The Companies Amendment Act, 2017 read with Notification S.O. 1833(E) dated 7th May 2018 amended law related to the audit committee. Certain transactions shall be voidable unless ratified by the audit committee. In this post, we will discuss updated law related to Audit committee.
Tag Archives: vigil mechanism
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.
We have discussed Committees under the Companies Act 2013 earlier here.
Following committees has statutory mandate:
- Social Responsibility Committee
- Audit Committee
- Nomination and Remuneration Committee, and
- 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-