Types of Committee as per the Companies Act, 2013

Priyanka Bajpayee

18 Nov, 2019

For improving the Board’s effectiveness and efficiency, Committees or ‘Board Committees’ are formed in areas where more specialized and technical decisions are required to be taken. The Committee functions as a communicator between the Board of Directors, Auditors. The Board in order to achieve the desired results constitutes the committee that prepares the framework for decision making and the report at the subsequent meeting.

What is the Requirement of establishing the Committee as per the Companies Act 2013?

In the present scenario, the regulatory requirement is such that the composition of the board is relatively large in number which comprises of the Executive directors and Non-executive independent directors.

• For the ease of the Board of Directors

At times it is practically difficult to convene board meetings that suit the convenience and other commitments of each director. By having smaller committees, the convenience and commitments of the director also get addressed effectively.

• For Good Corporate governance

The Board in order to achieve the desired results has to concentrate more on selected team members on particular business dealings and issues. For maintaining the Corporate social responsibility, shareholders as well as stakeholder’s relationship, the Committee is required for specialized companies.

Types of Committees as per the Companies Act, 2013

As per Companies Act 2013^[1], Mandatory Committees required to be formed for the Companies are as follows-

Applicability of the Committee

1. In the case of the Audit Committee

Every listed Public Companies, and Public Companies having a Paid-up share capital of 10 Crore rupees or more, and a Turnover of Rs 100 Crore or more,

Additionally, Public Companies which have in aggregate, outstanding loans, debentures and deposits exceeding 50 crore rupees are required to constitute an Audit Committee.

2. In case of Nomination and Remuneration Committee

Every listed Public Companies, and Public Companies having a Paid-up share capital of 10 Crore rupees or more, and a Turnover of Rs 100 Crore or more,

Additionally, Public Companies which have in aggregate, outstanding loans, debentures and deposits exceeding 50 crore rupees are required to constitute an Audit Committee.

3. In Case of Stake-holder Relationship Committee

At any time in a financial year, A company having more than 1000 members, debenture holders, deposit holder or security holders are required to constitute a Stake-holder Committee.

Composition of the Committee

• In the case of the Audit Committee

The Audit Committee shall comprise of a minimum of 3 directors with a majority of directors being Independent Directors. Additionally, the members of the Audit Committee shall be a person of integrity and with an ability to understand the financial statement.

• In the case of the Nomination and Remuneration Committee

The Nomination and Remuneration Committee shall comprise of 3 or more non-executive directors, out of it more than half the directors shall be an Independent director. The chairman of the company can be appointed as a member of the Nomination and Remuneration Committee but shall not chair the committee.

• In the case of Stakeholder Relationship Committee

The company at any time during a financial year is required to constitute a stakeholder Relationship Committee which shall consist of a chairperson who shall be a non-executive director and such other members as may be recommended by the Board, which shall consider and resolve the stakeholder’s grievances.

The function performed by the Audit Committee

1. To give recommendation for the appointment, remuneration, and terms of appointment of the auditor of the company.
2.  At the Annual General Meeting, Chairman of the Audit Committee shall be present to answer shareholder queries.
3. While considering the Auditor’s report, the Auditor of a company and the KMP (Key managerial personnel) shall have a right to heard in the meeting of the audit committee but shall not have the right to vote.
4. To establish a Vigil Mechanism Policy: Every listed company and a company which has-
5. Accepted deposits from the public; –
6. The company has borrowed money from Bank and PFI’s in excess of Rs. 50 crores

Reasons for establishing the Vigil Mechanism Policy

• The director and employee through the Vigil Mechanism Policy shall report genuine concerns
• It shall also provide for adequate safeguards against victimization of persons.
• It shall operate for employees and directors to enable them to bring to report genuine concerns of the Company.
• The details of the policy are required to be disclosed by the company on its website.

However, in the case of other companies, the Board of directors shall nominate a director to play the role of the audit committee for the purpose of the vigil mechanism.

• To examine the financial statement and the auditor’s report.
• In case of related party transaction approval or subsequent modification of transactions of the company with related parties.

Functions performed by the Nomination and Remuneration Committee

The committee shall identify the person who is qualified to be a director and can be appointed in the senior management of the company in accordance with the criteria laid down by the Board of the director.

Further, the committee recommends to the board the appointment and also the removal of the person and shall also specify the approach for the effective mechanism as well as evaluate the performance of the board and the individual director.

The Nomination and Remuneration Committee shall draw up the criteria–

• For determining Qualification, positive accredit and independence of the director.
• To recommend the policy which relates to the remuneration of the directors, KMPs to the Board of directors.
• To overview the relationship of remuneration to performance i.e. the performance is clear and meets the benchmark set for the performance.

Functions performed by the Stakeholder relationship Committee

At any time in a financial year, A Company having more than 1000 members, debenture holders, deposit holders or security holders are required to constitute a Stake-holder Committee which shall contemplate and settle the grievances of the stakeholders of the company.

Other Committee required to be established by the Company as per the Companies Act, 2013

CSR Committee

CSR Committee stands for Corporate Social Responsibility, and every company shall constitute a Corporate Social Responsibility Committee.

• Having a net worth of Rs. 500 crore or more, or
• Turnover of Rs. 1000 crore or more or
• A net profit of Rs. 5 crores or more during any financial year.

Composition of Committee

A. In the case of Listed Company, at least 3 directors, out of which at least 1 director shall be an Independent Director.

B. In the case of Private Company, the committee can be constituted without an Independent Director. In the case of a Private Company having 2 Directors, the committee can be constituted with 2 Directors only.