The Boards of Central Public Sector Enterprises (CPSEs) comprises of functional, government and non-official Directors. The composition of Boards includes the Government Directors who are nominated from the concerned Administrative Ministry or other concerned Government agencies/Ministries/State Governments. It has also been provided that the choice of the Nominee Director would vest with the administrative Ministry.

Section 52 (2) of the Companies Act, 2013 requires that appointment of directors shall be made in the general meeting and is applicable to all the companies. Further, Section 178 (2), (3) and (4) of the Companies Act, 2013 provides for the role of Nomination and Remuneration Committee in identifying persons who are qualified to become directors in accordance with laid down criteria, recommending to the Board appointment of Directors, formulating the criteria for determining qualifications, positive attributes and independence of a Director. However, these provisions are not applicable to Government companies as prescribed vide Ministry of Corporate Affairs notification dated 5th June, 2015.

A non-executive director including a nominee director 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.

This was stated by Shri Arun Jaitley, Minister of Corporate Affairs in written reply to a question in the Rajya Sabha yesterday.

Nominee director appointment: administrative ministries nominate directors while corporate committee requirements may not apply to government companies. Board composition of central public sector enterprises includes government nominees chosen by the administrative Ministry. While company law contemplates appointments at general meetings and the Nomination and Remuneration Committee's role in selecting and setting criteria for directors, those committee provisions are not applicable to government companies by administrative exemption. A non executive, including a nominee director, is liable only for omissions or commissions occurring with the director's knowledge attributable through Board processes, with consent or connivance, or for failure to act diligently.