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.