On 1st February 2016, Ministry of Corporate Affairs uploaded the report of Companies Law Committee on its website here. In 5th post on this report, we will discuss recommendations of the committee related to Auditors, Directors, Independent Directors, etc.
Tag Archives: Directors
In this post we will discuss, board committees other than audit committee under the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015 for the listed entities which got listed its specified securities on Stock Exchanges. These Regulations talk about Audit Committee (Regulation 18) which we have already discussed here in a recent, Nomination and Remuneration Committee (Regulation 19) Shareholders Relationship Committee (Regulation 20) and Risk Management Committee (Regulation 21).
Nomination and Remuneration Committee
The board of directors shall constitute the nomination and remuneration committee as follows:
- the committee shall comprise of at least three directors;
- all directors of the committee shall be non-executive directors; and
- at least fifty percent of the directors shall be independent directors. [Regulation 19(1)]
As per Section 178 of the Companies Act, 2013, the Nomination and Remuneration Committee shall have with three or more non – executive directors but there is no requirement of all non – executive directors with majority of independent directors as introduced here by Regulation 19(1). However, there is one exception of all non – executive directors rule.
The Chairperson of the nomination and remuneration committee shall be an independent director. However, the chairperson of the listed entity, whether executive or non-executive, may be appointed as a member of the Nomination and Remuneration Committee and shall not chair such Committee. [Regulation 19(2)]
The exception of all non – executive directors rule came here from proviso to Section 178(1) of the Companies act, 2013.
(3) The Chairperson of the nomination and remuneration committee may be present at the annual general meeting, to answer the shareholders’ queries; however, it shall be up to the chairperson to decide who shall answer the queries. [Regulation 19(3)]
This is only an advice in line of Section 178(7) where either chairperson of Nomination or remuneration committee or its nominee member shall present. The combined reading of both provisions is same as of Section 178(7). Significantly, this clarify that chairman of the General meeting may give chance to the chairperson of the committee to answer the queries of shareholders.
(4) The role of the nomination and remuneration committee shall be as specified as in Part D of the Schedule II. [Regulation 19(4)]
Sub – part A of Part D of the Schedule II list out the role of the Committee which shall inter-alia, include the following:
- formulation of the criteria for determining qualifications, positive attributes and independence of a director and recommend to the board of directors a policy relating to, the remuneration of the directors, key managerial personnel and other employees;
- formulation of criteria for evaluation of performance of independent directors and the board of directors;
- devising a policy on diversity of board of directors;
- identifying persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, and recommend to the board of directors their appointment and removal.
- whether to extend or continue the term of appointment of the independent director, on the basis of the report of performance evaluation of independent directors.
This Regulation 19(4) require and deals with provision for a policy and run parallel to provisions of sub – section (3) and (4) of Section 178 of the Companies Act, 2013.
Stakeholders Relationship Committee
The listed entity shall constitute a Stakeholders Relationship Committee to specifically look into the mechanism of redressal of grievances of shareholders, debentures holders and other security holders. [Regulation 20(1)]
The chairperson of this committee shall be a non-executive director. [Regulation 20(2)]
The board of directors shall decide other members of this committee. [Regulation 20(3)]
The role of the Stakeholders Relationship Committee shall be as specified as in Part D of the Schedule II. [Regulation 20(4)]
Apparently, a non – director may be member of this committee under these Regulation and also in line with provision of Section 178(5).
Sub – part B of Part D of Schedule II state that the Committee shall consider and resolve the grievances of the security holders of the listed entity including complaints related to transfer of shares, non-receipt of annual report and non-receipt of declared dividends.
Risk Management Committee
The board of directors shall constitute a Risk Management Committee. [Regulation 21 (1)]
The majority of members of Risk Management Committee shall consist of members of the board of directors. [Regulation 21(2)]
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. [Regulation 21(3)]
The board of directors shall define the role and responsibility of the Risk Management Committee and may delegate monitoring and reviewing of the risk management plan to the committee and such other functions as it may deem fit. [Regulation 21(4)]
The provisions of this regulation shall be applicable to top 100 listed entities, determined on the basis of market capitalisation, as at the end of the immediate previous financial year. [Regulation 21(5)]
The Companies Act, 2013 has mandate audit committee and independent directors a role in risk management besides inherent role of Board of Directors. However, Regulation 21(5) mandates risk management committee for top 100 listed entities determined on the basis of market capitalization.
The listed entity shall formulate a vigil mechanism for directors and employees to report genuine concerns. [Regulation 22(1)]
The vigil mechanism shall provide for adequate safeguards against victimization of director(s) or employee(s) or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases. [Regulation 22(2)]
Sub – regulation of Regulation 22 is similar to the sub – Section (9) and (10) of Section 177 which deals with audit committee.
Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.
Regulation 17 of the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015 talk about Board of Directors of a listed entity which got listed its specified securities.
In this post we will discuss, audit committees under the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015 for the listed entities which got listed its specified securities on Stock Exchanges.
Section 177 of the Companies Act, 2013 as discussed earlier here prescribes audit committee for every listed and certain other companies. Regulation 18 of the SEBI (LODR) Regulations, 2015 supplement this requirement for listed companies.
This is a comical situation under soap opera script but it must have been a practical situation in India. And yes, many dealers of “company retail market” face this situation daily. Sellers want a cut off point beyond which they do not want any liability for any single moment and buyer will take charge on very next moment after the resignation of seller. This cut – off point on time scale is a possible legal defence from all past or future sins. Under Companies Act 1956, dealers has no fine tuned pressure to create such cut – off point because there was no possibility of submission of resignation by resigning directors. Filing a return of resignation of outgoing directors, under earlier law, was duty and responsibility of incumbent directors. They have to appoint at least one new director first (if not legally required two/three, in broad sense) before resigning. During those golden days, dealers usually prepare documents in such a way time to give effect of resignation was mentioned in minutes and seconds in resignation letters. Same was also true for appointment. Thereafter, within legal thirty days, dealers ensure filing of all required documents and forms with registrar of companies. Hence, all laws complied, happy ending.
Ministry of corporate Affairs has issued a General Circular on 14th February 2014. My readers can download this Circular from MCA site link here.
We have already discussed Section 185 in one of the earlier post here.
The Section under discussion basically says, No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person.
LOAN TO DIRECTORS, ETC. (SECTION 185):
No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person.
This provision shall not apply to –