Annual Compliance

Absence of Chairperson of Audit Committee in AGM

Section 177 of the Companies Act, 2013 deals with the formation and appointment of chairperson of Audit Committee. Every company constitutes an audit committee in compliance with the Companies Act, 2013.

The article talks about the absence of the Chairperson of audit committee from the AGM.

What are an Audit Committee and the role of chairperson of audit committee?  

An audit committee is a group of a Board of Directors of a company responsible for looking into the financial reporting and the disclosure process. An Audit committee must be aware of the internal controls and the process in the company.

An audit committee’s primary objective is to look after the financial reporting process, the company’s system of internal controls, the audit process, and compliance with laws and regulations.

Role and responsibilities of chairperson of Audit Committee

The chairperson of audit committee has to act in accordance with the provisions of the section. The roles and responsibilities are:

• Corporate Governance
• Legal Framework
• Accountability
• Information and transparency
• Management improvements.

The appointment of chairperson of Audit Committee under Companies Act, 2013

Under the Section 177 of the Companies Act, 2013, read with Rule 6 and Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 exclusively deals with the formation and appointment of chairperson of Audit Committee.

Applicability of Audit Committee

An Audit Committee is mandatory for:

• Every Listed Company;
• Companies prescribed under Rule 6 of Companies (Meetings Board and its Powers) Rules, 2014; and
• All Public Companies.
• With a paid-up capital for Paid-up capital of Rs. 10 Crores or more;
• Having a turnover of Rs. 100 Crores or more; and
• Having an outstanding loans or borrowings or debentures or deposits exceeding 50 Crores or more.

Composition of Audit Committee

An Audit Committee must constitute of 3 Directors minimum, with an independent director forming the majority.

The audit committee, including Chairperson of audit committee, must be able to read and understand the financial statement.

Functions of the Audit Committee

• Appointment and salary of Auditor
• Valuation of assets and undertakings of the company
• Evaluation of the use of funds through public offers
• Examination of Financial Statements
• Evaluation of Related Party Transactions
• Evaluation of Internal financial control & risk management
•  Scrutiny of Inter Corporate Loans & investments.

Powers of Audit Committee

The powers of the audit committee are:

• It has the power to obtain professional advice from external sources

• It has the power to discuss any issues with the Statutory & Internal Auditor and the Management of the company concerning matters contained in the Financial Statements
• The audit committee can call for comments of the Auditor about Internal Control Systems.
• It can Review the Financial Statements before submission of the report of the Board.
• It has the power to have full access to the information contained in the records.

Vigil Mechanism            

As per Rule 7 of Companies (Meetings of Board and its Powers) Rules, 2014^[1] deals with establishing vigil mechanism.

It states that every listed company and the companies mentioned below:

• Companies that accept deposits from the public
• Companies that have borrowed money from the public financial institutions and banks over Rs. 50 crores.

The vigil mechanism is established for directors and employees to report their grievances and protect against victimization. The details of the establishment must be published on the company’s website.

A director from the Board of Directors must be nominated to play a role in the Audit Committee for Vigil Mechanism. The person aggrieved will have direct access with the Chairperson of the Audit Committee.

Action against Frivolous complaints

Suitable action must be taken against the director or an employee, including reprimand by the audit committee or the director nominated can take such actions.

Attendance of Auditors in AGM

The Companies Act 2013 provides various provisions related to auditors and the auditors’ committee. Section 146 of the Companies Act, 2013 states that the communication and all the general meeting notices must be sent to the company’s auditor and the auditor unless he is exempted from attending the meeting, must participate in the meeting or send his proxy to do so.

The chairperson of audit committee must attend the Annual General Meeting (AGM) as per clause 49 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, to clarify the doubts of any shareholders.

The Chairperson of Audit Committee represents the shareholders’ financial interests, so unless he is exempted from attending a meeting, he must come.

Penalty

• The company will be punished with a fine of Rs. 1 Lakh to 5 Lakhs in case of default.
• Every officer of the company, in default, must be punished with imprisonment of 1 year or with a fine of Rs. 25000 to 1 Lakh or both.

Conclusion

In the article, it is clear that the Chairperson of Audit Committee has to attend the AGM (Annual General Meeting) unless exempted from it.

Read our article:All you need to know about AGM under Companies Act, 2013