Nomination and Remuneration Committee and Stakeholders Relationship Committee (Section 178 of the Companies Act, 2013) :
Section 178 of the Companies Act, 2013 came into force from 1st April, 2014 which provides for Nomination and Remuneration Committee and Stakeholders Relationship Committee. According to this section:
Sections 178 (1) to (4) lay down the provisions in respect of the Nomination and Remuneration Committee as under:
Nomination and Remuneration Committee
(i) Formation of nomination and remuneration committee: A nomination and remuneration committee shall be constituted by the Board of directors of:
(a) Every listed company, and
(b) Such other class or classes of companies as may be prescribed.
Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014 has prescribed the following classes of companies that shall constitute Nomination and Remuneration Committee of the Board:
(1) all public companies with a paid up capital of ten crore rupees or more;
(2) all public companies having turnover of one hundred crore rupees or more;
(3) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding fifty crore rupees or more.
Explanation.- The paid up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposes of this rule.
“Provided that public companies covered under this rule which were not required to constitute Audit Committee under section 292A of the Companies Act, 1956 shall constitute their Audit Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier:
Provided further that public companies covered under this rule shall constitute their Nomination and Remuneration Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier” .
(ii) Composition of nomination and remuneration committee:
(a) This committee shall consist of 3 or more non-executive directors out of which not less than one-half shall be independent directors.
(b) The Chairman (whether executive or non-executive) of the company shall not chair such a committee. However, he may be appointed as a member to the committee.
(c) The chairperson or in his absence, any other member of the committee authorised by him in this behalf shall attend the general meetings of the company.
(iii) Constitution of the committee [Sub section (2)]:
(a) The Nominations and Remuneration Committee shall
(b) identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down.
(c) recommend to the Board their appointment and removal of directors and senior management carry out evaluation of every director‘s performance.
(iv) The Nominations and Remuneration Committee shall formulate the criteria for determining qualifications; positive attributes and independence of a director recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees [Sub section (3)].
(v) According to section 178(4), the Nomination and Remuneration Committee shall, while formulating the policy under sub-section (3) of section 178 ensure that—
(a) 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;
(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
(c) 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.
It is imperative to disclose such a policy in Board‘s Report.
(vi) Penalty for contravention: Same as penalty mentioned in the topic of Audit Committee.
Section 178 (5) and (6) lay down the provisions relating to the formation, constitution and functioning of the Stakeholders Relationship Committee as under:
(i) Formation and constitution of stakeholder’s relationship committee: The Board of Directors of a company which consists of more than 1000 shareholders, debenture- holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee.
(ii) Objective of the committee: The Stakeholders Relationship Committed shall consider and resolve the grievances of security holders of the company. This committee shall protect the interests of all security holders, not merely the equity investors.
(iii) Chairperson of stakeholder’s relationship committee: It shall be headed by a chairperson who shall be a non-executive director and consist of such other members as may be decided by the Board.
Section 178 (7) provides that the chairperson of each of the above committees constituted under this section or, in his absence, any other member of the committee authorised by him in this behalf shall attend the general meetings of the company.
Section 178 (8) provides for the penalty for contravention of any of the provisions of either section 177 or 178 and has been explained above (after section 177).
Provided that the non-consideration of a resolution of any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of section 178.
Here, for the purposes of section 178, the expression “senior management” means personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive directors, including the functional heads. Penalty for contravention: Same as penalty mentioned in the topic of Audit Committee.