Board Committees – Governance, Risk Management, Compliances and Ethics Important Questions

Question 1.
“To enable better and more focused attention on the affairs of the company, the Board delegates particular matters to committees of the Board set-up for the purpose but the ultimate responsibility lies with the Board.” In the light of the statement, discuss the need and advantages of committee management.
OR
Describe briefly the need and advantages of committee management. Name the committees which are to be constituted for good corporate governance.
OR
“With the globalization and the complex regulator, requirements, the need to delegate oversight of certain areas to a specialist Board Committee has become imperative”. In the light of this statement discuss the need and advantages of such committees.
OR
“The committees are a sub-set of the Board, deriving their authority from the powers delegated to them by the Board.” In the light of above statement, discuss the need and advantage of committee management.
OR .
Discuss the rationale behind composition of Board Committees.
OR
“The committees are formed as means of improving Board’s effectiveness and efficiency in the areas where more focused, specialized and technical discussions are required”. Evaluate the statement by bringing out the needs and significance of committees.
OR
Elucidate the following; Board committee.
Answer:
Committees are formed in an organization as a means of improving board effectiveness and efficiency, in areas where more focused, specialized and technical discussions are required.

Board committees are pillars of corporate governance. Board committees with formally established terms of reference, criteria for appointment, life span, role and function constitute an important element of the governance process and should be established with clearly agreed reporting procedures and a written scope of authority.

A Board can either delegate some of its powers to the committee, enabling it to act directly, or can require the recommendations of the committee to be approved by the Board. Committees thus enable better management of | the board’s time and allow in-depth scrutiny and focused attention.

Significance of Board Committees
Board committee plays a vital role in the following manner:

  • To improve Board effectiveness and efficiency.
  • More members become involved.
  • Specialized skills of members can be used to best advantage as minor details needs to be evaluated/analysed to arrive at a logical conclusion.
  • Insulate Board from potential undue influence of controlling shareholders and managers.
    Committees prepare groundwork for decision making and submit their recommendations to the Board for decision making.
  • Enables better management of Board’s time and allows in-depth scrutiny of proposals.
  • Establishing committees is one way of managing the work of the Board and strengthening the Board’s governance role.
  • Matters may be examined in more detail by a committee.
  • Inexperienced members gain confidence while serving on the committee.

Following are the mandatory Committees of the Board prescribed under:

Companies Act, 2013:

  • Audit Committee
  • Nomination and Remuneration Committee
  • Stakeholders Relationship Committee
  • Corporate Social Responsibility Committee

SEBI (LODR) Regulations, 2015:

  • Audit Committee
  • Nomination and Remuneration Committee
  • Stakeholders Relationship Committee
  • Risk Management Committee

Question 2.
Write short note on the following; Mandatory committees under the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.
OR
Describe briefly of the following; Mandatory committees under the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.
Answer:
Following are the mandatory committees under the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015:
1. Audit Committee : As per Regulation 18 of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, Every listed entity shall constitute a qualified and independent audit committee in accordance with the terms of reference specified therein.

2. Nomination and remuneration committee : As per Regulation 19 of SEBI (LODR) Regulations, 2015 The board of directors shall constitute the nomination and remuneration committee as follows:

  • The committee shall comprise of at least three directors
  • All directors of the committee shall be non-executive directors
  • At least fifty per cent of the directors shall be independent directors and in case of listed entity having outstanding SR equity shares, 2/3rd of the nomination and remuneration committee shall comprise of independent directors.

3. Stakeholders Relationship Committee: As per Regulation 20 of the SEBI (LODR) Regulations, 2015 The listed entity shall constitute a Stakeholders Relationship Committee to specifically look into various aspects of interest of shareholders, debenture holders and other security holders.

4. Risk management committee : Regulation 21 of the SEBI (LODR) Regulations, 2015 deals with the Risk Management Committee and provides that the board of directors shall constitute a Risk Management Committee.

Question 3.
Briefly comment on the following; A company can have as many non mandatory committees as it would require for efficient oversight of the company.
Answer:
A company may have as many non-mandatory committees as it would require for efficient oversight of the company. We will discuss about the committees which are generally constituted by corporate.

In addition to the Committees of the Board mandated by the Companies Act, 2013 viz, Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee and the CSR Committee, Board of Directors may also constitute other Committees to oversee a specific objective or project. The nomenclature, composition and role of such Committees will vary, depending upon the specific obj ectives of the company.

