Audit, NRC, SRC and Beyond: Statutory Committee Framework under Indian Corporate Laws
In today’s evolving corporate governance landscape, the role of board-level committees has become indispensable in ensuring transparency, accountability, and effective oversight. Committees such as the Audit Committee, Nomination and Remuneration Committee (NRC), and Stakeholders Relationship Committee (SRC) are not merely best practices but are statutorily mandated under the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. These committees act as specialized substructures of the Board, enabling focused deliberation and informed decision-making on critical governance matters. Their constitution, composition, and functioning are subject to stringent regulatory norms, reflecting the legislative intent to strengthen board efficacy and protect stakeholder interests in listed and certain prescribed classes of companies.
Key Compliance Requirements: Constitution of Statutory Committees
The Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandate the constitution of various Board-level committees to ensure focused governance, enhanced oversight, and better stakeholder accountability. Depending on the nature and size of the company—whether listed or unlisted, and based on financial thresholds—certain committees such as the Audit Committee, Nomination and Remuneration Committee (NRC), Stakeholders Relationship Committee (SRC), Corporate Social Responsibility (CSR) Committee, and Risk Management Committee (RMC) are required to be constituted. These committees play a pivotal role in strengthening corporate governance by enabling the Board to discharge its responsibilities more effectively through specialized focus areas. The constitution, composition, frequency of meetings, and disclosures related to these committees are prescribed in detail by the applicable laws and regulations.
| Attribute | Audit Committee | Nomination and Remuneration Committee (NRC) | Stakeholders Relationship Committee (SRC) |
| Applicability | – Listed companies
– Unlisted public companies meeting thresholds: § Paid-up capital ≥ ₹10 cr § Turnover ≥ ₹100 cr § Borrowings > ₹50 cr |
– Listed companies
– Unlisted public companies meeting thresholds: § Paid-up capital ≥ ₹10 cr § Turnover ≥ ₹100 cr § Borrowings > ₹50 cr
|
– Companies with >1000 shareholders or security holders |
| – LODR: Applicable to all listed entities | – LODR: Applicable to all listed entities | – LODR: Applicable to all listed entities | |
| Composition | – At least 3 directors
– Majority independent – The chairman and a majority of members must be able to read and understand financial statements. |
– At least 3 non-executive directors
– ≥50% independent director – The company’s chairperson may be a member of the NRC but shall not chair it. |
– Chairperson must be non-executive director
– Other members as Board decides |
| LODR:
– Minimum 3 directors – Minimum 2/3 independent – All financially literate – At least one member with accounting or finance expertise – Only independent directors if outstanding SR shares |
LODR:
– Minimum 3 directors – All non-executive directors – Minimum 2/3 independent
|
LODR:
– Minimum 3 directors – At least 1 independent director – If any SR shares outstanding: 2/3 must be independent |
|
| Chairperson | – Not specified in Companies Act
– The chairperson of the Audit Committee, or in their absence, an authorised member, shall attend all the company’s GM’s as per Secretarial Standards 2. |
– Not specified in Companies Act
– The chairperson of the NRC, or in their absence, an authorised member, shall attend all the company’s GM’s as per Secretarial Standards 2. |
– Non-executive director
– The chairperson of the SRC, or in their absence, an authorised member, shall attend all the company’s GM’s. |
| LODR: Chairperson must be independent and shall attend AGM
|
LODR:
– Chairperson must be independent and may attend AGM – Chairperson of the company may be a member of NRC but shall not chair it |
LODR: Chairperson must be a non-executive director and shall attend AGM | |
| Meetings | As per SS-1, Board Committees shall meet as often as necessary subject to the minimum number and frequency prescribed by any law or any authority or as stipulated by the Board | ||
