Nomination & Remuneration Committee (NRC) and Stakeholders Relationship committee (SRC)

Nomination & Remuneration Committee (NRC) and Stakeholders Relationship committee (SRC)

Ø  Companies Act, 2013, by section 178 has introduced new provisions whereby BOD shall form Nomination & Remuneration Committee (NRC) and Stakeholders Relationship Committee (SRC).

Ø  It can be regarded as an imperative step from viewpoint of stakeholders, whose money is invested in the company as the conditions stipulated in this section will:

·         Ensure company’s performance;

·         Give a sense of safety to the stakeholders regarding their funds utilization;

·         Avoid siphoning of funds by the directors or senior management.

1.   Nomination & Remuneration Committee

Ø  Now every listed company and such class or classes of companies as may be specified shall set up NRC.
Ø  Specified companies - all the public companies which fulfill any of the following given conditions:

·     Paid up capital ≥ 10 crore; or

·     Turnover ≥ 100 crore; or

·     O/s loans or borrowings or debentures or deposits > 50 crore

Composition of NRC

It shall have 3 or more non executive directors of which atleast one half shall be independent director.

Functions of NRC

Nomination & Remuneration committee shall perform the following functions:

1.    Identify the persons who are qualified to become directors and who may be appointed in senior management;

2.     Recommend to the Board for appointment and removal of identified persons;

3.     Carry out evaluation of every director’s performance;

4.   Formulate the criteria for determining qualifications, positive attributes and independence of a director;

5.   Recommend a policy to the board, relating to the remuneration for the directors, key managerial personnel and other employees.

Considerations while formulating Policy

1.    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;

2.     Clear relationship between remuneration and performance;

3. Remuneration to directors, key management personnel and senior management should involve fixed and incentive pay;

4.        Such policy shall also be disclosed in board’s report.

       Senior Management- members of core management team (excluding board), all members of management one level below executive directors and including functional heads.

2.   Stakeholders Relationship Committee (SRC)

Board shall constitute Stakeholders Relationship Committee (SRC), if the company has more than 1000

·         Shareholders and/or

·         Debenture holders and/or

·         Deposit holders and/or

·         Any other security holder

Composition of SRC

·         Chairperson: - who shall be non executive director

·         Other members: - as may be decided by the board

Purpose of SRC

The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the company.

Penal Provision

If the company fails to comply with the requirement of section 177 or section 178 then following penal provision are applicable:

         Company shall be punishable with fine which shall not be less than Rs. 1 lakh but which may extend to 5 lakhs.

         Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.

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Audit Committee

Audit committee (AC)

Ø  Relevant Provisions under Companies Act, 1956 – Section 292A, which requires establishment of audit committee by public company if it’s paid up capital is 5 crore or more.

Ø  Corresponding Provisions under Companies Act, 2013 – Section 177, it provides that every listed company and such class or classes of companies as may be specified shall constitute audit committee (AC). Rules 6 of Companies (Meetings & Powers of Board) Rules, 2014 specify the classes of companies being all the public companies which fulfill any of the following given conditions:

·         Paid up capital ≥ 10 crore; or

·         Turnover ≥ 100 crore; or

·         O/s loans or borrowings or debentures or deposits > 50 crore

These limits as existing on the last date of audited financial statement shall be taken.

Composition of audit committee

It shall have minimum 3 directors with independent directors in majority. [Section 177(2)]

Transition time period

Ø  Already existing AC in a company shall be reconstituted as per section 177(2) within one year from the commencement of this act. As the provisions of this section are effective from April 1, 2014 therefore one year time period should be reckoned from this date.

Ø  Also, in case a company which is not covered under section 292A of Companies Act, 1956 but fulfill the criteria as specified under Rule 6 of the above mentioned rules shall observe the compliance of section 177 within 1 year from the commencement of the said rules or appointment of Independent director whichever is earlier.

Functions of Audit Committee (AC)

As may be specified by the board in writing and including following:

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

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

c.        Examination of the financial statement  and the auditors’ report thereon;

d.     Approval or any subsequent modification of transactions of the company with related parties;

e.        Scrutiny of inter-corporate loans and investments;

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

g.       Evaluation of internal financial controls and risk management systems;

h.       Monitoring the end use of funds raised through public offers and related matters.