The non-mandatory committees depending upon the need like:

  • Strategies Committee
  • Capital Expenditure Committee
  • HR Committee
  • Project Appraisal Committee
  • Science, Technology & Sustainability Committee
  • Regulatory, Compliance & Government Affairs Committee.

Question 4.
Infowin Ltd., has been pioneer in corporate governance practices. The board is comprised of appropriate mix of independent and executive directors to separate board functions of governance and management. The board comprised of fifteen members with seven executive directors and ‘ eight independent directors. Responsibilities of the chairman, CEO and COO have been clearly defined and they have to make periodic presentations before the board on the responsibilities, targets and performance. The board is responsible for selection of new directors and it delegates the selection of the new board members to the nomination and remuneration committee. The nomination and remuneration committee recommends to the board the induction of any new board member. The board also regularly works with the chairman, CEO and COO to determine the plans of internal succession of these posts in any emergency.

The board meets to review the quarterly results, discuss the issues related to the company’s financial performance and shareholder’s interests. The independent directors are always kept up to the date with the information regarding the company by the board through separate meetings arranged at regular intervals. The board currently has five committees namely Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship committee, Corporate Social Responsibility Committee and Investment Committee.

The COO and CEO deal with interactions of the board with the clients, employees, institutional investors, the government and press. The risk man agement is dealt with by the board with the help of the audit committee. In the light of the above you are required to answer the following questions;
(i) How do independent directors on the board help Infowin Ltd. to formulate best business policies?
(ii) What are the different committees formed as part of corporate governance of Infowin Ltd. and what role do these committees play?
Answer:
(i) In the given case, out of fifteen directors in the company, eight are independent directors. The responsibilities of chairman, CEO, COO, CFO are clearly defined and they are required to make presentations to the board on their responsibilities, targets and performances. Independent directors are required because they perform the following important role:

  • Balance the often conflicting interests of the stakeholders
  • Facilitate withstanding and countering pressures from owners.
  • Fulfil a useful role in succession planning.
  • Act as a coach and mentor for their fulltime colleagues.
  • Provide independent judgment and wider perspectives.

Thus, the presence of independent director on the board of Infowin Ltd. will lead to greater transparency in company’s dealings and formulation of best policies.

(ii) The Board of Infowin Ltd. has constituted following five committees to play effective role in the defined areas. These committees with their respective role are given below:
1. Audit Committee: The role of the Audit Committee includes oversight of the company’s financial reporting process, disclosure, review of financial statements etc.

2. Nomination and Remuneration Committee: Identifying 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 Board their appointment and removal; carry out evaluation of every Director’s performance; formulate the criteria for determining qualifications, positive attributes and independence of a Director and recommend to the Board a policy, relating to the remuneration for the Directors, KMP and other employees.

3. Stakeholders Relationship Committee: To look into the redressal of grievances of shareholders, debenture holders and other security holders.

4. Corporate Social Responsibility Committee: Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company and monitor the implementation of the CSR policy from time to time.

5. Investment Committee: For laying down an overall investment policy and operational framework for the investment operations etc.

Question 5.
Elaborate the provisions in respect of the composition of audit com-mittee under the following;
i. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 as prescribed by SEBI.
ii. Section 177 of the Companies Act, 2013.
OR
Discuss in brief the following; Every listed company shall constitute a committee of the Board to be known as audit committee.
OR
Which categories of companies are required to have Audit Committee of Board (ACB) as per the Companies Act, 2013 and as per the SEBI (LODR) Regulations, 2015.
OR
Your Company is planning to get listed in the stock exchange of India. As a Company Secretary, provide constitution of Audit Committee under the Section 177(2) of the Companies Act, 2013 and the changes as per Regulation 18 of SEBI (Listing Obligations and Disclosure Requirements I (LODR)) Regulations, 2015, for the consideration of Chairman of your company.
Answer:
The constitution of Audit Committee is mandated under the Companies Act, 2013, and the SEBI (Listing Obligations and Disclosure Requirements (LODR)) Regulations, 2015 is as under:-
i. Companies Act, 2013
Section 177(1) of the Companies Act, 2013 read with Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides that the Board of directors of following companies are required to constitute a Audit Committee of the Board:

  • All public listed companies
  • All public companies with a paid up capital of 10 crore rupees or more
  • All public companies having turnover of 100 crore rupees or more
  • All public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 crore rupees or more.

