Company Law

(5) Corporate Governance under Co Act 2013

(A) Composition of the Board of Directors [Ss. 149, 151]

Particulars

Applicability to:

Requirement/provision

Minimum number of directors
  • Public Co
  • Private Co
  • OPC
  • 3
  • 2
  • 1

Maximum number of directors

Every Co
  • Up to 15 directors
  • > 15 directors, after Spl Reso

Director resident in India ≥ 182 days in the FY

Every Co

At least 1 director

Independent Directors #
  • Listed Public Co
  • At least ⅓ of total no. of directors (fraction rounded off as 1)
 
  • Other public Cos (except a JV/WOS/Dormant Co) fulfilling following criterion as at the last date of latest audited FS:
    • Paid up share capital ≥ ₹ 10 crores
    • Turnover ≥ ₹ 100 crores
    • Outstanding loans, debentures and deposits > ₹ 50 crores

If a Co ceases to fulfill any of the above three conditions for 3 consecutive years ➔ not required to comply with the provisions until such time it meets any of such conditions
  • At least 2 independent directors

Woman Director #
  • Listed Public Co
  • Other Public Committee following criteria based on latest audited financial statements
    • Paid–up share capital ≥ ₹ 100 crores
    • Turnover ≥ ₹ 300 crores

1 or more director

  • A Co incorporated under Co Act, 2013 ➔within 6 months from the date of incorporation

Small SH [holding shares of nominal value of < ₹ 20,000] Director

Every Listed Co

May appoint 1 or more such director:

  • upon receiving notice of not < 1,000 small SH or ⅒ of the total number of such SH, whichever is lower; or
  • on a voluntary basis

# Intermittent vacancy to be filled up by BoD at the earliest but not later than:

  • immediate next BM, or
  • 3 months from the date of such vacancy,

whichever is later.

[Note: This provision w.r.t. ID is in conflict with provision VI (2) of Sch. IV of Co Act 2013]

(B) Board Committees [Ss. 177, 178]

Particulars

Audit committee

Nomination and Remuneration Committee

Stakeholders Relationship Committee

Governing Section

Section 177

Section 178

Section 178

Entities required to form such committee

Every Listed Public Co, and

A Co which consists of > 1000 SH, debenture-holders, deposit-holders and any other security holders at any time during a FY

Public Cos having:

  • Paid-up share capital ≥ ₹ 10 crores
  • Turnover ≥ ₹ 100 crores
  • Outstanding loans, debentures and deposits > ₹ 50 crores

Composition

Minimum 3 directors with IDs forming a majority

≥ 3 NEDs out of which not <½ to be IDs

a chairperson who shall be a NED and such other members as may be decided by the BoD

majority of members including the Chairperson are required to be persons with ability to read and understand, the financial statement

While the chairperson of the company (whether ED or NED) may be appointed as a member of the NRC but he cannot chair such Committee

Terms of Reference

to be specified in writing by the BoD (see Note 1 below)

See Note 2 below for the requirements

to resolve the grievances of security holders of the Co

Note 1 - The terms of reference of the AC should include:

  1. the recommendation for appointment, remuneration and terms of appointment of auditors of the Co
  2. review and monitor the auditor’s independence and performance, and effectiveness of audit process
  3. examination of the FS and the auditors’ report thereon
  4. approval or any subsequent modification of transactions of the Co with related parties
  5. scrutiny of inter-corporate loans and investments
  6. valuation of undertakings or assets of the Co, wherever it is necessary
  7. evaluation of internal financial controls and risk management systems
  8. monitoring the end use of funds raised through public offers and related matters

Note 2 - The NRC is required to:

  1. identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the BoD their appointment and removal and shall carry out evaluation of every director’s performance
  2. formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the BoD a policy, relating to the remuneration for the directors, KMP and other employees
  3. ensure that -
    1. the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the Co successfully
    2. relationship of remuneration to performance is clear and meets appropriate performance benchmarks
    3. remuneration to directors, KMP and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the Co and its goals