Committees are a sub-set of the board, deriving their authority from the powers delegated to them by the board.

Under Section 177 of Companies Act, 2013, Board of Directors may delegate certain matters to the committees set up for the purpose. Committees are formed as a means to improve board effectiveness and efficiency in areas where more focused, specialised and technically oriented discussions is required.

Following are some of the important committees to be constituted by the Board:

1. Audit Committee:

Applicability:

  • Every Listed Public Companies and Public Companies having a Paid-up share capital of 10 crore rupees or more, and a turnover of Rs. 100 Crore or more.
  • Additionally All Public Companies which have in aggregate outstanding loans, debentures and deposits exceeding 50 crore rupees are required to constitute an Audit Committee.

Composition of Audit Committee as per Companies Act, 2013:

  • Minimum 3 directors with majority of Independent Director.
  • Members including the Chairman of Audit Committee should be able to read and understand financial statement.

Composition of Audit Committee as per clause 49 of Listing Agreement:

  • Minimum of 3 Director of which 2/3rd are independent Directors.
  • All members should be financially literate and at least 1 member shall have accounting or related financial management expertise.

Vigil Mechanism:

Vigil Mechanism provides adequate safeguard against victimisation of persons. It is established for directors and employees to report their grievances and concerns.

Rule 7 of Companies (Meetings of Board and its Powers) Rules, 2014 describes about establishment of Vigil Mechanism for every Listed Company and companies prescribed below:

  • Companies which accepts deposits from public.
  • Companies which have borrowed money from bank and public financial institutions in excess of Rs.50 Crores.
  • The Board of Directors shall nominate a director to play role of Audit Committee for the purpose of Vigil Mechanism for reporting purpose. The aggrieved person will have direct access with the Chairperson/Nominated Director of the Audit Committee.
  • The details of establishment of such mechanism shall be disclosed on the company’s website, and in the Board ‘report.
  • Penalty for the Violation of Audit Committee Provisions:

The Company shall be punishable with a fine of Rs. 1 lakh to Rs. 5lakh and every officer of the company who is in default shall be punishable with imprisonment upto 1 year or with Rs. 25,000 to Rs. 1 lakh or with both.

  • Function of Audit Committee:
  • To recommend appointment, remuneration and terms of appointment of the Auditor of the Company.
  • To establish a Vigil Mechanism Policy.
  • To call for remarks of the auditors about the internal control system.
  • At the Annual General Meeting, the chairman of the Committee should be present to answer the shareholder’s inquiry.
  • To discuss any issues related to internal and statutory auditors and the management of the Company. 

2. Nomination and Remuneration Committee:

Applicability:

  • Every Listed Public Companies and Public Companies having a Paid-up share capital of 10 crore rupees or more, and a turnover of Rs. 100 Crore or more.
  • Additionally All Public Companies which have in aggregate outstanding loans, debentures and deposits exceeding 50 crore rupees are required to constitute an Audit Committee.

Composition of Nomination and Remuneration Committee as per Companies Act,2013:

  • Minimum of 3 Non-Executive Directors out of which two shall be Independent Directors.
  • Chairperson shall be an Independent director.

Functions of Nomination and Remuneration Committee:

  • Recommendation of success plans for the directors.
  • To review the elements of the remuneration package, structure of remuneration package.
  • To review the changes to remuneration package, terms of appointment, severance fee, requirement and termination policies and procedures.
  • To recommend the shortlisted candidates who are qualified to be director and who can be appointment in senior management.
  • The committee is authorised to seek information about any employee and the management is directed to co-operate.
  • The Committee can be present at the General Meeting to answer the shareholder’s queries.

3. Stakeholders Relationship Committee:

Section 178 of Companies Act,2013 states that a company which holds 1000 numbers of shareholders, debenture holders, deposit holders and any other security holders at any time during a financial year.

Composition of Stakeholders Relationship Committee:

  • As per the SEBI Listing regulations the Committee should consist of least three directors, with at least one being an Independent director, shall be members of the committee and in case of a listed entity having outstanding SR equity shares, at least two-thirds of the committee shall comprise of independent directors.
  • The chairperson of the Committee shall be a non-executive director and such other members as may be decided by the Board.

As per regulation the Committee shall meet at least once in a year. The chairperson or, in his absence any other member of the committee authorized by him in this behalf shall attend the general meetings of the Company.

Functions of Corporate Stakeholders Relationship Committee:

  • The Committee shall resolve complaints related to transfer/transmission of shares, non-receipt of annual report and non-receipt of declared dividends, general meetings, approve issue of new/ duplicate certificates and new certificate on split/consolidation/ renewal etc. approve transfer/transmission, dematerialization.

4. Corporate Social Responsibility Committee:

  • Section 135 of Companies Act,2013 , with Companies(CSR Policy) Rules,2014 states that every company having :
  • net worth of not less than Rs.500 crores or more
  • or turnover of not less than Rs. 1000 crores or more
  • Or Net Profit of Rs.5crore or more shall constitute a Corporate Social Responsibility Committee.

Composition of CSR Committee as per Companies Act, 2013 :

In case of Listed Company at least 3 Directors out of which 1 should be an Independent Director.

Functions of Corporate Social Responsibility Committee:

  • To suggest and devise a CSR Policy according to the Schedule VII of Companies Act, 2013 to the board.
  • To recommend the amount of expenditure of the devised policy above.
  • To monitor the CSR Policy of company from time to time and prepare a transparent monitoring mechanism.
  • Institution of a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

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. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.

Author- CS Aakansha Negi and can be contacted at csaakanshanegi@gmail.com

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