Section 177(2) of the Companies Act, 2013 provides that:

  • Audit Committee shall consist of a minimum of three directors
  • Independent directors should form a majority.
  • Majority of members of Audit Committee including its Chair¬person shall be persons with ability to read and understand the financial statement.

ii. SEBI (LODR) Regulations, 2015
Regulation 18(1) of the SEBI (LODR) Regulations, 2015 provides that every listed entity shall constitute a qualified and independent audit committee in accordance with the terms of reference, subject to the following:

  • Audit Committee shall have minimum three directors as members.
  • Two-thirds of the members of audit committee shall be independent directors and in case of a listed entity having outstanding SR equity shares, the audit committee shall only comprise of independent directors.
  • All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise.
  • The chairperson of the audit committee shall be an independent director and he shall be present at AGM to answer shareholder queries.
  • The Company Secretary shall act as the secretary to the audit committee.
  • The audit committee at its discretion shall invite the finance director or head of the finance function, head of internal audit and a representative of the statutory auditor and any other such executives to be present at the meetings of the committee.

Question 6.
You are the company secretary of ABC Ltd. the turnover of your company as per last audited financial statement has crossed 100 crore rupees. As per requirement of section 177(1) of the Companies Act, 2013, your company is required to constitute an audit committee. Board of directors of the company has asked you to draft the composition of audit committee. Keeping in view the provisions of Companies Act, 2013 and listing obligations and disclosure requirement (LODR), 2015. Prepare a note for the composition of audit committee.
Answer:
Resolution for the appointment of Audit Committee:
“RESOLVED THAT pursuant to the provisions of Section 177 of the Companies Act, 2013, Regulation 18(1) of the SEBI (LODR) Regulations, 2015 and Article No. of the Articles of Association of the Company, the Board hereby constitute the Audit Committee consisting of the following directors of the company:

Name Designation Position in the committee
Mr. X Director (Independent Director) Chairman
Mr. Y Director (Independent Director) Member
Mr. Z Managing Director Member

RESOLVED FURTHER THAT the Audit Committee shall have the terms of reference in accordance with the provisions of Section 177 of the Companies Act, 2013 and Regulation 18(1) of the SEBI (LODR) Regulations, 2015.

RESOLVED FURTHER THAT the quorum of Audit Committee shall either be two members or one third of the members of the audit committee, whichever is greater, with at least two independent directors.”

Question 7.
Discuss the role of qualified and independent audit committee in good governance.
Answer:
As per Regulation 18(3) of the SEBI Listing Regulations, 2015, the role of the Audit Committee shall include the following:
1. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.

2. Recommendation for appointment, remuneration and terms of appointment of auditors of the company.

3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors.

4. Reviewing, with the management, the annual financial statements and auditor’s report thereon before submission to the board for approval, with particular reference to:

  • Matters required to be included in the Director’s Responsibility Statement to be included in the Board’s report in terms of clause (c) of sub-section (3) of section 134 of the Companies Act, 2013.
  • Changes, if any, in accounting policies and practices and reasons for the same.
  • Major accounting entries involving estimates based on the exercise of judgment by management.
  • Significant adjustments made in the financial statements arising out of audit findings.
  • Compliance with listing and other legal requirements relating to financial statements.
  • Disclosure of any related party transactions.
  • Qualifications in the draft audit report.

5. Reviewing, with the management, the quarterly financial statements before submission to the board for approval.

6. Reviewing, with the management, the statement of uses/application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice and the report submitted by the monitoring agency monitoring the utilisation of proceeds of a public or rights issue, and making appropriate recommendations to the Board to take up steps in this matter.

7. Review and monitor the auditor’s independence and performance, and effectiveness of audit process.

8. Approval or any subsequent modification of transactions of the com-pany with related parties.

9. Scrutiny of inter-corporate loans and investments.

10. Valuation of undertakings or assets of the company, wherever it is necessary.

(Note: This Regulations is of inclusive functions and not exhaustive)

Question 8.
What is mandatory review of information by the audit committee? Discuss the information required by the audit committee.
Answer:
The audit committee shall mandatorily review the following information:

  1. Management discussion and analysis of financial condition and results of operations.
  2. Statement of significant related party transactions (as defined by the audit committee), submitted by management.
  3. Management letters/letters of internal control weaknesses issued by the statutory auditors.
  4. Internal audit reports relating to internal control weaknesses.
  5. The appointment, removal and terms of remuneration of the chief internal auditor shall be subject to review by the audit committee.
  6. Statement of deviations:
  7. Quarterly statement of deviation(s) including report of monitoring agency, if applicable, submitted to stock exchange(s) in terms of Regulation 32(1).
  8. Annual statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice in terms of Regulation 32(7).

