Article explains Composition of Audit Committee, Nomination and Remuneration Committee, Stakeholder Relationship Committee, Corporate Social Responsibility Committee and Risk Management Committee under Companies Act, 2013 and SEBI (LODR) Regulations, 2015 with relevant Terms and Conditions.
| Committees | Composition | Independent Directors | Chairperson | Others |
| Audit Committee | Minimum 3 Directors as members | 2/3rd should be Independent Directors or Majority of the members should be Independent Director | Chairperson of the Audit Committee will be Independent Director | The Chairperson and other members must have ability to read and understand Financial Statements |
| Nomination and Remuneration Committee | Minimum 3 Directors all are Non-Executive | Half of the members should be Independent Directors | Chairperson of the NRC will be Independent Director | Chairperson of the Company(Executive or Non-executive) can be appointed as member of the Committee but cannot chair the committee |
| Stakeholder Relationship Committee | As decided by the Board of Directors | – | Chairperson of the SRC will be Non-Executive Director | |
| Corporate Social Responsibility Committee | Minimum 3 Directors as members | At least 1 should be Independent Director | Any member of the committee can become the chairman of the CSR Committee | |
| Risk Management Committee | Members of the Board and Senior executives of the listed entity can be members | – | Chairperson shall be a member of the Board | Majority of the members must be from the Board |
Example:
Let us assume a practical scenario wherein XYZ Limited, a public listed Company incorporated under Companies Act, 2013 has below composition of committees:
| Name | Category | Nature | Manag-ement | Audit Committee | Nomination and Remun-eration Committee | Stakeholder Relationship Committee | |
| 1. | Mr. A | Promoter Director | Executive | Chairman | Member | — | Chairperson |
| 2. | Mr. B | Promoter
Director |
Non -Executive | Member | — | — | Member |
| 3. | Mr. C | Independent Director | Non -Executive | — | Member | Chairperson | — |
| 4. | Mrs. D | Independent Director | Non -Executive | Member | Chairperson | Member | — |
Observations:
AUDIT COMMITTEE:
- Minimum 3 Directors
- Majority are Independent Director or 2/3rd are Independent Director
- Independent Director is the Chairperson
Therefore, XYZ Limited has complied with the composition of Audit Committee, as per Section – 177 of Companies Act, 2013 and Regulation 18 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
NOMINATION AND REMUNERATION COMMITTEE:
- The committee should consist of minimum 3 directors, but there are only two directors
- ½ of the members should be Independent Director
- Independent Director is the Chairperson
Therefore, XYZ Limited has not complied with Section – 178 of Companies Act, 2013 and Regulation 19 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Solution: Mr. A, Chairperson of the Company, can be appointed as a member of the Nomination and Remuneration Committee
STAKEHOLDER RELATIONSHIP COMMITTEE:
- The Committee should consist of such number members as decided by board
- It is not Mandatory to have an Independent Director in the Committee
- The Chairperson Shall be Non-Executive
Therefore, XYZ Limited has not complied with the provisions of section – 178(5) of Companies Act, 2013 and Regulation 20 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Solution: Since Mr. A is an Executive Director, he cannot act as chairman of this Committee. A Non-Executive Director should be appointed as the Chairman.
RISK MANAGEMENT COMMITTEE:
- Majority members are the members of the Board
- Chairperson shall be a member of the Board
Therefore, XYZ Limited has complied with the Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
CSR COMMITTEE:
- Minimum 3 Directors
- At least 1(one) Independent Director shall be a member
- Any member of the Committee can become the Chairperson
The Company has to constitute a CSR committee.
Solution: The Company can take the same Composition as that of Risk Management Committee since all the above are complied with in the composition of Risk Management Committee.
Author: Bhagath Chandra Reddy is Associate at M&K Associates and can be reached at mail@mnklaws.com
Disclaimer: The views, information or opinions expressed herein are compiled by the Legal team of M&K Associates, Company Secretaries, Hyderabad. The above information is solely for disseminating knowledge and private circulation. We are hereby not liable for any loss, damage or inconvenience caused as a result of reliance on such information and we accept no legal liability or other responsibility by or on behalf of any errors, omissions, or statements on this content.
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