided to step down from my role as Director and COO of LexNova, effective next month. My family situation requires relocation to the US, making it impossible to continue in my current capacity.

Please advise on the formal process for my resignation and any transition requirements.

*Regards, *

Rahul Sharma”

Anjali leaned back in her chair, considering the implications.

Appointing a director was one thing,but managing a resignation, especially from a founder, would be much more complex, both legally and emotionally.

How should LexNova handle this resignation?

What are the legal requirements and business considerations?

What documentation will be needed?

We will explore these questions in our next article: “A Seat Empties: How LexNova Handles Resignations and Removals.“

Final thoughts

As I conclude this exploration of director appointments, remember these critical points:

Process matters: Director appointments require a specific sequence of verification, consent, resolution, filing, and record-keeping.
Documentation is crucial: From DIR-2 to board resolutions to register entries, each document must be properly prepared, executed, and preserved.
Timelines are strict: The 30-day filing window for DIR-12 is non-negotiable and carries penalties for non-compliance.
Strategic value exists beyond compliance: Board composition should be approached as a strategic asset, not merely a regulatory requirement.
Integration completes the process: Legal appointment is just the beginning—proper onboarding ensures director effectiveness.

In my next article, I will tackle the equally important but often more complicated process of director exits—whether through resignation, removal, or term completion.

Until then, remember what Anjali told LexNova’s founders: “Good governance is not just about who sits on your board—it is about how they get there, how they contribute, and how the entire process strengthens your company.“

Exercise answers:

Form DIR-2 (Consent to act as director)
Sections 152 and 161(1) of the Companies Act, 2013
The resolution would specify appointment as “Additional Director” rather than “Nominee Director” and would state that the term is “until the next Annual General Meeting”
Until the next Annual General Meeting (as per Section 161(1)). Important: The appointment must be regularised by shareholder approval at the AGM under Section 152 to continue as a regular director beyond that meeting.

How to appoint a nominee director in a company

Table of Contents

Introduction

The legal framework: what the Companies Act requires