Nomination & Remuneration Committee and Stakeholders Relationship Committee u/s. 178 of Companies Act,2013

CS M. Kurthalanathan

Nomination and Remuneration Committee (NRC) and  Stakeholders Relationship Committee (SRC) under Sec.178 of the Companies Act,2013

Introduction: The Companies Act, 2013 and corresponding rule,  Companies (Meetings of Board and its Powers) Rules, 2014 has mandated the constitution of Nomination and Remuneration Committee and Stakeholders Relationship committee for certain classes of Companies, which was already recommendatory under clause49 of the Listing agreement.Applicability of NRC:

The Nomination and Remuneration Committee is applicable to the following classes of Companies

• Every listed Company
• Every other Public company-
  • Having Paid up capital of Rs.100 crores or more; or
  • Which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs.50 Crores. 
    

The paid up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposes of this rule.

Constitution of the Board:

The above mentioned classes of companies shall constitute the Nomination and Remuneration Committee consisting of –

3 or more NEDs out of which not less than one half shall be IDs.

The chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.

Responsibilities of NRC:

The Nomination and Remuneration Committee shall-

• Identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down,
• Recommend to the Board their appointment and removal,
• Carry out evaluation of every director’s performance.
• Formulate the criteria for determining  qualifications, positive attributes and independence of a director and
• Recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

Formulation of NRC policy:

The Nomination and Remuneration Committee shall ensure that—

(a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;

(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and

(c) remuneration to directors, KMPs 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 goals:

The policy shall be disclosed in the Board’s report.

Stakeholders Relationship Committee(SRC):

 The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board.

The SRC shall consider and resolve the grievances of security holders of the company.

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.

Penalty:

 The non-consideration of resolution of any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of this section.

 ‘‘senior management’’ means personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive directors, including the functional heads.

Companies Act,1956/Listing Agreement Vs Companies Act,2013:

 Action Points:

1.For Listed Companies:
The name referred in the listing agreement & the Companies Act is different. The Listing agreement mentions it as “Remuneration Committee” while the Act refers it as “Nomination & Remuneration Committee”. It is hoped that as the concerned section is notified, listing Agreement will also be suitably amended and listing agreement also will refer the same name. Thereafter, the existing listed Companies can rename their committee as  “Nomination & Remuneration Committee

2. For other Public Companies

They need to constitute both the Committees.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts has made to provide authentic information, it is suggested that to have better understanding kindly  cross-check  the relevant Sections, rules under the Companies Act,2013.