Powers of Audit Committee (AC)

a.      To call for the comments of the auditor regarding:

·         Internal control;

·         Scope of audit;

·         Observation of audit;

·         Review of Financial Statement,

before their submission to board

b.  Discuss any related issues with internal and statutory auditor and management of company

c.       Power to investigate for matters covered under functions of AC

d.      Can obtain professional advice from external sources

e.       Full access to information contained in the records of the company.

Disclosure in Board Report U/s 134

• Composition of AC and
• Reasons for not accepting the recommendation of AC.

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Vigil Mechanism

Vigil Mechanism

The meaning of the term vigil is purposeful surveillance to guard or observe. Companies Act, 2013 has introduced new provisions relating to setting up by specified companies a mechanism known as ‘Vigil Mechanism’ for directors and employees to report genuine concerns [Section 177(9)]. Following provisions need to be complied with:

• Every listed company and unlisted public company required to constitute audit committee, shall establish vigil mechanism,
• There should be adequate safeguards against the victimization of person who use such mechanism,
• There should be provision for direct access to chairperson of audit committee in appropriate or exceptional cases,
• Disclosure of Vigil Mechanism establishment on company’s website and in Board report.

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Internal Audit

In Companies Act, 1956 no provisions were there for appointment of internal auditor. Even the provision contained in CARO was also recommendatory in nature. Companies Act, 2013 has made it a statutory requirement to appoint internal auditor for certain specified companies. The provisions are contained in section 138.

A quick analysis of the provision with the rules is given below in the image:

Companies required to appoint internal auditor –

1)         The following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely:-

a)         every listed company;

b)        every unlisted public company having-

                             i.            paid up share capital ≥  Rs. 50 crore during the preceding financial year; or

                          ii.            turnover ≥ Rs. 200 crore during the preceding financial year; or

                        iii.            loans or borrowings from banks or public financial institutions ≥ Rs. 100 crore  (Outstanding at any point of time during the preceding financial year); or

                        iv.            deposits ≥ 25 crore (outstanding at any point of time during the preceding financial year); and

c)            every private company having-

                             i.            turnover ≥ 200 crore during the preceding financial year; or

                          ii.            loans or borrowings from banks or public financial institutions ≥ 100 crore (outstanding at any point of time during the preceding financial year)

Provided that an existing company covered under any of the above criteria shall comply with the requirements of section 138 and this rule within six months of commencement of such section.

Explanation - For the purposes of this rule –

                             i.            The internal auditor may or may not be an employee of the company;

                          ii.            The term “Chartered Accountant” shall mean a Chartered Accountant whether engaged in practice or not.

2)        The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.

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E-Forms

Mapping of e-forms prescribed under the companies Act, 2013 with e-forms prescribed under Companies Act, 1956

