COMMITTEES AND VIGIL MECHANISM


We have discussed Committees under the Companies Act 2013 earlier here.

Following committees has statutory mandate:

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

The requirement related to Social Responsibility committees is given in Section 135 and the Companies (Corporate Social Responsibility Policy) Rules 2014. Section 178(5) requires every company with more than one thousand shareholders to have stakeholders’ relationship committee. Rule 6 of the Companies (Meeting of Boards and its powers) Rules 2014 set threshold limits.  The Board of directors of every listed company and the following classes of companies shall constitute an Audit Committee and a Nomination and Remuneration Committee of the Board-

  1. all public companies with a paid up capital of ten crore rupees or more;
  2. all public companies having turnover of one hundred crore rupees or more;
  3. all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding fifty crore rupees or more.

The paid up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposesof this rule.

According to the proviso inserted by the Companies (Meeting of Boards and its powers) Amendment Rules 2014, Public companies coming under these this rule shall constitute committees within one year from the commencement of these rules or (on) appointment of independent directors, whichever is earlier.

Vigil Mechanism:

Section 177 of the Companies Act, 2013 introduces vigil mechanism to Indian corporate law.

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. [Section 177(9)]

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. [Section 177(10)]

Even if the provision of vigil mechanism is part of section related to audit committee, this is completely independent of requirement of audit committee. Even in the companies where audit committee is not mandatory, vigil mechanism may be prescribed by the Government.

Rule 7 of the Companies (Meeting of Boards and its powers) Rules 2014 explain provisions for establishment of vigil mechanism.

Every listed company and the companies belonging to the following class or classes shall establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances-

  1. the Companies which accept deposits from the public;
  2. the Companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees. [Rule 7(1)]

The companies which are required to constitute an audit committee shall oversee the vigil mechanism through the committee and if any of the members of the committee have a conflict of interest in a given case, they should recuse themselves and the others on the committee would deal with the matter on hand. [Rule 7(2)]

In case of other companies, the Board of directors shall nominate a director to play the role of audit committee for the purpose of vigil mechanism to whom other directors and employees may report their concerns. [Rule 7(3)] As this Director is entrusted with particular duty, Form GNL – 3 should be filed.

The vigil mechanism shall provide for adequate safeguards against victimisation of employees and directors who avail of the vigil mechanism and also provide for direct access to the Chairperson of the Audit Committee or the director nominated to play the role of Audit Committee, as the case may be, in exceptional cases. [Rule 7(4)]

In case of repeated frivolous complaints being filed by a director or an employee, the audit committee or the director nominated to play the role of audit committee may take suitable action against the concerned director or employee including reprimand. [Rule 7(5)]

Please note: This blog post is not a professional advice. I welcome your comments and feedback. Readers may share this post on social media by using buttons given here.

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3 responses to “COMMITTEES AND VIGIL MECHANISM

  1. Pingback: Amendments related to Board matters | AishMGhrana

  2. Pingback: Index of Companies Law Posts | AishMGhrana

  3. Can you plz suggest who will be the Vigil Mechanism Officer for monitoring the grievances (Director/KMP/chairman of Committees/employee/independent professional)

    Like

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