Corporate Law NRC an SRC Koushik Chatterjee

Committees
Sections AC : Section 177 CSR C : Section 135 NRC : Section 178 SRC : Section 178

Name of the Audit Committee Corporate Social Nomination and Stakeholders

Committees Responsibility Remuneration Relationship
Committee Committee and Committee

Section 178. Nomination and Remuneration Committee

NRC
(1) The Board of Directors of every listed company and such other class or classes of companies, as may be
prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-
executive directors out of which not less than one-half shall be independent directors:
Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a
member of the Nomination and Remuneration Committee but shall not chair such Committee.
(2) The Nomination and Remuneration Committee shall identify persons who are qualified to become directors
and who may be appointed in senior management in accordance with the criteria laid down, recommend to the
Board their appointment and removal and shall carry out evaluation of every director’s performance.
(3) The Nomination and Remuneration Committee shall formulate the criteria for determining qualifications,
positive attributes and independence of a director and recommend to the Board a policy, relating to the
remuneration for the directors, key managerial personnel and other employees.
(4) The Nomination and Remuneration Committee shall, while formulating the policy under sub-section (3)
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:
Provided that such policy shall be disclosed in the Board's report.
SRC
(5) The Board of Directors of a company which consists of more than one thousand shareholders, debenture-
holders, deposit-holders and any other security holders at any time during a financial year shall constitute a
Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such
other members as may be decided by the Board.
(6) The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the
company.
(7) The chairperson of each of the 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.
(8) In case of any contravention of the provisions of section 177 and this section, the company shall be punishable
with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and 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:
Provided that non-consideration of resolution of any grievance by the Stakeholders Relationship Committee in
good faith shall not constitute a contravention of this section.
Explanation.—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.

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Introduction: The Companies Act, 2013 and corresponding rule, Companies (Meetings of Board and its
Powers) Rules, 2014 has mandated the constitution of Nomination and Remuneration Committee and
Stakeholders Relationship committee for certain classes of Companies, which was already recommendatory
under clause 49 of the Listing agreement.
Applicability of NRC:
The Nomination and Remuneration Committee is applicable to the following classes of Companies
 Every listed Company
 Every other Public company-
o Having Paid up capital of Rs.100 crores or more; or
o Which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding
Rs.50 Crores.
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.
Constitution of the Board:
The above mentioned classes of companies shall constitute the Nomination and Remuneration Committee
consisting of –
Three or more Non-Executive Directors out of which not less than one half shall be Independent
Directors.
The chairperson of the company (whether executive or non-executive) may be appointed as a member
of the Nomination and Remuneration Committee but shall not chair such Committee.

Responsibilities of NRC: The Nomination and Remuneration Committee shall-

 Identify persons who are qualified to become directors and who may be appointed in senior management in
accordance with the criteria laid down,
 Recommend to the Board their appointment and removal,
 Carry out evaluation of every director’s performance.
 Formulate the criteria for determining qualifications, positive attributes and independence of a director and
 Recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel
and other employees.

Formulation of NRC policy: The Nomination and Remuneration Committee shall 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, KMPs 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: [The policy shall be disclosed in the Board’s report.]
Penalty:
Company Fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.5,00,000/-

Officer Imprisonment for a term which may extend to one year, or

Fine which shall not be less than Rs.25,000/- but which may extend to Rs.1,00,000/- or
with both.
The non-consideration of resolution of any grievance by the Stakeholders Relationship Committee in
good faith shall not constitute a contravention of this section.
‘‘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.
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Section 178. Stakeholders Relationship Committee (SRC):
( SECTION 178 (5) to178 (8) of the Companies Act, 2013 )

