BOARD COMMITTEES IN COMPANIES ACT 2013

UPDATE: on 30^th August 2013: Companies Bill 2012 became the Companies Act, 2013 (Act 18 of 2013).

Delegation of Power is buzz word in this Companies Bill 2012. This delegation is not only from legislature to Executive but also from Board of Directors to its committees. Committees are not new to Indian Corporate Jurisprudence. Audit Committee was introduced in the present Companies Act, 1956 twelve years ago in year 2000. Schedule XII also has Remuneration committee.

In present Companies Bill 2013, there are specific provisions related to Committees. Now, following committees has statutory mandate:

1. Social Responsibility Committee
2. Audit Committee
3. Nomination and Remuneration Committee, and
4. Stakeholders Relationship Committee.

There is no need to mention that Market regulators may mandate some other committees as per their specific need.

Here, we will study provisions of the Companies Bill 2013 which still has 3 Parliamentary sessions for present Government.

SOCIAL RESPONSIBILITY COMMITTEE (SECTION 135):

Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

This Section applies to all companies including Private Companies and One Person Companies satisfying given criteria. This section is among very few sections of this Bill where nothing has been left for delegate legislation and form complete code with Schedule VII.

The Committee shall consist of three or more Directors including one independent Director. This Section requires appointment of Independent Director for private and one person companies where this section applies. Composition of this Committee shall be disclosed in Board Report.

Function of CSR Committee (Section 135, Sub – Section 3):

The committee shall do following functions:

1. Formulate CSR Policy,
2. Recommend expenditure,
3. Monitor CSR Policy.

NOMINATION AND REMUNERATION COMMITTEE (SECTION 178, SUB – SECTION 1)

Every Listed Company and some other companies shall constitute Nomination and Remuneration Committee consisting of three or more non – executive Directors with majority of independent directors. Chairperson of the company may be a member of this committee irrespective of whether he is executive director or non – executive director.

Function of NR Committee (Section 178, Sub – section 2, 3 and 4)

The committee shall do following functions:

1. Identify person for directorship and top management, attract retain and motivate directors;
2. Evaluation of director performance, appropriate performance benchmarks;
3. Determine criteria: Qualification, positive attribute and independence;
4. Policy for remuneration of Directors, Key managerial personnel and employees
5. Balance between fixed and incentive pay, short and long term policy objectives

This policy shall be disclosed in Board’s report.

The chairperson or any other authorized member of committee shall attend General Meeting.

STAKEHOLDERS RELATIONSHIP COMMITTEE (SECTION 178, SUB – SECTION 5):

If company has more than one thousand stakeholders, which is a small figure, at any time during a financial year shall have a Stakeholders Relationship Committee (SRC). Here, stakeholders mean shareholders, debentures – holders, deposit – holders and any other security holders. The chairperson of the committee shall be a non – executive director. I may have any number of members. Only a chairperson and a member may satisfy the condition.

The committee shall consider and resolve grievances of securities holders.

The chairperson or any other authorized member of committee shall attend General Meeting.

AUDIT COMMITTEE (SECTION 177):

May I say this most empower committee of board.

Board of Directors of all listed companies and some other companies shall constitute an Audit Committee. Committee shall consist of least three directors with majority of independent directors. Majority of directors including chairperson of this committee should be able to read and understand financial statement.

Terms of reference (Section 177, Sub – section 4 and 6):

The terms of reference shall be decided by the Board of Directors. This sub – section has an inclusive list of terms of reference:

(i)           the recommendation for appointment, remuneration and terms of appointment of auditors of the company;

(ii)          review and monitor the auditor’s independence and performance, and effectiveness of audit process;

(iii)         examination of the financial statement and the auditors’ report thereon;

(iv)         approval or any subsequent modification of transactions of the company with related parties;

(v)          scrutiny of inter-corporate loans and investments;

(vi)         valuation of undertakings or assets of the company, wherever it is necessary;

(vii)        evaluation of internal financial controls and risk management systems; and

(viii)       monitoring the end use of funds raised through public offers and related matters.

The Audit Committee may investigate any matter in relation to these items, seek external professional advice and have full access to records of company.

Audit Supervisory (Section 177, Sub – section 5, 7 and 8):

The Audit Committee may call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board and may also discuss any related issues with the internal and statutory auditors and the management of the company.

The auditors of a company and the key managerial personnel shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor’s report but shall not have the right to vote.

The Board’s report shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed along with the reasons.

Vigil Mechanism (Section 177, Sub – section 9 and 10):

Every listed company or such other companies shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed.

The vigil mechanism shall provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in proper or exceptional cases. The details of establishment of such mechanism shall be disclosed by the company on its website and in the Board’s report.

OTHER RELEVANT PROVISIONS (IN BRIEF):

Section 92 (1) (f): Annual Return shall contain details of meetings of Committees of the Board and its attendees.

Section 118: Every company shall cause minutes of the proceedings of every committee of the Board, to be prepared and signed and kept within thirty days of the conclusion of every such meeting concerned in books kept for that purpose with their pages consecutively numbered. Name of Directors Present in meeting and name of directors dissenting or not concurring with resolution passed in meeting shall also be recorded.

Section 175: a Committee may pass resolution by circulation also.

Section 179: Board may, by a resolution passed at a meeting, delegate some powers to any committee of directors.

Please note: this blog post is not a professional advice but general information about the subject covered here. I welcome your comments and feedback.