This compliance reference details the statutory board committees mandated under the Companies Act, 2013—specifically the Audit Committee, Nomination & Remuneration Committee (NRC), Stakeholders Relationship Committee (SRC), and CSR Committee. It maps out applicability thresholds (based on listing status, paid-up capital, turnover, and outstanding loans), mandatory composition rules regarding independent directors, quorum requirements, meeting frequencies, and terms of reference. It serves as an essential governance framework for PCS and compliance teams to ensure board structure aligns with statutory and regulatory standards.

MANDATORY COMMITTEES UNDER THE COMPANIES ACT, 2013: A COMPREHENSIVE COMPLIANCE REFERENCE

The Companies Act, 2013 (the "Act") statutorily mandates the constitution of certain Board-level committees to ensure robust corporate governance, financial discipline, and stakeholder protection. This reference guide provides a definitive compliance checklist for the four committees that are de jure obligatory under the Act, along with ancillary provisions concerning their constitution, powers, and procedural requirements.

1. AUDIT COMMITTEE (AC)

Statutory Mandate: Section 177 of the Companies Act, 2013.

Applicability Thresholds

The Audit Committee is mandatory for:

• All listed public companies; and
• Unlisted public companies meeting any of the following criteria in the preceding financial year:
  • Paid-up capital of ₹10 Crore or more;
  • Annual turnover of ₹100 Crore or more; or
  • Aggregate loans, debentures, or public deposits exceeding ₹50 Crore.

Constitution & Quorum

• Composition: Minimum of three (3) Directors, with Independent Directors constituting the majority.
• Qualification: All members must possess the ability to read and understand financial statements.
• Quorum: The Act is silent on the quorum; consequently, the quorum provisions prescribed in the Board's Articles of Association or applicable Board rules shall prevail.

Chairperson & Secretary

• Chairperson: Must be a Director capable of reading and understanding financials. (For listed entities, the Chairperson is additionally required to be an Independent Director under SEBI LODR).
• Secretary: Not specifically prescribed under the Act (though listed entities mandatorily designate the Company Secretary as the secretary of the Committee).
• Annual General Meeting (AGM): The Chairperson is required to attend the AGM.

Core Functions

Pursuant to Section 177(4) and (5), the Committee is entrusted with the following duties:

1. Recommending the appointment, remuneration, and terms of engagement of the statutory auditors.
2. Monitoring the independence and effectiveness of the audit process.
3. Examining financial statements and the auditors' report thereon.
4. Scrutinizing inter-corporate loans and investments.
5. Undertaking valuation of the company's undertakings or assets.
6. Evaluating internal financial controls and risk management systems.
7. Monitoring the end-use of funds raised through public offers.
8. Reviewing the auditors' comments on internal control systems prior to their submission to the Board.

Related Party Transactions (RPTs)

• The Committee is empowered to grant omnibus approvals for related party transactions, subject to prescribed conditions.
• For transactions not covered under Section 188, the Committee recommends the same to the Board for approval.
• The ₹1 Crore Rule: Any transaction of up to ₹1 Crore entered into by a director or officer without prior Committee approval must be ratified within three months; failing which, the transaction becomes voidable at the Committee's discretion.
• Exemption: Transactions (not covered under Section 188) between a holding company and its wholly-owned subsidiary are exempt from the requirement of Committee approval.

Mandatory Review Items

The Committee is obligated to review:

• Management Discussion and Analysis (MD&A);
• Management letters / internal control weakness letters issued by statutory auditors;
• Internal audit reports highlighting control weaknesses;
• The appointment, removal, and remuneration of the Chief Internal Auditor; and
• Quarterly and annual statements of deviations, as per Regulation 32 of the SEBI LODR Regulations.

Powers & Safeguards

• The Committee possesses the authority to investigate any matter within its terms of reference, seek information from employees, and obtain external legal or professional advice.
• Auditors and Key Managerial Personnel (KMPs) have the right to be heard at Committee meetings, though they do not possess voting rights.

 2. Nomination and Remuneration Committee (NRC)

Statutory Mandate: Section 178 of the Companies Act, 2013.

Applicability Thresholds

The applicability of the NRC aligns with that of the Audit Committee, i.e., all listed public companies and unlisted public companies meeting the ₹10 Cr / ₹100 Cr / ₹50 Cr thresholds.

