One of the important things we discuss with promoters as part of our IPO Readiness Assessment is the board structure — specifically, the board committees for listed companies that regulators expect to see in place. We ask whether these committees are formed, whether they’re properly constituted, and whether they’re actually functioning.
Most promoters know the committees are required. However very few understand what they’re genuinely supposed to do, who must sit on them, and what the personal consequences are if something goes wrong. Under the Companies Act 2013, four committees are non-negotiable for listed companies. Here’s what you need to know about each.
Audit Committee — Section 177
Who needs to constitute it
Every listed company, or public companies with paid-up capital of INR 10 crore or more, turnover of INR 100 crore or more, or outstanding loans, borrowings, debentures or deposits exceeding INR 50 crore.
Composition
- Minimum three directors, with majority independent directors.
- For listed companies, two-thirds of members must be independent directors.
- All members must be financially literate. This means they can read and understand a balance sheet, P&L, and cash flow statement.
- At least one member must have accounting or related financial management expertise.
- The chairperson must be an independent director, and must be present at the AGM to answer shareholder queries.
Functions
This is the most powerful committee on any board. The Audit Committee recommends:
- appointment and remuneration of auditors,
- reviews financial statements before they go to the board,
- approves related party transactions,
- scrutinises inter-corporate loans and investments,
- evaluates internal financial controls and risk management systems,
- monitors end-use of funds raised through public offers.
- oversees the vigil mechanism, the whistleblower framework and
- ensure that employees and directors have a direct line to the Audit Committee chairperson in exceptional cases.
Powers
This committee has the authority to investigate any matter within its terms of reference, seek information from any employee, obtain outside legal or professional advice at the company’s expense, and secure the attendance of external experts.
Penal provisions:
- Company: Fine between INR 1 lakh and INR 5 lakh, and
- Every officer in default: imprisonment up to one year or fines between INR 25,000 and INR 1 lakh, or both.
On top of this, SEBI can impose additional penalties under LODR, including trading suspension and mandatory public disclosure of non-compliance. Under this framework, it carries real personal exposure for every director of the committee.
Nomination and Remuneration Committee (NRC) – Section 178
Who needs to constitute it
Every listed company, or public companies with paid-up capital of INR 10 crore or more, turnover of INR 100 crore or more, or outstanding loans, borrowings, debentures or deposits exceeding INR 50 crore.
Composition
- Minimum three directors, with independent directors forming the majority.
- For listed companies, two-thirds of members must be independent directors.
- The chairperson must be an independent director and he or an authorised person on his behalf must be present at the AGM to answer shareholder queries on remuneration matters.
Functions
- NRC identifies persons qualified to become directors and recommends their appointment and removal from the board.
- Formulates the eligibility criteria, qualifications, attributes, and independence of directors.
- Recommends the remuneration policy for Directors, KMPs, and Senior management ensuring that pay levels are reasonable enough to attract and retain the right people, and is linked to performance benchmarks.
Thus, the NRC carries out the evaluation of every director’s performance and devises the board diversity policy. It is not an internal document and needs to be disclosed during the Board’s report and meeting
Penal provisions
- Company: fine between INR 1 lakh and INR 5 lakh, and
- Officers in default: imprisonment up to one year or fines between INR 25,000 and INR 1 lakh, or both.
In my experience, the NRC is the most underutilised committee in most listed companies. Director evaluation becomes a form-filling exercise. Remuneration policy is drafted and not revised regularly. That’s a missed opportunity and increasingly, a regulatory risk.
Stakeholders Relationship Committee (SRC) – Section 178(5)
Who needs to constitute it
Any company that has more than 1,000 shareholders, debenture holders, deposit holders, or any other security holders at any time during a financial year. For a listed company, this threshold is almost always crossed on day one.
Composition
- The chairperson must be a non-executive director.
- Other members are decided by the board.
- The compliance officer of the company should also be part of the committee’s working structure.
- The chairperson or an authorised member must attend the AGM.
Functions
- The SRC’s primary mandate is to consider and resolve the grievances of security holders.
- Includes complaints related to transfer of shares, non-receipt of balance sheets, non-receipt of declared dividends, and other investor-related matters.
- Oversees the performance of the registrar and share transfer agents and ensures that grievances are resolved within SEBI’s prescribed timelines.
- Must report the status of complaints to the board periodically
Penal provisions
- Company: fine between INR 1 lakh and INR 5 lakh, and
- Officers in default: imprisonment up to one year or fines between INR 25,000 and INR 1 lakh, or both.
