A company is run under the directions of its management more specifically Board of Directors.  The Board decides number of deliberations; executions which will impact a company in long run and also decide the future also.

The Board committees consisting of both executive and non-executive directors established to advise, review, and approve management strategic plans, decisions, and actions in managing the company. In charge of developing and monitoring principles, establishing agenda.

In order to put a clean bifurcation while taking important decisions , various statutory bodies have helped and enacted many provisions which mandated a company to establish various committees with different functions performance as well as their evaluation also, instances are:-

  • Audit Committee
  • Nomination and Remuneration committee
  • Stakeholder and relationship committee and others

Let us go through them in thorough for better understanding accordingly more better corporate governance.  I will divide them in three (3) major parts for more clear understanding of readers, and then will explore each part individually i.e.

1) Under The Companies Act, 2013

2) Under Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

3) Under guidelines prescribed by Reserve Bank of India Act, 1934.

1) Board committees Under The Companies Act, 2013 read with applicable rules made there under;

a) Audit Committee: An audit committee is a committee of an company’s Board of Directors which is responsible for oversight of the financial reporting process, selection of the independent auditor, and receipt of audit results both internal and external.

It is applicable to all listed public company or Public Companies having paid up share capital of ten crore rupees or more or Public Companies having turnover of one hundred crore rupees or more or Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees.

(one can opine that audit committee establishment provision are applicable to private companies)

Shall have minimum of three (3) directors with independent directors forming a majority.

b) Nomination and Remuneration Committee: The purpose of the Nomination and Remuneration Committee is to assist the Board in. ensuring that the Board and Executive Committee retain an appropriate structure, size and balance of skills to support the strategic objectives and values of the company.

It is applicable to all listed public company or Public Companies having paid up share capital of ten crore rupees or more or Public Companies having turnover of one hundred crore rupees or more or Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees.

(one can opine that audit committee establishment provision are applicable to private companies)

  • Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors
  • 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.

c) Stakeholders Relationship Committee: It is a Committee established to register complaints, grievances of all stakeholder and there redressal on time.

  • A company having more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year.
  • It shall consist of a chairperson who shall be a non-executive director and such other members as may be decided by the Board.

Penal Provision:-  The company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.

2) Board committees Under Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

a) Audit Committee: 

  • Audit committee shall have minimum three directors as members.
  • Two-thirds of the members of audit committee shall be independent  director.
  • All  members  of  audit  committee  shall  be  financially  literate  and  at  least  one  member shall have accounting or related financial management expertise
  • The  chairperson  of  the  audit  committee  shall  be  an  independent  director  and  he  shall be present at Annual general meeting to answer shareholder queries.

b) Nomination and remuneration committee:

  • The committee shall comprise of atleast three directors
  • All directors  of the committee shall be non-executive directors
  • Atleast fifty percent of the directors shall be independent director.
  • The Chairperson of the nomination and remuneration committee shall be an independent director

c) Stakeholders Relationship Committee:

  • The chairperson of this committee shall be a non -executive director
  • At  least  three  directors,  with  at  least  one  being  an  independent  director,  shall  be members  of  the  Committee
  • The stakeholders relationship committee shall meet at least once in a year.

d) Risk Management Committee

  • The  majority  of  members  of  Risk Management  Committee  shall  consist of  members  of  the  board  of  directors
  • The Chairperson of the Risk management committee shall be a member of the board of directors and senior executives of the listed entity may be members of the committee.
  • The risk management committee shall meet at least once in a year.
  • The  provisions  of  this  regulation  shall  be  applicable  to  top [500]  listed entities Determined on the basis of market capitalisation, as at the end of the immediate previous financial year.

Penal Provision:-  The company shall be punishable with fine of INR 2000/- per day on non compliance separately on each of above said committee.

3) Board committees Under guidelines prescribed by Reserve Bank of India Act, 1934:

The below given committee are applicable to every non-deposit accepting Non-Banking Financial Company with asset size of Rs.500 crore and above (NBFCs-ND-SI), as per its last audited balance sheet, and all deposit accepting Non-Banking Financial Companies (NBFCs-D).

a) Audit Committee:

  • Shall consisting of not less than three members of its Board of Directors and provisions of section of 177 of Companies Act, 2013 are mutatis mutandis are applicable.
  • The Audit Committee must ensure that an Information System Audit of the internal systems and processes is conducted at least once in two years to assess operational risks faced by the NBFCs.

b) Nomination Committee:

  • Nomination Committee to ensure ‘fit and proper’ status of proposed/ existing directors as prescribed under RBI Master Circular.
  • The Nomination Committee constituted under this paragraph shall have the same powers, functions and duties as laid down in Section 178 of the Companies Act, 2013.

c) Risk Management Committee:

  • The Committee will assist the Board of Directors in fulfilling its oversight responsibilities with regard to the risk appetite of the Corporation and the risk management and compliance framework and the governance structure that supports it. Risk appetite is defined as the level and type of risk a firm is able and willing to assume in its exposures and business activities, given its business objectives and obligations to stakeholders.

d) Asset Liability Management Committee:

  • An asset-liability management committee, also known as surplus management, is a supervisory group a company employs for coordinating the management of assets and liabilities with a goal of earning adequate returns.

Penal Provision:- There is no specific  penalty or fine is prescribed by Reserve Bank of India for non observance of above circular. However, Reserve Bank of India has power to initiate any kind of action of Company or its Directors as per its discretion. In some instances, Reserve Bank of India can even cancel the NBFC registration of a company.

Disclaimer: The above article is bird view of provisions of Committees mandated under The Companies Act, 2013, Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Master Circular by Reserve Bank of India including all the latest amendment//(s), substitution, insertion upto the date of 16th December, 2019. There are other important aspects which the readers are required to go through full provision once, before coming to conclusion. Any further amendments in provision may lead to change in its interpretation accordingly. The author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

(The Author is Corporate Consultant and provides varied array of services including Start-ups, Secretarial, Legal, Intellectual property, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can be contacted through email id:- triptishakyacs2017@gmail.com)

Author Bio

Qualification: CS
Company: Proventure- Aiding your Business
Location: NEW DELHI, New Delhi, IN
Member Since: 06 Jul 2019 | Total Posts: 26
I am Company Secretary and engaged with this profession from last nine (9) years. Throughout this journey, my moto is to help people start their startups and business. View Full Profile

My Published Posts

More Under Custom Duty

Leave a Comment

Your email address will not be published. Required fields are marked *