Constitution & Quorum

• Composition: Minimum of three (3) Non-Executive Directors (NEDs).
• Independence Requirement: At least half (50%) of the members must be Independent Directors.
• Quorum: Not specifically prescribed under the Act.

Chairperson & Meetings

• Chairperson: Must be an Independent Director. (Note: While the Chairman of the Board may serve as a member of this Committee, they are ineligible to act as its Chairperson).
• Meetings: Frequency is not mandated by the Act.
• AGM: The Chairperson, or an authorized member, shall attend the AGM to address shareholder queries.

Core Functions

Under Section 178(2) to (4), the NRC is responsible for:

1. Identifying and evaluating individuals qualified to serve as Directors and in Senior Management roles.
2. Recommending appointments and removals to the Board.
3. Formulating the methodology for performance evaluation of the Board, its Committees, and individual Directors.
4. Defining criteria relating to qualifications, positive attributes, and independence of Directors.
5. Formulating a Remuneration Policy that ensures sufficient compensation to attract/retain talent, establishes a clear performance linkage, and balances fixed and incentive pay against short-term and long-term objectives.
6. Ensuring disclosure of the salient features of the Remuneration Policy and the relevant web link in the Board's Report.

3. Stakeholders Relationship Committee (SRC)

Statutory Mandate: Section 178(5) of the Companies Act, 2013.

Applicability Thresholds

• Mandatory for every company that has more than 1,000 security holders (including shareholders, debenture holders, and deposit holders) at any point during the financial year.

Constitution & Chairperson

• Composition: Comprises a Chairperson and such other members as determined by the Board.
• Chairperson: Must be a Non-Executive Director (NED).
• Independent Director: The Committee must include at least one Independent Director.
• Quorum: The Act is silent on the quorum requirements.

Meetings & AGM

• Meetings: Frequency is not prescribed under the Act.
• AGM: The Chairperson (or an authorized member) shall attend the AGM to address stakeholder grievances.

Core Functions

The Committee is primarily tasked with the consideration and resolution of grievances of security holders, which specifically includes:

1. Issues relating to transfer and transmission of shares, non-receipt of annual reports, non-receipt of declared dividends, and issuance of duplicate certificates.
2. Debenture holders' grievances pertaining to charge creation, interest/principal payments, security cover, and covenants.
3. Review of measures taken to facilitate the effective exercise of voting rights by shareholders.
4. Oversight of service standards adhered to by the Registrar and Share Transfer Agent (RTA).
5. Review of initiatives aimed at reducing unclaimed dividends and ensuring timely dispatch of notices and warrants.

Protective Provision: Any inability to resolve grievances undertaken in good faith shall not be construed as a contravention of the Act, nor shall it attract penalty.

4. Corporate Social Responsibility (CSR) Committee

Statutory Mandate: Section 135 of the Companies Act, 2013.

Applicability Thresholds

Every company meeting any one of the following criteria during the immediately preceding financial year:

• Net Worth of ₹500 Crore or more;
• Turnover of ₹1,000 Crore or more; or
• Net Profit of ₹5 Crore or more.

Exemption

• In cases where the CSR expenditure does not exceed ₹50 Lakh, the constitution of a separate Committee is not mandatory; the Board itself may discharge the functions.
• Mandatory Exception: If any unspent CSR amount is lying in the dedicated Unspent CSR Account, the constitution of the Committee becomes mandatory.

Constitution

• General Rule: Minimum of three (3) Directors, with at least one Independent Director.
• Special Cases:
  • Companies not mandatorily required to appoint an Independent Director: Two (2) or more Directors.
  • Private Companies with only two Directors: The two Directors themselves constitute the Committee.
  • Foreign Companies: Minimum two persons (one authorized representative and one nominated representative).

Core Functions

Pursuant to Section 135(3) and the CSR Rules, the Committee shall:

1. Formulate and recommend a CSR Policy covering activities specified in Schedule VII of the Act, and monitor its implementation.
2. Recommend the amount of expenditure to be incurred on CSR activities.
3. Formulate an Annual Action Plan, detailing the list of projects, modalities of execution, funding mechanisms, monitoring framework, and impact assessment parameters.
4. The Board retains the power to alter the Annual Action Plan based on the Committee's recommendations.