Under Section 177 of the Companies Act, 2013, the Board of Directors can delegate specific matters to committees established for this purpose. These committees are created to enhance the effectiveness and efficiency of the board, particularly in areas that require more focused, specialized, and technical discussions.
Following are some of the important committees to be constituted by the Board:
Audit Committee:
- Applicability:
All listed public companies, as well as public companies with a paid-up share capital of 10 crore rupees or more and a turnover of 100 crore rupees or more, must establish an Audit Committee. Additionally, any public company with total outstanding loans, debentures, and deposits exceeding 50 crore rupees is also required to form an Audit Committee.
- Composition:
The Audit Committee must have a minimum of three directors, with a majority of them being independent directors. Additionally, all members, including the Chairman, should possess the ability to read and comprehend financial statements.
Vigil Mechanism:
The Vigil Mechanism offers sufficient protection against victimization for individuals. It is designed for directors and employees to report their grievances and concerns.
Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 outlines the requirement for establishing a Vigil Mechanism for every listed company and for the companies specified below:
- Companies accepting deposits from the public.
- Companies that have borrowed over Rs. 50 crores from banks and public financial institutions.
- The Board of Directors will appoint a director to act as the Audit Committee for the Vigil Mechanism reporting process.
- Aggrieved individuals will have direct access to the Chairperson or the nominated director of the Audit Committee.
- Details of the established Vigil Mechanism will be disclosed on the company's website and in the Board report.
Penalty:
The company may face a fine ranging from Rs.1 lakh to Rs.5 lakh, and any officer of the company who is at fault could be subject to imprisonment for up to 1 year, a fine of Rs. 25,000 to Rs.1 lakh, or both.
Function of Audit Committee:
- Recommend the appointment, remuneration, and terms of the Auditor of the Company.
- Establish a Vigil Mechanism Policy.
- Obtain feedback from auditors regarding the internal control system.
- Ensure the Committee Chairman is present at the Annual General Meeting to address shareholders' inquiries.
- Discuss any matters related to internal and statutory auditors, as well as company management.
- Nomination and Remuneration Committee:
Applicability:
- All listed public companies are required to constitute an Audit Committee.
- Public companies with a paid-up share capital of 10 crore rupees or more must also establish an Audit Committee.
- Companies with a turnover of 100 crore rupees or more are required to have an Audit Committee.
- Any public company with total outstanding loans, debentures, and deposits exceeding 50 crore rupees must form an Audit Committee.
Composition:
- The Audit Committee must have a minimum of three non-executive directors.
- Out of these, at least two must be independent directors.
- The Chairperson of the Audit Committee shall be an independent director.
Functions:
- Recommend succession plans for directors.
- Review the components and structure of the remuneration package.
- Assess any changes to the remuneration package, terms of appointment, severance fees, and termination policies and procedures.
- Recommend shortlisted candidates qualified for directorship and senior management positions.
- The committee is authorized to request information about any employee, with management required to cooperate.
- The committee may attend the General Meeting to address shareholders' questions.
- Stakeholders Relationship Committee:
Section 178 of the Companies Act, 2013 specifies that a company with 1,000 shareholders, debenture holders, deposit holders, or any other security holders at any point during a financial year is subject to this provision.
Composition:
- The Committee must consist of at least three directors, including at least one independent director.
- For listed entities with outstanding SR equity shares, at least two-thirds of the committee must be independent directors.
- The Chairperson of the Committee must be a non-executive director, along with other members as decided by the Board.
- The Committee is required to meet at least once a year.
- The Chairperson, or an authorized member in their absence, should attend the company’s general meetings.
Functions:
- The Committee will address complaints regarding the transfer or transmission of shares.
- It will handle issues related to the non-receipt of annual reports and declared dividends.
- The Committee is responsible for matters concerning general meetings.
- It will approve the issuance of new or duplicate share certificates, as well as new certificates for split, consolidation, or renewal.
- The Committee will also approve transfers, transmissions, and dematerialization of shares.
- Corporate Social Responsibility Committee:
- Section 135 of the Companies Act, 2013, along with the Companies (CSR Policy) Rules, 2014, mandates the establishment of a Corporate Social Responsibility (CSR) Committee.
- A company must form this committee if it meets any of the following criteria:
- Has a net worth of Rs.500 crores or more.
- Has a turnover of Rs.1,000 crores or more.
- Has a net profit of Rs.5 crores or more.
Composition:
For a listed company, there must be at least three directors, including one independent director.
Functions:
- Suggest and develop a CSR Policy in accordance with Schedule VII of the Companies Act, 2013 for the board's approval.
- Recommend the expenditure amount for the proposed CSR policy.
- Monitor the company’s CSR Policy periodically and create a transparent monitoring mechanism.
- Establish a clear monitoring process for the implementation of CSR projects, programs, or activities undertaken by the company
Conclusion:
The committee's role is pivotal in ensuring compliance with the Companies Act, which mandates specific guidelines for formation and operational conduct. By adhering to these regulations, the committee not only fulfills its statutory obligations but also upholds transparency and accountability within the organization. Effective formation procedures and diligent compliance measures are essential to maintaining legal and ethical standards, thereby safeguarding the interests of stakeholders and promoting sustainable corporate governance practices.
