A company crosses ₹100 crore in turnover and assumes the board can keep handling auditor oversight informally. From that threshold an Audit Committee with a majority of independent directors becomes mandatory, and so does a Nomination and Remuneration Committee. Get the composition wrong — too few independent directors, or the wrong person in the chair — and the constitution itself is defective.
The Audit Committee and the NRC are required under Sections 177 and 178 on the same size thresholds, and a Stakeholders Relationship Committee once the company has more than 1,000 security holders.
The bottom line
Audit Committee and NRC: every listed public company, plus public companies with paid-up capital ≥ ₹10 crore, turnover ≥ ₹100 crore, or aggregate borrowings, debentures and deposits above ₹50 crore.
Stakeholders Relationship Committee: any company with more than 1,000 shareholders, debenture holders, deposit holders or other security holders at any time in a year.
Composition matters: the Audit Committee needs a majority of independent directors; the NRC needs non-executive directors with at least half of them independent.
The Audit Committee
Section 177, with Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014, requires one for every listed public company, and for public companies with paid-up capital of ₹10 crore or more, turnover of ₹100 crore or more, or aggregate outstanding loans, borrowings, debentures and deposits above ₹50 crore, tested on the latest audited financials.
The composition is a minimum of three directors with independent directors forming a majority, and a majority of members including the chairperson must be able to read and understand financial statements. Financial literacy is a stated requirement, not an assumption.
Its remit is wide. It recommends the appointment, remuneration and terms of the auditors, reviews and scrutinises the financial statements and the auditor's report, approves or modifies related party transactions and grants omnibus approvals, scrutinises inter-corporate loans and investments, evaluates internal financial controls and risk management, monitors the end use of funds, and oversees the vigil mechanism.
It is, in effect, the board's independent financial and compliance watchdog.
The Nomination and Remuneration Committee
Sections 178(1) to 178(4) apply the same thresholds as the Audit Committee.
The composition is three or more non-executive directors, of whom at least one-half must be independent. The chairperson of the company may be a member of the NRC but cannot chair it — a small rule that a surprising number of companies breach by default, because the chairperson chairs everything else.
Its remit is to formulate the criteria for directors' qualifications, positive attributes and independence, recommend a remuneration policy for directors, KMP and senior management, identify people qualified to become directors or senior management, and carry out performance evaluation of directors.
The Stakeholders Relationship Committee
Sections 178(5) and 178(6) require one where a company has more than 1,000 shareholders, debenture holders, deposit holders or any other security holders at any time during a financial year.
Its chairperson is a non-executive director, with the other members decided by the Board. Its job is to resolve the grievances of security holders — share transfers, non-receipt of dividends or balance sheets, and similar complaints.
The trigger is the number of holders rather than any financial threshold, which is why a company can cross into this requirement after a rights issue without any of its financial metrics moving.
Composition at a glance
| Committee | Trigger | Composition |
|---|---|---|
| Audit Committee | Listed public + capital/turnover/borrowing thresholds | ≥ 3 directors; majority independent; financially literate |
| NRC | Same thresholds | ≥ 3 non-executive directors; ≥ ½ independent; company chair can't chair it |
| Stakeholders Relationship | > 1,000 security holders | Non-executive chairperson + Board-decided members |
The CSR Committee under Section 135 is a fourth statutory committee, triggered by its own thresholds.
What getting it wrong costs
Contravention of the Section 177 and 178 committee provisions makes the company liable to ₹5 lakh and every officer in default to ₹1 lakh, under Section 178(8).
Note what counts as a contravention. A defectively constituted committee — too few independent directors, or the wrong chairperson — is itself the breach, whether or not the committee ever did anything wrong. Composition is not a detail to improvise around who happens to be available.
Common mistakes
- Too few independent directors. The Audit Committee needs a majority, the NRC at least half.
- Letting the company chairperson chair the NRC. They may sit on it and cannot chair it.
- Missing the SRC trigger, which turns on crossing 1,000 security holders rather than on size.
- Treating committee approval of related party transactions as optional. Where an audit committee exists, it must approve them.
- Not disclosing composition. The Board's Report must disclose the Audit Committee's composition, and give reasons where a recommendation was not accepted.
A working routine
- Test the Audit Committee and NRC thresholds: listed public, or ₹10 crore capital, ₹100 crore turnover, or borrowings above ₹50 crore.
- Constitute the Audit Committee with at least three directors, a majority independent and financially literate.
- Constitute the NRC with at least three non-executive directors, at least half independent, and someone other than the company chairperson in the chair.
- Count security holders and constitute the SRC once you exceed 1,000.
- Route auditor oversight, related party approvals and the vigil mechanism through the Audit Committee.
- Disclose committee composition in the Board's Report.
Frequently asked questions
Which companies must have an Audit Committee? Every listed public company, and public companies with paid-up capital of ₹10 crore or more, turnover of ₹100 crore or more, or borrowings, debentures and deposits above ₹50 crore.
What is the Audit Committee's composition? At least three directors with a majority of independent directors, most of whom can read and understand financial statements.
Can the company chairperson chair the NRC? They may be a member but cannot chair it.
When is a Stakeholders Relationship Committee required? Once the company has more than 1,000 shareholders, debenture holders or other security holders at any time in a financial year.
What is the penalty for a defective committee? Under Section 178(8), ₹5 lakh on the company and ₹1 lakh on every officer in default.
Do private companies need these committees? The Audit Committee and NRC thresholds are framed for public companies. A private company that converts, or that crosses into public company status, picks up the obligation with it.
Primary sources
- Sections 177 and 178, Companies Act, 2013; Rule 6, Companies (Meetings of Board and its Powers) Rules, 2014
- Section 135 for the CSR Committee; SEBI (LODR) Regulations 18 to 20 for listed companies