Constitution of Committees by Companies as per Companies Act 2013

Under Section 177 of the Companies Act, 2013, the Board of Directors may refer certain matters to committees established for this purpose. Committees are formed as a means of improving the efficiency and effectiveness of the board in areas where there is a need for more focused, specialized, and technically focused discussions. This article focuses on the concept of the constitution of committees by companies as per the Companies Act, 2013.

Table of Contents-

Committees consist of Board Members and experts in the field for which the Committee is established. However, the Board of Directors is ultimately responsible for the actions of the committee. The Board is responsible for defining the role and structure of the committee.

Constitution of Committees by Companies as per Companies Act, 2013

Audit Committee

  • Every public company listed
  • Public Limited Company of
  • Capital payment of 10 Crores or more; or
  • Profit of 100 Crores or more; or
  • Having a combined loan, balance or borrowing or debts or deposits of 50 Crores or more;

Those companies are required to form an Audit Committee consisting of 3 sub-directors, most of whom are independent directors if any. A special person from the financial sector is recommended to be a member of that Committee.

Role of Audit Committee –

  • Recommends appointments, salaries, and conditions of appointment of company auditors,
  • To summon auditors’ views on internal control systems,
  • Internal financial control audits and risk management systems
  • Any other type of Company that is not required to form such a committee, may form such a committee voluntarily.

Nomination and Remuneration Committee

  • Every public company listed
  • Public Limited Company of
  • Capital payment of 10 Crores or more; or
  • Profit of 100 Crores or more; or
  • Having a combined loan, balance or borrowing or debts or deposits of 50 Crores or more;

Those companies are required to form a Nomination and Remuneration Committee with at least 3 Non-Executive Directors, most of whom are independent directors if any.

Role of Nomination and Remuneration Committee-

  • Identify people who can be appointed as directors and executives
  • Also the removal of any directors or KMP and your reasons.
  • Clarify the Board’s effective evaluation of its performance.
  • Creating a qualification, qualifications, and independence of director/KMP/employee
  • Recommends Remuneration Policy for Directors/KMPs/Staff

Stakeholders Relations Committee

  • A company with shareholders/creditors/depositors or more than 1000 other security owners

Those companies are required to form a Stakeholder Relations Committee consisting of a chairperson who will be a non-executive director and other members who may determine the Board.

Role of Stakeholders Relations Committee-

  • Processing and resolving complaints from company security owners.

Corporate Social Responsibility Committee

  • Every Company Has a Total Value of 500 Crores or more; OR
  • All Profit Company 1000 Crores or more; OR
  • Every Profit Company with a surplus of 5 Crores or more
  • In any financial year.
  • Any other type of Company that is not required to form such a committee, may form such a committee voluntarily.

Role of Corporate Social Responsibility Committee-

  • Recommend CSR Policy
  • Expenditure cost
  • Monitor its projects and programs.

Committee under POSH Act

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (“POSH Act”) was enacted as a comprehensive law to provide a safe, secure and free environment for all women.

  • All institutions whether in the formal sector or in the informal sector in which 10 or more employees work

It is necessary to establish an Internal Complaints Committee (ICC) consisting of a senior female employee, a staff of no less than 2 staff members who may be a social worker or legal practitioner, and one external member of a non-governmental organization or organization committed to the cause of a woman or a person.

Role of Committee under POSH Act-

  • Implementation of policies related to the prevention of sexual harassment
  • Resolving Victims’ Complaints
  • Recommendations for the complaints

Committee Meetings under Board Meetings

Committee Meetings under Board Meetings

Final words

The 2013 Act increases the number of committees and provides for each of the functions compared to the 1956 Act. It ensures the constitution of committees by companies as per the Companies Act, 2013. In addition, there appears to be an attempt to bring the 2013 Act in line with the List Agreement to some extent. Emphasis is also placed on the transparency and disclosure procedures of these committees which are included in the new provisions. However, the roles given to these committees appear to be highly commendable as the final authority is vested in the Board of Directors. Only the continued implementation of the 2013 Act over time could indicate the extent to which these committees could contribute to co-management.

CategoryCompany Law

CS Madhavi Singh Rajawat is a commerce graduate from IIS University, Jaipur and an associate member of Institute of Company Secretaries of India. She is also an LLB aspirant. Her interest lies in the field of corporate and securities laws, general corporate advisory matters and FEMA matters and compliances, litigation services, and also in NCLT related services. She has proficiency in the drafting of documents

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