| LODR: At least 4 meetings per year with a maximum gap of 120 days | LODR: At least 1 meeting per year | LODR: At least 1 meeting per year | |
| Quorum | As per SS-1, unless otherwise provided, the quorum for Committee meetings will be as specified by the Board; if not specified, all members must be present. | ||
| LODR: Quorum = 2 members or 1/3 of committee, whichever is higher, with at least 2 independent directors present |
LODR:
Quorum = 2 members or 1/3 of committee, whichever is higher, with at least 1 independent director |
LODR: Not specifically prescribed | |
| Disclosure Requirements | – Composition in Board’s Report
– Disclose if Board disagrees with recommendations |
– Policy on remuneration made available on website
– Salient features of the policy including the changes made therein, along with web address of policy must be disclosed in Board’s Report |
– Often disclosed voluntarily |
| Legal Reference | – Section 177 of Companies Act, 2013
– Rule 6, Companies (Meetings of Board and its Powers) Rules, 2014 – Rule 4, Companies (Appointment and Qualification of Directors) Rules,2014 |
– Section 178(1)-(4) of Companies Act, 2013
– Rule 6, Companies (Meetings of Board and its Powers) Rules, 2014 – Rule 4, Companies (Appointment & Qualification of Directors) Rules, 2014 |
– Section 178(5)-(6), Companies Act, 2013 |
| – Regulation 18, SEBI (LODR) Regulations, 2015 | – Regulation 19, SEBI (LODR) Regulations, 2015 | – Regulation 20, SEBI (LODR) Regulations, 2015 | |
| Attribute | CSR Committee | Risk Management Committee (RMC) |
| Applicability | – Applicable to every company that in the preceding financial year has:
§ Net worth ≥ ₹500 crore § Turnover ≥ ₹1000 crore § Net profit ≥ ₹5 crore – Exemption: If CSR obligation ≤ ₹50 lakh- committee not required (Board will carry out its function) |
Reg. 21, LODR:
– Top 1000 listed entities by market capitalization – High-Value Debt Listed Entities (HVDLEs) |
| Composition | – Minimum 3 directors
– At least 1 independent director (unless the company is not required to appoint any ID) – Private company with 2 directors can form the committee with such 2 directors. – Foreign company: 1 Indian resident + 1 nominee of foreign co. |
Reg. 21(2), LODR:
– Minimum 3 members – Majority must be Board members – At least 1 must be an independent director – If company has outstanding SR equity shares, ≥2/3 must be independent – Senior executives (e.g., CRO) may be members |
| Chairperson | As decided by the Board (no statutory mandate) | Reg. 21(3), LODR: Chairperson shall be a Board member |
| Meetings | – No specific frequency prescribed in Companies Act
– Should meet as necessary to implement and review CSR policy |
Reg. 21(4), LODR:
– At least 2 meetings per year – Maximum gap between meetings: 210 days |
| Quorum | – As decided by Board
– If not specified, all members must be present (per Secretarial Standard-1) |
Reg. 21(5), LODR:
– Quorum = 2 members or 1/3 of the members, whichever is higher – At least 1 member must be a Board member |
| Disclosure Requirements | – Composition, CSR Policy & Implementation Report in Board’s Report
– Disclosure of unspent amounts and action taken – Disclosure of CSR policy on company’s website (if any) |
Reg. 21(6), LODR:
– Composition of RMC – Risk Management Policy – Details of meetings and risk oversight in Corporate Governance section of Annual Report |
| Legal Reference | – Section 135 of Companies Act, 2013
– Rules 3 & 5, Companies (CSR Policy) Rules, 2014 |
– Reg. 21, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 |
Snapshot of Regulatory Enforcement for Committee-Related Non-Compliance
A review of recent adjudication orders reveals a consistent pattern of enforcement by the Ministry of Corporate Affairs (through ROCs and RDs) and SEBI against companies and their officers for lapses in the constitution, composition, and functioning of mandatory board committees. Notable instances include failure to appoint independent directors, delayed committee constitution after threshold triggers, inadequate composition of committees, and violation of independence norms under SEBI LODR. These orders not only impose monetary penalties on companies but also extend personal liability to directors and KMPs. The volume and quantum of penalties indicate a growing emphasis by regulators on strengthening governance through strict adherence to statutory committee requirements.
