Committees of Board of Directors are usually formed for the following reasons:

1. Improving Board Effectiveness and efficiency.

2. To provide specialized, technical advice.

3. To allow depth scrutiny of the affairs of the Company.

4. Provide groundwork for decision making

A. Audit Committee As Per Section 177 Of  Companies Act, 2013

1. Establishment of the Audit Committee

The requirement of Audit Committee as per sub section (1) of section (177) of the Companies Act, 2013  has been limited to

1. Every Listed Public Company.

2. The Following Class of Companies

  • All public companies with a paid up share capital of Rs. 10/- crores   or more; or.
  • All public companies having turnover of Rs. 100/- crore or more; or
  • All public companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding Rs. 50/- crore

Note:  The paid up share capital ,turnover , outstanding loans, debentures and deposits, as the case may be as existing on the date of last audited financial statements shall be taken into record.

2. Composition of Audit Committee

Sub section (2) of section (177) of the Companies Act, 2013 deals with the composition of Audit Committee

1. The Audit Committee shall comprise of minimum of 3 directors, with majority of the Directors being Independent Directors.

2. Majority of members of Audit Committee including its chairperson hall be person with ability to read and understand the financial statement.

Note:  Every Audit Committee of a company existing immediately before the commencement of this Act shall, within one year of such commencement, be reconstituted in accordance with sub-section (2).

3. Functions of Audit Committee

Sub section (4) of section 177 of Companies Act, 2013 deals with the function of Audit Committee.The terms of reference of the Audit Committee inter alia includes

1. Recommendation for appointment, remuneration and terms of appointment of auditors of the company.

2. review and monitor the auditor’s independence and performance, and effectiveness of audit process.

3. examination of the financial statement and the auditors’ report thereon.

4. approval or any subsequent modification of transactions of the company with related parties.

5. scrutiny of inter-corporate loans and investments.

6. valuation of undertakings or assets of the company, wherever it is necessary;

7. evaluation of internal financial controls and risk management systems;

8. monitoring the end use of funds raised through public offers and related matters.

4. Scope of Audit Committee

1. Sub section (5) of section 177 of Companies Act, 2013 states

  • Audit Committee may the call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statements before their submission to the Board.
  • Discussing the related issues with the internal, statutory auditors and the management of the Company.

2. Sub section (6) of section 177 of Companies Act, 2013 states

  • Audit Committee has the authority to investigate into matters referred by Board.
  • To obtain professional advice from external sources.
  • Having full access to the records of the Company.

3. Sub section (7) of section 177 of Companies Act, 2013 states

In addition to the auditor, the KMP shall also have a right to be heard in the meetings of the Audit Committee when it considers the auditor report, though they shall not have voting rights.

The Board’s report of the Company shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons for not accepting the recommendation.

B. Vigil Mechanism

Section 177(9) of the Companies Act 2013 read with Rule 7 of Companies (Meetings of Board and its powers) Rules 2014 requires establishment of vigil mechanism for their directors and employees to report genuine concerns about unethical behavior/ misconduct/actual or suspended fraud/violation of code of conduct.

1. Applicability of Vigil Mechanism:

1. Every Listed Company and

2. The  Companies which accept deposits from the public;

3. The Companies which have borrowed money from banks and public financial institutions in excess of Rs. 50/- crore.

2. Operation of Vigil Mechanism

1. The Audit Committee to oversee the operation of the mechanism

2. For Companies that do not need an audit committee, a director to be nominated by the Board to oversee the mechanism.

3. Audit Committee member to recue if conflicted: if a member of Audit Committee is conflicted in a given case, he should rescue  himself.

3. Scope of Vigil Mechanism:

1. Safeguard against victimization –The Mechanism provides for adequate victimization  of employees and directors , providing direct access to the Chairperson of Audit Committee or the Director nominated to play role of audit committee.

2. Frivolous complaints-Audit Committee or the directors to take suitable action (including reprimand)against repeated frivolous complaints.

Note: Details of establishment of the Vigil Mechanism is required to be discussed by the Company on its website, if any and in the Board Report.

C. NOMINATION AND REMUNERATION COMMITTEE

(AS PER SECTION 178 OF THE COMPANIES ACT, 2013)

Sub section (1) of section (178) of the Companies Act, 2013 deals with the Establishment of Nomination and Remuneration Committee.

The Board of Directors of the following companies shall constitute Nomination and Remuneration Committee.

1. Every Listed Public Company.

2. The Following Class of Companies

  • All public companies with a paid up share capital of Rs. 10/- crores   or more; or.
  • All public companies having turnover of Rs. 100/- crore or more; or
  • All public companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding Rs. 50/- crore.

Note:  The paid up share capital ,turnover , outstanding loans, debentures and deposits, as the case may be as existing on the date of last audited financial statements shall be taken into record.

1. Composition of Nomination and Remuneration Committee

1. Three or more non-executive directors out of which not less than one half shall be independent directors.

2. The Chairperson of the Company may be appointed as a member of the committee, but shall not chair such committee.

2. Functions of Nomination and Remuneration Committee

1. To assist Board in ensuring that Board retains an appropriate structure, size, skills to support the objectives of the Company.

2. Enabling recruitment, motivation, retention of the managerial personnel, assisting the Board by reviewing and making recommendations in respect of the remuneration policies and framework for the staff.

3. Identifying the person who is qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down.

4. Recommending the Board, the policy relating to remuneration for Directors, KMPS and other employees taking into account their performance.

5. Formulation of criteria for evaluation of Independent Directors, considering and making recommendation regarding potential .independent non- executive director.

6. Handling matters that relate to the terms and conditions of employment, remuneration payable to managerial personnel and their removal.

7. Specifying the manner for effective evaluation of performance of the Board,  its committees  and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance.

8. Formulating the criteria for determining qualifications, positive attributes and independence of a Director.

9. Devising a policy on Board diversity.

3. Criteria for formulating Policy

1. Remuneration should be reasonable and sufficient for attracting, retaining and motivating Directors so that the Company may run efficiently.

2. Relationship of Remuneration to performance is clear and meets appropriate performance benchmarks;

3. Remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goal.

Note: The Policy  should be placed on the website of the Company, and in the Board Report along with detail of web address of the policy.

D. Stakeholders Relationship Committee

(AS PER SECTION 178(5) TO (8) OF THE COMPANIES ACT, 2013)

Sub Section (5) of section 178 of the Companies act, 2013 provides for constitution of the Stakeholders Relationship Committee.

1. Criteria for formation of Stakeholders Relationship Committee

The Board of a Company which has more than 1000 shareholders, debenture holders, deposit holders and any other security holders at any time during a financial year is required to constitute a Stakeholders Relationship Committee.

2. Composition of Stakeholders Relationship Committee

1. Chairperson of the Committee shall be non executive director.

2. The Board of Directors shall decide the other members of this committee.

The chairperson of each of the committees constituted under this section or, in his absence, any other member of the committee authorised by him in this behalf shall attend the general meetings of the company.

3. Role of Stakeholders Relationship Committee

1. To specifically looking into mechanism of redressal of grievances of shareholders, debenture holders and other security holders of the Company

2. To monitor, review any investor complaints and ensuring timely and speedy resolution to it.

3. The Company shall monitor and review on annual basis the Company performance in dealing with Stakeholders grievances.

4. The Committee shall have access to any internal information necessary to fulfill its role.

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