A board can't scrutinise every audit finding, set every pay package, and field every shareholder grievance in its quarterly meetings. So the Act mandates specialist committees — Audit, Nomination & Remuneration, and Stakeholders Relationship — each with its own trigger, composition and remit.
The trio: Audit Committee and NRC (Section 178) by size thresholds; Stakeholders Relationship Committee once you cross 1,000 security holders.
A company crosses ₹100 crore in turnover and assumes its board can keep handling auditor oversight informally. But once that threshold hits, an Audit Committee with a majority of independent directors becomes mandatory — and so, on the same thresholds, does a Nomination & Remuneration Committee. Get the composition wrong (too few independent directors, or the chairperson chairing the wrong committee) and the constitution is defective, exposing the company to penalty. These committees aren't optional governance flourishes; they're statutory bodies with precise membership rules.
BOTTOM LINE
- Audit Committee (s.177) and NRC (s.178): every listed public company, plus public companies with paid-up capital ≥ ₹10 crore, turnover ≥ ₹100 crore, or aggregate borrowings/debentures/deposits > ₹50 crore.
- Stakeholders Relationship Committee (s.178(5)): any company with more than 1,000 shareholders/debenture/security holders at any time in a year.
- Composition matters: the Audit Committee needs a majority of independent directors; the NRC, non-executive directors with at least half independent.
The Audit Committee (Section 177)
Governs this section: Section 177 & Rule 6, Companies (Meetings of Board and its Powers) Rules, 2014
Required for every listed public company, and public companies with paid-up capital ≥ ₹10 crore, turnover ≥ ₹100 crore, or aggregate outstanding loans/borrowings/debentures/deposits > ₹50 crore (tested on the latest audited financials).
Composition: a minimum of three directors with independent directors forming a majority; a majority of members (including the chairperson) must be able to read and understand financial statements.
Remit: recommend the appointment, remuneration and terms of the auditors; review and scrutinise the financial statements and the auditor's report; approve or modify related-party transactions (and grant omnibus approvals); scrutinise inter-corporate loans and investments; evaluate internal financial controls and risk management; monitor the end-use of funds; and oversee the vigil mechanism. It's the board's independent financial-and-compliance watchdog.
The Nomination & Remuneration Committee (Section 178)
Governs this section: Section 178(1)–(4)
Required on the same thresholds as the Audit Committee.
Composition: three or more non-executive directors, of whom at least one-half must be independent directors. The chairperson of the company may be a member of the NRC but cannot chair it.
Remit: formulate the criteria for directors' qualifications, positive attributes and independence; recommend a remuneration policy for directors, KMP and senior management; identify persons qualified to become directors or senior management; and carry out performance evaluation of directors.
The Stakeholders Relationship Committee (Section 178(5))
Governs this section: Section 178(5)–(6)
THE 1,000-HOLDER TRIGGER
A company that has more than 1,000 shareholders, debenture holders, deposit holders or any other security holders at any time during a financial year must constitute a Stakeholders Relationship Committee. Its chairperson is a non-executive director, with members the Board decides. Its job is to resolve the grievances of security holders — share transfers, non-receipt of dividends or balance sheets, and similar complaints. The trigger is the number of holders, not a financial threshold.
Composition at a glance
Governs this section: Sections 177 & 178
| Committee | Trigger | Composition |
|---|---|---|
| Audit Committee | Listed public + capital/turnover/borrowing thresholds | ≥ 3 directors; majority independent; financially literate |
| NRC | Same thresholds | ≥ 3 non-executive directors; ≥ ½ independent; company chair can't chair it |
| Stakeholders Relationship | > 1,000 security holders | Non-executive chairperson + Board-decided members |
(The CSR Committee under Section 135 is a fourth statutory committee, triggered by the CSR thresholds — covered separately.)
What does getting it wrong cost?
Governs this section: Section 178(8)
PENALTY — Section 178(8)
Contravention of the Section 177/178 committee provisions makes the company liable to ₹5 lakh and every officer in default ₹1 lakh. A defectively constituted committee — too few independent directors, or the wrong chairperson — is itself a contravention, so composition is not a detail to improvise.
Common mistakes
- Too few independent directors. The Audit Committee needs a majority; the NRC at least half.
- The company chairperson chairing the NRC. They may be a member but can't chair it.
- Missing the SRC trigger. It's based on crossing 1,000 security holders, not on size.
- Treating committee approval of RPTs as optional. Where an audit committee exists, it must approve RPTs.
- Not disclosing composition. The Board's Report must disclose the Audit Committee's composition (and reasons if a recommendation wasn't accepted).
Checklist
- Test the Audit Committee / NRC thresholds (listed public, or ₹10 cr capital / ₹100 cr turnover / > ₹50 cr borrowings).
- Constitute the Audit Committee (≥ 3 directors, majority independent, financially literate).
- Constitute the NRC (≥ 3 non-executive, ≥ ½ independent; don't let the company chair chair it).
- Count security holders; constitute the SRC once you exceed 1,000.
- Route auditor oversight, RPT approvals and the vigil mechanism through the Audit Committee.
- Disclose committee composition in the Board's Report.
FAQ
Which companies must have an Audit Committee? Every listed public company, and public companies with paid-up capital ≥ ₹10 crore, turnover ≥ ₹100 crore, or borrowings/debentures/deposits > ₹50 crore.
What's the Audit Committee's composition? At least three directors with a majority of independent directors, most of whom can read and understand financial statements.
Can the company chairperson chair the NRC? They may be a member of the NRC but cannot chair it.
When is a Stakeholders Relationship Committee required? When the company has more than 1,000 shareholders, debenture holders or other security holders at any time in a financial year.
What's the penalty for a defective committee? Under Section 178(8), ₹5 lakh on the company and ₹1 lakh on every officer in default.
Primary sources
- Sections 177 & 178, Companies Act, 2013; Rule 6, Companies (Meetings of Board and its Powers) Rules, 2014
- Section 135 — CSR Committee (separate); SEBI (LODR) Regulations 18–20 — for listed companies
Disclaimer: This article is general information on a fast-changing area of company law, current at the time of writing. It is not legal or professional advice for any specific company. Verify the position against the live MCA and SEBI rules and consult your company secretary.