| Company | Authority | Provision Violated | Nature of Non-Compliance | Penalty (includes penalty for other violations) |
| M/s BCL Homes Limited | ROC (Chandigarh)
By order dated Jan 8, 2025 |
– Section 177 (Audit Committee)
– Section 178 (NRC) |
Failure to constitute the Audit Committee and the NRC upon exceeding the prescribed thresholds | – Aggregate penalty of ₹10,00,000 imposed on the company
– Aggregate penalty of ₹2,00,000 imposed on each director |
| M/s. Mylan Laboratories Limited | ROC (Hydera -bad) By order dated 27 Aug 2024 |
Section 177 (1) and (2) | Failure to appoint the requisite number of Independent Directors to the Audit Committee. | – ₹5 Lakh on the company,
– ₹1 Lakh on each director
– ₹1 Lakh on the co.’s `CS |
| Clairvoyant India Private Limited | ROC (Pune)
By order dated 21 August 2024 |
Section 135(1), (2) and (5) [CSR Committee] | – Failed to constitute CSR committee
– Failure in spending prescribed CSR amount – Failed to transfer unspent CSR amount to Schedule VII fund within six months |
– ₹42,000 each on 2 directors for Sec 135(1)
– ₹31,000 each on 2 newly appointed directors for Sec 135(1)
– ₹89,311 on each director for Sec 135(5)
|
| Mukka Proteins Ltd | RD (South East)
By order dated 26 June 2024 |
Section 178 (NRC) | Independent Directors were appointed after a delay of 2 years, 1month, 13 days | – ₹2.5 lakh on company
– ₹50,000 each on 7 directors |
| KCP Infra Ltd | ROC (Chennai)
By order dated 29 October 2024 |
– Section 177 (Audit Committee)
– Section 178 (NRC) |
– Independent Directors not registered in database
– Committee composition non-compliant |
– ₹5 lakh on company
– ₹1 lakh on MD |
| M/s. Best & Crompton Engineering Projects Limited | ROC (Tamil Nadu)
By order dated 30 April 2024 |
– Section 177(1) [Audit Committee] | – Non-appointment of Independent Directors and imbalance in Board composition led to default in constituting the Audit Committee. | – ₹5 Lakh imposed on company for each year of default,
– ₹1 Lakh imposed on each director for each year of default |
| Mideast Integrated Steels Ltd | SEBI
By order dated 21 February 2024 |
– Reg. 18 (Audit Committee)
– Reg. 19 (NRC)
– Reg. 20 (SRC) |
Inadequate Independent Directors in Audit Committee, NRC and SRC | – ₹4 Cr on company,
– ₹3.75 Cr on directors/promoters |
| PNB Finance and Industries Ltd | SEBI
By order dated 28 March 2023 |
Reg. 18(1)(b) (Audit Committee) | BCCL employees appointed as Independent Directors without meeting independence criteria | – ₹12 Cr on company,
– Over ₹7 Cr on promoters/others |
| Brightcom Group Limited | SEBI
By order dated 28 March 2023 |
Regulation 20(2A) (Stakeholder Relationship Committee) | Inadequate composition of stakeholder relationship committee (only 2 directors) | ₹2 lakh on company |
| Shivom Investment and Consultancy Limited | SEBI
By order dated 24 February 2023 |
Reg. 18(1)(b), 18(1)(d), 19(1)(b)(c), 19(2) of LODR | – Individuals shown as KMP in Annual Report appointed in Audit Committee and NRC as Independent Directors
– Inclusion of Executive Director in NRC |
– ₹20 lakh on company,
– ₹17 lakh aggregate on other notices, – The notices were restrained from securities market for periods ranging from 3 months to 1 year
|
*Reference: orders of ROC, RD (Ministry of Corporate Affairs) and SEBI
Insight
Through the mandatory constitution of the statutory committees the legislature has ensured that critical aspects of oversight, stakeholder redressal, ethical conduct, and strategic responsibility are delegated to focused substructures of the Board.
I believe that the true effectiveness of these committees lies not merely in their constitution, but in their active and informed functioning. Companies must go beyond formal compliance to embrace the spirit of governance—ensuring that committees are empowered, independent, and aligned with business realities. Secretarial professionals play a vital role in this journey by enabling Boards to structure, document, and evaluate committee effectiveness in a compliant and value-adding manner.
In the evolving landscape of corporate regulation, strong committees are not just a legal requirement—they are strategic assets that build investor confidence, operational resilience, and long-term corporate integrity.
CS Suresh Pandey
Practising Company Secretary
SPG AND ASSOCIATES
9968300649
Coming Up in Edition 05:
Related Party Transactions: A Governance Priority Beyond Disclosure