Non-consideration of a grievance in good faith does not constitute a contravention, but persistent failure to resolve complaints within mandated timelines would.
Corporate Social Responsibility Committee (CSRC) — Section 135
Who needs to constitute it
Every company including holding companies, subsidiaries, and foreign companies with branch or project offices in India that meets the below criteria
- Net worth of INR 500 crore or more, turnover of INR 1,000 crore or more,
- Net profit of INR 5 crore or more during any financial year.
- Any of the three preceding financial years are counted.
Composition
- Three or more directors, with at least one being an independent director.
- A private company with only two directors may constitute the committee with those two directors. Private companies are not required to appoint independent directors
Functions
The CSR Committee formulates and recommends to the board a CSR Policy indicating the activities to be undertaken drawn from Schedule VII of the Companies Act, which
- covers areas including poverty eradication, education, gender equality, environmental sustainability, heritage protection, and rural development.
- Recommends the expenditure to be incurred on CSR activities and monitors the policy’s implementation over time.
- Must also institute a transparent monitoring mechanism for CSR projects and programmes.
- The board must ensure the company spends at least 2% of its average net profits from the preceding three financial years on CSR activities every year.
- If the company fails to spend this amount, the reason must be stated in the Board’s report.
Penal provisions
Under the amended Section 135(7),
- Company: if a company fails to spend the mandated CSR amount and does not transfer the unspent amount to the prescribed fund within the stipulated period, the company is liable to a fine of twice the amount required to be transferred or INR 1 crore, whichever is less.
- Officers in default: a fine of one-tenth of the amount required to be transferred or INR 2 lakh, whichever is less.
Risk Management Committee (RMC) — SEBI LODR Regulation 21
The RMC isn’t mandated under The Companies Act, but is required under SEBI’s Listing Obligations and Disclosure Requirements Regulations. It applies only to a specific band of listed companies, not every listed entity by default.
Who needs to constitute it
The top 1,000 listed entities, determined on the basis of market capitalization as at the end of the immediate preceding financial year, and High Value Debt Listed Entities — entities with outstanding non-convertible debt securities of ₹500 crore and above. If you’re outside this bracket at IPO, RMC isn’t yet mandatory — but it’s worth constituting anyway once your scale approaches these thresholds.
Composition
The board must constitute a Risk Management Committee with a minimum of three members. The majority must be board directors, including at least one independent director, and senior management executives may also be inducted as members.
Functions
The RMC formulates a detailed risk management policy that includes a framework for identifying risks with a specific focus on financial, operational, sectoral, ESG, and cyber risks, along with mitigation measures, internal control systems, and business contingency plans. It monitors implementation of the policy, ensures systems are in place to evaluate risk on an ongoing basis, reviews the policy annually, and keeps the board informed of its discussions and recommendations.
Powers
The Risk Management Committee has the power to seek information from any employee, obtain outside legal or other professional advice, and secure the attendance of outside experts where it considers necessary.
Penal provisions
Non-constitution or non-compliance is dealt with through SEBI’s LODR enforcement and Standard Operating Procedure framework for non-compliant listed entities, which can include monetary fines, freezing of promoter holdings, and trading restrictions.
What I Tell Every Promoter and Independent Director
Constituting these committees is the easy part. Getting the paperwork filed, names appointed, meetings scheduled any competent company secretary can do that in a week. What’s harder is the execution, what actually protects the company, its directors, and ultimately its shareholders is making these committees work as they were intended to. Real deliberation. Substantive minutes. Directors who understand what they’re signing and why.
There are Audit Committee meetings where nobody questions a related party transaction that deserves serious scrutiny. There are NRC evaluations that praise every director uniformly because nobody wants an uncomfortable conversation. Same investor complaints appear quarter after quarter with no resolution in sight by the SRC. These aren’t just governance failures. Under the Companies Act 2013 and SEBI’s LODR framework, they carry financial penalties, regulatory action, and in serious cases, personal criminal liability for officers in default.
Even the busiest of directors need to upgrade themselves for their own safety. At Omnifin, our director training workshops are built around exactly these fault lines. Directors’ training programs and workshops enable them to be abreast of the fast-changing regulatory landscape in India. We’re not working in a world where a person will be excused from penalties just because he is a senior member of the profession or is an experienced director. If you’re a director, you’re accountable!
–
Dr. Vikash Goel is Managing Partner at Omnifin, an IPO Advisor, Valuation Expert, and Independent Director. He holds a PhD and advises promoters and boards on governance, capital markets readiness, and strategic finance.