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Committees Under Companies Act, 2013 And Securities Exchange Board of India (Listing Obligations and Disclosure Requirement) Regulations, 2015 (SEBI (LODR) Regulations, 2015)

Introduction:

Committees are usually formed as a means of improving board effectiveness and efficiency, in areas where more focused, specialized and technical discussions are required. These committees prepare the groundwork for decision making and report at the subsequent board meeting. Committees enable better management of full board’s time and allow in-depth scrutiny and focused attention. Members of the committee are expected to have expertise in the specified field.

Need for Committees:

(i). To strengthen the governance of the company and support the Board to achieve their strategic objective.

(ii).To improve Board effectiveness and efficiency.

(iii).To maximise the value of inputs received from Non-Executive directors, given that they have limited time.

The Companies Act, 2013 (“Act”) and Securities Exchange Board of India (Listing Obligations and Disclosure Requirement) Regulations, 2015 (“SEBI (LODR) Regulations”) has mandated certain committees to be formed for certain companies. The applicability, Constitution and details of meeting, are discussed in this article.

Mandatory Committees of the Board

Companies Act, 2013 SEBI (LODR) Regulations, 2015
Audit Committee Audit Committee
Nomination and Remuneration Committee Nomination and Remuneration Committee
Stakeholders Relationship Stakeholders Relationship
Corporate Social Responsibility Committee
Risk Management Committee

Mandatory Committees under Companies Act, 2013

COMMITTEES
SECTION 
APPLICABILITY
COMPOSITION
MEETING AND QUORUM  
Audit Committee
177
  • All listed Companies
  • Public Companies having a Paid-up share capital of 10 crore rupees or more, and a turnover of Rs. 100 Crore or more.
  • All Public Companies which have in aggregate outstanding loans, debentures and deposits exceeding 50 crore rupees are required to constitute an Audit Committee.
(Refer Rule 4 of The Companies
(Appointment and Qualifications of Directors) Rules, 2014
  • Minimum 3 Director
  • Majority director shall be independent
    –
Nomination and Remuneration Committee
178(1) to 178(4)
  • All listed Companies
  • Public Companies having a Paid-up share capital of 10 crore rupees or more, and a turnover of Rs. 100 Crore or more.
  • All Public Companies which have in aggregate outstanding loans, debentures and deposits exceeding 50 crore rupees are required to constitute an Audit Committee.
(Refer Rule 4 of The Companies
(Appointment and Qualifications of Directors) Rules, 2014
  • three or more non-executive directors
  • more than one half shall be independent
    –
The Stakeholders Relationship Committee
178(5) to 178(6)
  • Those Companies which is having more than 1000 shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year
  • Chairperson – Non executive director
    –
Corporate Social Responsibility Committee:
135
Every Company:
  • 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 5 crores or more
Provided that : Where the CSR Expenditure does not exceed Rs 50 lakhs the company need not form CSR Committee
  •  three or more directors
  • atleast one independent director
  • Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more director
  • a private company having only two directors on its Board shall constitute its CSR Committee with two such directors.
Law is silent w.r.t. number of CSR Committee meetings in a year. But as per Secretarial Standard 1 “Committees shall meet as often as necessary subject to the minimum number and frequency stipulated by the Board or as prescribed by any law or authority.”
Law is also silent W.r.t. quorum for the committee meeting. But as per Secretarial Standard 1 “The presence of all the members of any Committee (applicable to CSR Committee also) constituted by the Board is necessary to form the Quorum for Meetings of such Committee unless otherwise stipulated in the Act or any other law or the Articles or by the Board.

Mandatory Committees under SEBI LODR

COMMITTEES
REGULATION
APPLICABILITY
COMPOSITION
MEETING
QUORUM
Audit Committee
18
All listed Companies
  • Minimum 3 Director
  • atleast 2/3rd of Director shall be independent
  • in case of a listed entity having outstanding SR equity shares, the audit committee shall only comprise of independent directors
  • Chairperson – Shall be Independent Director
  • Chairperson shall be present in Annual  general meetings to answer queries of the shareholders.
  • Company Secretary – Secretary of Audit Committee
Minimum 4 times a year gap shall not exceed 120 days between the two meetings.
  • Minimum 2 members or 1/3rd of the members of Audit Committee whichever is greater
  • at least 2 Independent Directors .
Nomination and Remuneration committee
19
All listed Companies
  • Minimum 3 Directors
  • All Directors shall be Non-Executive
  • Atleast 50 % director shall be Independent
  • in case of a listed entity having outstanding SR equity shares, 2/3rd of the nomination and remuneration committee shall comprise of Independent directors]
  • Chairperson – Shall be Independent Director
Atleast 1 meeting in a year
  • Minimum 2 members or 1/3rd of the members whichever is greater,
  • at least 1 Independent Director
Stakeholders Relationship Committee.
20
All listed Companies
  • Minimum 3 Directors
  • Atleast 1 Director shall be Independent
  •  in case of a listed entity having outstanding SR equity shares, at least two thirds of the Stakeholders Relationship Committee shall comprise of Independent directors
  • Chairperson – Shall be Non – Executive Director
  • Chairperson shall be present in Annual  general meetings to answer queries of the security holders.
Atleast 1 meeting in a year
Not mentioned in LODR
Risk Management Committee.
21
Top 1000 listed entities based on the Market Cap as at immediate preceding financial year and
High debt value listed entity
  • The board of directors shall constitute a Risk Management Committee.
  • Minimum 3 Directors with majority of them being members of the board of directors
  • Atleast 1 Director shall be Independent
  • in case of a listed entity having outstanding SR equity shares, at least two thirds of the Risk Management Committee shall comprise independent directors
  • Chairperson – member of the BOD
Atleast 2 meeting in a year and gap shall not exceed 180 days between the two meetings.
Either two members or one third of the members of the committee, whichever is higher, including at least one member of the board of directors in attendance.

DISCLAIMER: The content has been prepared according to relevant provisions and information that exist at the time of preparation of this document. The Readers are requested to refer the relevant existing provisions of applicable Laws.

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