Question 9.
With the increasing use of internet, the listed entities have started adopting a functional website for publication of information, In the context of this, analyze the major elements to be considered in Website Disclosure Regulations.
Answer:
Regulation 46 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 requires a listed entity to maintain a functional website. The listed entity shall ensure that the contents of the website are correct and shall update any change in the content of its website within two working days from the date of such change in content:
1. The listed entity shall maintain a functional website containing the basic information about the listed entity.

2. The listed entity shall disseminate the following information under a separate section on its website:

  • Details of its business.
  • Terms and conditions of appointment of independent directors.
  • Composition of various committees of board of directors.
  • Code of conduct of board of directors and senior management personnel.
  • Details of establishment of vigil mechanism/Whistle Blower policy.
  • Criteria of making payments to non-executive directors, if the same has not been disclosed in annual report.
  • Policy on dealing with related party transactions.
  • Policy for determining ‘material’ subsidiaries.
  • Details of familiarization programmes imparted to independent directors including the following details:
    1. Number of programmes attended by independent directors (during the year and on a cumulative basis till date).
    2. Number of hours spent by independent directors in such programmes (during the year and on cumulative basis till date).
    3. Other relevant details.
  • The email address for grievance redressal and other relevant details.

(Note: This list is inclusive and not exhaustive)

3. The listed entity shall ensure that the contents of the website are correct.

4. The listed entity shall update any change in the content of its website ‘ within two working days from the date of such change in content.

Question 10.
Write short note on the following; Nomination Committee.
As per Section 178(1) of the Companies Act, 2013, read with Rule 6 of the Companies (Meetings of the Board and its Powers) Rules, 2014 and Rule 4 of the Companies
(Appointment and Qualification of Directors) Rules, 2014, provides that:
Answer:
The board of directors of following classes of companies is required to constitute a Nomination and Remuneration Committee of the Board-

  1. Every listed public companies.
  2. All public companies with a paid up capital of 10 crore rupees or more.
  3. All public companies having turnover of 100 crore rupees or more.
  4. All public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 crore rupees or more.

Note : Section 178 shall not apply to Section 8 companies and specified IFSC public companies.

Under SEBI (LODR) Regulations, 2015: Regulation 19{1) of the SEBI Listing Regulations, 2015 provides that the Board of all listed entity shall constitute the Nomination
and Remuneration Committee.

Question 11.
Describe composition of the ‘audit committee’ and ‘remuneration committee’ as per Regulation 18(1) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015. [June 2010, 5 Marks]
Answer:
The constitution of Audit Committee is mandated under the Companies Act, 2013, and the SEBI (Listing Obligations and Disclosure Requirements (LODR)) Regulations, 2015 is as under:-
i. Companies Act, 2013
Section 177(1) of the Companies Act, 2013 read with Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides that the Board of directors of following companies are required to constitute a Audit Committee of the Board:

  • All public listed companies
  • All public companies with a paid up capital of 10 crore rupees or more
  • All public companies having turnover of 100 crore rupees or more
  • All public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 crore rupees or more.

Section 177(2) of the Companies Act, 2013 provides that:

  • Audit Committee shall consist of a minimum of three directors
  • Independent directors should form a majority.
  • Majority of members of Audit Committee including its Chair¬person shall be persons with ability to read and understand the financial statement.

Composition of the remuneration committee: The board of directors of following classes of companies is required to constitute a Nomination and Remuneration Committee of the Board-

  • Every listed public companies.
  • All public companies with a paid up capital of 10 crore rupees or more.
  • All public companies having turnover of 100 crore rupees or more.
  • All public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 crore rupees or more.

Note : Section 178 shall not apply to Section 8 companies and specified IFSC public companies.

Under SEBI (LODR) Regulations, 2015: Regulation 19(1) of the SEBI Listing Regulations, 2015 provides that the Board of all listed entity shall constitute the Nomination and Remuneration Committee.

Question 12.
Discuss the duties of the nomination and remuneration committee.
OR
Discuss the functions of Nomination and Remuneration Copimittee.
OR
Why do companies set up remuneration committee and what is its role in companies?
Answer:
As per Section 178(2), (3) and (4) of the Companies Act, 2013, the Nomination and Remuneration Committee shall perform following – functions:
1. Identify persons who are qualified to become directors in accordance with Identify persons who are qualified to become directors in accordance with the criteria laid down and recommend to the Board their appointment and removal.

