Committees of Board of Directors.

     A Board of directors is a group of persons who work collectively towards the smooth functioning of the company’s business and achieving its ultimate business objective. Since they have the required expertise in managing a company, they hold an important place in the company’s management. Managing a company means considering various factors that affect the business and then coming up with a suitable solution in the company’s interest. The bigger the company in size, the task of managing it becomes more complex.

    To simplify the complex task, the Board of Directors may segregate the task among themselves so that each director or group of directors can focus on the task at hand and together achieve the desired result for the company by combining all assigned tasks. This brings the concept of the Board of Directors’ Committees comes into the picture.

    In simple words, these are the committees comprising of members of the Board of Directors. A company may constitute committees based on a variety of aspects relating to managing the company. The directors with expertise in those aspects shall form part of those committees. Let us further look into the Committees of Board from the perspective of Indian Company Law.  

What does India’s company law say?

The company law of India states that companies coming under the said class have to compulsorily constitute the following committees of the Board of Directors:

1) Audit Committee

2) Nomination & Remuneration Committee

3) Stakeholder’s Relationship Committee

4) Committee for CSR

We shall further learn about the composition, role, and responsibilities of each of the aforesaid committees.

1) AUDIT COMMITTEE

(a) Which companies are required to set up this committee?

     (i) Every listed company.

     (ii) Every other public company whose

          -paid-up share capital is more than or equal to 10 crores;

          -turnover is more than or equal to 100 crores;

          -loans, deposits, or debentures that are outstanding together exceed 50 crores.

(b) Who shall form part of this committee?

The Audit Committee shall have a minimum of 3 directors and a majority of them shall be independent directors.

Listed companies having audit committees shall have such a number of directors as given under the SEBI(LODR)Regulations.

The members of the Audit Committee shall have the ability and knowledge to read and understand the financial statements of the company

(c) What is the role of the Audit Committee?

(i) Recommending the Board on the appointment of the company’s auditors, the terms of their appointment, and their remuneration.

(ii) Give approval to the transactions with related parties, if any entered by the company.

(iii) Analysing the financial statements and the report of auditors on such financial statements.

(iv) Overseeing the transactions of loans and investments between the company and other corporate entities.

2) NOMINATION AND REMUNERATION COMMITTEE

(a) Which companies are required to set up this committee?

     (i) Every listed company.

     (ii) Every other public company whose

          -paid-up share capital is more than or equal to 10 crores;

          -turnover is more than or equal to 100 crores;

          -loans, deposits, or debentures together that are outstanding are more than 50 crores.

(b) Who shall form part of this committee?

This committee shall consist of 3 or more directors not being executive directors. The committee members shall consist of a majority of independent directors.

(c) What is the role of the Nomination & Remuneration Committee?

(i) Finding people who have the capability and are eligible for being appointed as directors.

(ii) Performance evaluation of those appointed as directors of the company.

(iii) Prescribing the qualifications to be appointed as directors of the company.

(iv) Framing the criteria for computation of remuneration directors and key managerial personnel of the company.

3) STAKEHOLDERS’ RELATIONSHIP COMMITTEE

(a) Which companies are required to set up this committee?

Companies consisting of shareholders, debenture holders, and security holders who are >1000 in number are required to constitute a stakeholders’ relationship committee.

(b) Who shall form part of this committee?

Minimum 3 directors and at least 1 of them being an Independent Director shall together form a stakeholders’ relationship committee.

(c) What is the role of this committee?

(i) Grievance redressal of shareholders and other security holders.

(ii) Keeping a check on things such as unclaimed dividend, delivering annual reports, and other reports to the shareholders and other security holders of the company.

4) CSR COMMITTEE

(a) Which companies are required to set up this committee?

Companies whose

-net worth is equal to or > ?500 crores;

-turnover is equal to or > ?1000 crores;

-net profit is equal to or > ?5 crores.

in the previous financial year.

(b) Who shall form part of this committee?

This committee shall consist of equal to or more than 3 directors. Out of them, a minimum of 1 shall be an independent director.

(c) What is the role of the CSR Committee?

This committee shall frame the CSR policy of the company and submit it to the Board of directors who shall ultimately approve it. The Board must make sure that the CSR policy framed is at par with the activities amounting to CSR prescribed by the Indian Company law.

Other than the aforementioned committees, a company can set up more committees to ensure the smooth and efficient operations of the company. The motto for setting up Board committees is to delegate the technical and sensitive matters to such directors who have the acumen to resolve them or find a way to deal with them. Having independent directors in such committees promotes an unbiased and impartial way of working of the committees and hence the company.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.