S. No.	e-form (Companies Act, 2013)	Corresponding e-Form (Companies Act, 1956)	Purpose of Form as per Companies Act, 2013
1	INC-1	1A	Application for reservation of name
2	INC-2	New form	Form for Incorporation and nomination (One Person Company)
3	INC-3	New form	Form for consent of nominee of One Person Company
4	INC-4	New form	Form for change in member/nominee of One Person Company
5	INC-5	New form	Form for intimation of exceeding threshold of One Person Company
6	INC-6	New form	Application for Conversion
7	INC-7	1	Application for Incorporation of Company (Other than One Person Company)
8	INC-18	New form	Application to Regional Director for conversion of section 8 company into any other kind of company
9	INC-20	New form	Intimation to Registrar of revocation or surrender of license issued under section 8
10	INC-21	19	Declaration prior to the commencement of business
11	INC-22	18	Notice of situation or change of situation of registered office and verification
12	INC-23	1AD, 24AAA	Application to Regional director for approval to shift the registered office from one state to another state or from jurisdiction of one registrar to another within the state
13	INC-24	1B	Application for approval of Central Government for change of name
14	INC-27	1B, 62	Conversion of public company into private company or private company into public company
15	INC-28	21	Notice of order of the Court or  other authority
16	PAS-3	2	Return of allotment
17	SH-7	5	Notice to Registrar for alteration of share capital
18	SH-8	New form	letter of offer
19	SH-11	4C	Return in respect of buy back of securities
20	CHG-1	8	Application for registration of creation, modification of charge (other than those related to debentures) including particulars of modification of charge by Asset Reconstruction Company in terms of Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI)
21	CHG-4	17	Particulars for satisfaction of charge
22	CHG-6	15	Notice of appointment or cessation of receiver or manager
23	CHG-9	10	Application for registration of creation or modification of charge for debentures or rectification of particulars filed in respect of creation or modification of charge for debentures
24	MGT-6	22B	Form of return to be filed with the Registrar
25	MGT-14	23	Filing of Resolutions and agreements to the Registrar under section 117
26	DIR-3	DIN1	Application for allotment of Director Identification Number
27	DIR-6	DIN4	Intimation of change in particulars of Director to be given to the Central Government
28	DIR-11	New form	Notice of resignation of a director to the Registrar
29	DIR-12	32, 32AD	Particulars of appointment of directors and the key managerial personnel and the changes amongst them
30	MR-1	25C	Return of appointment of managing director or whole time director or manager
31	MR-2	25A	Form of application to the Central Government for approval of appointment or reappointment and remuneration or increase in remuneration or waiver for excess or over payment to managing director or whole time director or manager and commission or remuneration to directors
32	URC-1	37, 39	Application by a company for registration under section 366
33	FC-1	44	Information to be filed by foreign company
34	FC-2	49, 52	Return of alteration in the documents filed for registration by foreign company
35	FC-3	52	List of all principal places of business in India established by foreign company
36	FC-4	PTII	Annual Return
37	GNL-1	61	Form for filing an application with Registrar of Companies
38	GNL-2	62	Form for submission of documents with Registrar of Companies
39	GNL-3	1AA	Particulars of person(s) or director(s) or charged or specified for the purpose of section 2(60)
40	ADJ	New form	Memorandum of Appeal
41	MSC-1	New form	Application to ROC for obtaining the status of dormant company
42	MSC-3	New form	Return of dormant companies
43	MSC-4	New form	Application for seeking status of active company
44	RD-1	24A	Form for filing application to Regional Director
45	RD-2	24AAA	Form for filing petitions to Central Government (Regional Director)
46	CG-1	65	Form for filing application or documents with Central Government
47	-	66	Form for submission of compliance certificate with the Registrar
48	-	5INV	Statement of unclaimed and unpaid amounts
49	-	14LLP	Form for intimating to Registrar of Companies of conversion of the company into limited liability partnership (LLP).
50	-	20B	Form for filing annual return by a company having a share capital with the Registrar
51	-	21A	Particulars of annual return for the company not having share capital
52	-	23AC	Form for filing balance sheet and other documents with the Registrar
53	-	23ACA	Form for filing Profit and Loss account and other documents with the Registrar
54	-	23ACA-XBRL	Form for filing XBRL document in respect of Profit and Loss account and other documents with the Registrar
55	-	23AC-XBRL	Form for filing XBRL document in respect of balance sheet and other documents with the Registrar
56	-	23C	Form of application to the Central Government for appointment of cost auditor
57	-	23D	Form for Information by Cost Auditor to Central Government
58	-	35A	Information to be furnished in relation to any offer of a scheme or contract involving the transfer of shares or any class of shares in the transferor company
59	-	A-XBRL	Form for filing XBRL document in respect of compliance report and other documents with the Central Government
60	-	FTE	Application for striking off the name of company under the Fast Track Exit(FTE) Mode
61	-	I-XBRL	Form for filing XBRL document in respect of cost audit report and other documents with the Central Government
62	-	Refund	Application for requesting refund of fees paid
63	-	Bank ACC	Application for simplifying bank account opening process as user shall not be required to submit any physical application form.
64	-	Investor Complaint Form	Form for filing complaint(s) against the company
65	-	67AD.	Clarification

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