2. Performance evaluation of every director.

3. Formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

4. While formulating the policy, the Committee shall consider the following:

  • The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully.
  • Relationship of remuneration to performance is clear and meets appropriate performance benchmarks. Remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals.

Additional functions under Regulation 19(4) of SEBI (LODR) Regulations, 2015 are:

  • Formulation of criteria for evaluation of performance of independent directors and the board of directors.
  • Designing a policy on diversity of board of directors.
  • Whether to extend or continue the term of appointment of the independent director, on the basis of report of performance evaluation of independent director.

Question 13.
Mr. Allen has recently joined Delta Limited as the secretary and has been asked by the Board of Directors to draft the charter of the Nomination and Remuneration Committee for its approval in the BOD meeting. Provide a sample draft which Mr. Allen would be supplementing to the BOD meeting in the light of provisions of LODR and Companies Act, 2013.
Answer:
The charter of the Nomination and Remuneration Committee of Delta Limited may contain information under the following heads:

  1. Purpose and Objective
  2. Constitution and Organisation
  3. Responsibilities
  4. Compensation policies including performance related pay and stock options plans and other beneficial plans
  5. Nomination of Directors
  6. Performance Evaluation and Leadership Development
  7. Coordinating with Committees of the Board for good corporate governance
  8. Advisors at forums of the organisation
  9. Any other responsibilities
  10. Meetings and Report- Details regarding meetings to be conducted, quorum, reporting at adequate forums and other disclosures
  11. Compensation of Committee Members

Question 14.
What are the applicable legal/regulatory provisions regarding Stakeholders Relationship Committee? You, as practicing Company Secretary, advise the board mentioning the provisions relating to the Composition and Functions of the Committee.
Answer:
(i) Provisions regarding Stakeholders Relationship Committee – Section 178(5) of the Companies Act, 2013 provides that the Board of Directors of following companies shall constitute a Stakeholders Relationship Committee:

  • Company which consists of more than one thousand shareholders, debenture holders, deposit holders and any other security holders at any time during a financial year.
  • Regulation 20 of SEBI (LODR) Regulations, 2015 provides that every listed entity shall constitute a Stakeholders Relationship Committee to specifically look into the mechanism of redressal of grievances of shareholders, debenture holders and other security holders.

(ii) Composition of the Committee:
Section 178(5) of the Companies Act, 2013 and Regulation 20 of SEBI (LODR) Regulations, 2015 provides that-

  • Stakeholders Relationship Committee shall consist of a chairper-son who shall be a non-executive director
  • Other members of the committee shall be decided by the Board.
  • The chairperson of the committees or, in his absence, any other member of the committee authorised by him in this behalf is required under the section to attend the general meetings of the company.
  • Functions of the Committee

Question 15.
Briefly explain the following terms and their relevance to good cor-porate governance practices; Stakeholders relationship committee.
Answer:
Section 178(5) of the Companies Act, 2013 and Regulation 20 of SEBI (LODR) Regulations, 2015 provides that:

  1. Stakeholders Relationship Committee shall consist of a chairperson who shall be a non-executive director
  2. Other members of the committee shall be decided by the Board.
  3. The main function of the committee is to consider and resolve the grievances of security holders of the company.
  4. The role of the Stakeholders Relationship Committee shall be to consider and resolve the grievances of the security holders of the listed entity including-complaints related to transfer of shares, non-receipt of annual report and non-receipt of declared dividends.

Question 16.
Priya Ltd. declared dividend but failed to pay the dividend in time which created grievances among shareholders and debenture holders. Describe the provisions of law available for the beneficiaries.
Answer:
The provisions of law available for the shareholders and debenture holders are as follows:
Section 178(5) of the Companies Act, 2013:
Where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of eighteen per cent per annum during the period for which such default continues:

Provided that no offence under this section shall be deemed to have been committed:-

  • Where the dividend could not be paid by reason of the operation of any law.
  • Where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him.
  • Where there is a dispute regarding the right to receive the dividend.
  • Where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder.
  • Where, for any other reason, the failure to pay the dividend or to post the warrant within the period under this section was not due to any default on the part of the company.

Section 178(5) of the Companies Act, 2013 provides for constitution of the Stakeholders Relationship Committee.

Section 178(6) of the Companies Act, 2013, the Stakeholders Relation¬ship Committee shall consider and resolve the grievances of security holders of the company. Hence, in the given case, after the declaration of the dividend, it becomes the liability on the part of the company to pay the dividend to the eligible shareholders and if it is not paid within the prescribed time limit the directors and company are liable for such failure.

