WHICH COMPANIES ARE REQUIRED TO FORM COMMITTEES?

1. What is a Committee?

A committee is a group of selected people who possess relevant knowledge and experience in their respective fields. With respect to various form of companies, the committee mostly consists of some of its Board members who have expertise in the field of finance, law, corporate governance, and risk management.

2. Why is a Committee Required?

In the process of management of day-to-day affairs of a company, there are various areas which are of serious nature such as deliberations on financial performance, instances of frauds, appointment of Key Managerial Personnels, etc. These items of business require special attention and care to be taken by the management. Although the Board of Directors are ultimately responsible for any non-compliance, they cannot look after each aspect of the Company on their own. To solve this problem and to strengthen the management oversight and enhance the governance standards, it is advisable or mandated in some cases to form committees of Board of Directors.

3. Types of Committees:

Subject to form of Companies, the Companies Act, 2013 mandates the following types of committees to be formed:

Audit Committee
Nomination & Remuneration Committee
Stakeholders Relationship Committee
Corporate Social Responsibility Committee

Audit Committee

1. Companies Covered: Every listed public company and public companies exceeding following threshold limit shall constitute an audit committee:

Paid up share capital of Rs. 10 crore or more: or
Turnover of one Rs. 100 crore rupees or more; or
Outstanding loans/debentures/deposits, exceeding Rs. 50 crores:

2. Composition: The audit committee shall consist of at least 3 directors, majority of which shall be independent directors. Further, majority of members of the committee including the chairperson shall be persons with ability to read and understand, the financial statement.

3. Functions of the Audit Committee: The audit committee is entrusted with the authority to carry out the various financial matters as below:

Recommendation of appointment, remuneration and terms of appointment of auditors of the company;
Reviewing auditor’s independence and performance.
Examination of the financial statement & auditors’ report.
Approval/modification of related parties transactions.
Monitoring the end use of funds raised through public offers.

Nomination & Remuneration Committee (NRC)

Companies Covered: Every company which is required to constitute an audit committee as stated above is also required to form the nomination and remuneration committee.

Composition: The NRC shall consist of at least 3 non-executive directors out of which at least half shall be independent directors. Further, the Chairperson of the Company may be appointed as its member, but he shall not chair the committee.

Functions of the Nomination & Remuneration Committee: The NRC shall be responsible to carry out following key functions:

Identification of prospective Directors and KMPs.
Recommendation of their appointment and removal to the Board.
Preparing the performance evaluation criteria of Board, its committees and individual Directors.
Recommending remuneration policy of Board and KMPs.

Stakeholders Relationship Committee:

Every company which has more than 1000 shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee. It shall consist of a Non-Executive Director as its chairperson and other members as may be decided by the Board. This committee shall be responsible for resolution of grievances of securityholders of the company.

Corporate Social Responsibility (CSR) Committee

Companies Covered: Every company having:
Net worth of Rs. 500 crores or more, or
Turnover of Rs. 1000 crore or more or
Net profit of Rs. 5 crores or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility (CSR) Committee.

Composition: The CSR Committee shall consist of at least 3 directors of which at least a minimum of 1 director shall be an independent director. However, if the company is not required to appoint an independent director, it shall have at least 2 directors as members of the CSR Committee.

Functions of the CSR Committee: The CSR Committee shall carry out the following functions:

Formulation of CSR Policy.
Recommending CSR expenditure to be incurred by the Company.
Monitoring the CSR Policy of the company.

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