Question 17.
Every company is required to constitute a CSR committee under the Companies Act, 2013. Do you agree? Explain with the relevant provisions of the law.
OR
Answer the following in brief; Discuss the composition of Corporate Social Responsibility Committee with reference to the statutory provisions applicable.
Answer:
According to Section 135(1) of the Companies Act, 2013 read with Rule 3 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 mandates that every company which fulfils any of the following criteria during the immediately preceding financial years ‘shall constitute a CSR Committee :

  • Companies having net worth of rupees five hundred crore or more.
  • Companies having turnover of rupees one thousand crore or more.
  • Companies having a net profit of rupees five crore or more.

Companies (Corporate Social Responsibility Policy) Rules, 2014, provides that:

  • Unlisted public company or a private company covered under sub-section (1) of section 135 which is not required to appoint an independent director, shall have its CSR Committee without such director.
  • Private company having only two directors on its Board shall constitute its CSR Committee with two such directors.
  • Foreign company covered under these rules, the CSR Committee shall comprise of at least two persons of which one person shall be the per-son resident in India authorized to accept on behalf of the company, service of process and any notices or other documents and another person shall be nominated by the foreign company.

It can be stated that a CSR Committee shall consist of three or more directors. Atleast one director shall be an independent director. The composition of the CSR Committee shall be disclosed in the Board’s report.

Question 18.
Write short note on legal provisions on risk management under the SEBI (Listing Obligations & Disclosure Requirements) Regulations 2015.
Answer:
Regulation 21 of the SEBI (LODR) Regulations, 2015 deals with the Risk Management Committee and provides as under:
1. The board of directors shall constitute a Risk Management Committee.

2. The majority of members of Risk Management Committee shall consist of members of the board of directors and in case of a listed entity having outstanding SR equity shares, at least two thirds of the Risk Management Committee shall comprise of independent directors.

3. The Chairperson of the Risk management committee shall be a member of the board of directors and senior executives of the listed entity may be members of the committee.

4. The risk management committee shall meet at least once in a year. [Inserted by the SEBI (LODR) (Amendment) Regulations, 2018, w.e.f. 1-4-2019]

5. The board of directors shall define the role and responsibility of the Risk Management Committee and may delegate monitoring and reviewing of the risk management plan to the committee and such other functions as it may deem fit such function shall specifically cover cyber security.

6. The provisions of this regulation shall be applicable to top 500 listed entities, determined on the basis of market capitalisation, as at the end of the immediate previous financial year.

Question 19.
Write short note on the following; Corporate Governance Committee.
Answer:
A company may constitute Corporate Governance Committee to develop and recommend the board a set of corporate governance guidelines applicable to the company, implement policies and processes relating to corporate governance, to review, periodically, the corporate governance guidelines of the company.

The committee may be responsible for considering matters relating to corporate governance including the composition of board, appointment of new directors, review of strategic human resource decisions, succession planning for the chairman and other key board and executive positions, performance evaluation of the board and its committees and individual directors.

Question 20.
Prepare a detailed note on ICSI Recommendations to strengthen Corporate Governance framework.
Answer:
ICSI Recommendations to strengthen Corporate Governance framework suggests for constitution of Corporate Compliance Committee on mandatory basis in respect of all public limited companies having a , paid-up capital of ₹ 5 crore or more.

The charter of the committee includes the following:

  • To oversee the Company’s compliance efforts with respect to relevant Company policies, the Company’s Code of Conduct, and other relevant laws and regulations.
  • To review complaints received from internal and external sources, regarding matters other than the financial matters which are within the purview of the Audit Committee.
  • To periodically present to the Board for adoption of appropriate changes to the policies, and oversee implementation of and compliance with these policies.
  • To review regularly the company’s compliance risk assessment plan.
  • To investigate or cause to be investigated any significant instances of non-compliance, or potential compliance violations that are reported to the committee.
  • To coordinate with other committees regarding matters brought to the committees attention that relate to issues of compliance with applicable laws and regulations.

Question 21.
Write notes on the following; Compliance officer
Answer:
Compliance officers ensure that compliance risk is adequately managed. In order to enhance effectiveness of board functioning, the compliance officer should report to the chairman on all board governance matters. A compliance officer’s should ensure the presentation of high-quality information to the board and its committees. Regulation 6(1) of SEBI (LODR) Regulations, 2015 provides that every listed entity shall appoint a qualified company secretary as the compliance officer.

Governance Risk Management Compliances and Ethics Notes