The Board of Directors of a company which consists of more than one thousand (1,000)
shareholders, debenture-holders, deposit-holders and any other security holders at any time
during a financial year shall constitute a Stakeholders Relationship Committee consisting of
a chairperson who shall be a non-executive director and such other members as may be decided by
the Board.
The SRC shall consider and resolve the grievances of security holders of the company.
The chairperson of each of the 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.
1. Primary Objectives
The Stakeholder Relationship Committee (heirinafter referred as the “Committee”) is a committee of
the Board of Directors (heirinafter referred as the “Board”) established in accordance with the
Company’s constitution and authorised by the Board to assist it in fulfilling its statutory, fiduciary and
regulatory responsibilities. It has the authority and power to exercise the role and responsibilities set out
in this charter and granted to it under any separate resolutions of the Board from time to time. The
Committee shall as per this charter and as per the policy approved by the Board have primary objective
of:
 Formulation of policies and procedures in line with the statutory guidelines to ensure speedy
disposal of various requests received from security holders from time to time;
 The main objective of the Committee is to consider and resolve the grievances of security holders
of the Company;
 To approve, register, refuse to register transfer / transmission of shares and other securities
 Monitor and review any investor complaints received by the Company or through SEBI; and
SCORES and ensure its timely and speedy resolution, in consultation with the Company
Secretary and Compliance officer and RTA of the Company.
2. COMPOSITION
2.1 The Committee shall comprise of minimum three Directors as members as decided by the Board
from time to time.
2.2 The Chairperson of the nomination and remuneration committee shall be an Non-executive
Director.
3. SECRETARY
The Company Secretary shall act as the Secretary to the Committee Meetings.
4. QUORUM
The quorum necessary for transacting business at a meeting of the Committee shall be two members
or one-third of the members of the Committee. A duly convened meeting of the Committee at which the
requisite quorum is present shall be competent to exercise all or any of the authorities, powers and
discretions vested in or exercisable by the Committee.
5. MEETING
The Committee shall meet at least as when required or as stipulated by Board from time to time.
6. ANNUAL GENERAL MEETING
The Chairman of the Committee shall attend the Annual General Meeting to answer shareholder
queries.
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7. ROLE OF STAKEHOLDER’S RELATIONSHIP COMMITTEE
 The primary role of the SRC shall be to as follows:-
 Formulation of policies and procedures in line with the statutory guidelines to ensure speedy disposal
of various requests received from security holders from time to time;
 Redressal of shareholders and investor complaints/ grievances e.g. transfer of shares, non-receipt of
balance sheet, non-receipt of declared dividend etc.;
 To approve, register, refuse to register transfer / transmission of shares and other securities;
 To sub-divide, consolidate and / or replace any share or other securities certificate(s) of the Company;
 To authorize printing of Share Certificates post authorization from the Board of Directors of the
Company;
 To issue the Share Certificates under the seal of the Company, which shall be affixed in the presence
of, and signed by:
i. any two Directors (including Managing or Whole‐time Director, if any), and
ii. Company Secretary / Authorised Signatory;
 To authorize issue of Duplicate Share Certificates and Share Certificates after Split / Consolidation /
Rematerialization and in Replacement of those which are defaced, mutilated, torn or old, decrepit,
worn out or where the pages on reverse for recording transfers have been utilized
 To approve the transmission of shares or other securities arising as a result of death of the sole/any
joint shareholder or operation of law ;
 To monitor and review the performance and service standards of the Registrar and Share Transfer
Agents of the Company and provides continuous guidance to improve the service levels for investors;
 Monitor and review any investor complaints received by the Company or through SEBI, SCORES and
ensure its timely and speedy resolution, in consultation with the Company Secretary and Compliance
officer and RTA of the Company.

8. POWERS AND AUTHORITY

8.1 The Committee has direct and unlimited access to all resources necessary to discharge its duties and
responsibilities, including engaging counsel, or other experts as it considers appropriate. This may include
requesting management or engaging external remuneration consultants to provide information to the
Committee. The Committee also has the authority to conduct or direct any investigation required to fulfill its
responsibilities.
8.2 The Committee has direct authority to review the performance and service standards of the Registrar
and Share Transfer Agents of the Company and provides continuous guidance to improve the service levels
for investors.
8.3 The Committee may sub-delegate all or any of its power as referred in this charter to any subcommittee,
Managing Director or Director to timely and speedy resolution of the shareholders complaints / grievances /
requests etc.
9. OTHER FUNCTIONS
9.1 Perform other activities related to this Charter as requested by the Board.
9.2 Carry out additional functions as is contained in the SEBI (Listing Obligations and Disclosures Requirements)
Regulations, 2015 or other regulatory requirements applicable to the Company.

10. REVIEW OF COMMITTEE CHARTER

The adequacy of this charter shall be reviewed and reassessed by the Committee as may be deem fit by the Committee
and appropriate recommendations shall be made to the Board to update the same based on the changes that may be
brought about to the regulatory framework, from time to time.

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Formation of Stakeholder Relationship Committee
Under Clause 49 of the Listing Agreement, a committee under the chairmanship of a non-executive director and
such other members as may be decided by the board of the company would be formed to specifically address
the redressal of the grievances of shareholders, debenture holders, and other security holders. This committee
is formed to resolve grievances of the security holders of the company including complaints related to the
transfer of shares, non-receipt of balance sheet, non- receipt of declared dividends, etc.

One of the main focuses of the Act is to strengthen corporate governance by introducing strict provisions to
maintain the internal management of the company. The Act by the inclusion of a separate committee to
specifically address the grievances of the stakeholders provides not only a podium for them to voice their
concerns but also the freedom and power to correct processes that affect the company. Measures of this sort
help to improve the management and affairs of the company.

Section 178 (5) of the Act provides for the formation of a stakeholder relationship committee. This is a board
committee or committee formed at the board level of a company. The board of directors of a company which
consists of more than one thousand shareholders, debenture holders, deposit holders and any other security
holders is to constitute a stakeholders relationship committee. The Act has allowed the inclusion of any security
holders to qualify for the number of one thousand security holders along with shareholders, debenture holders,
and deposit holders. Debentures have been defined to include debenture stock, bonds or any other instrument
of a company evidencing a debt, whether constituting a charge on the assets of the company or not. Deposits
have been defined to include any receipt of money by way of deposit or loan or in any other form by a company
but does not include such categories of the amount as may be prescribed in consultation with the Reserve Bank
of India. The intention is to allow a company (be it public or private) to be able to constitute a stakeholder
relationship committee for better governance and management.

The qualification of one thousand such shareholders, debenture holders, deposit holders and any other security
holders may be considered at any time during a financial year. This requirement also makes it more flexible for
a company to manage its number of members to be eligible to constitute a stakeholders relationship
committee.

Composition of the Stakeholder Relationship Committee

Such a stakeholders relationship Committee shall consist of a chairperson who shall be a non-executive director
and shall have any other members as may be decided by the Board. A non-executive director is one who is not
involved in the day to day management and operations of the company and does not form part of the executive
decisions of the company. Investors in a company usually prefer to be appointed as non-executive directors so
they need not bear the liabilities of the acts or omissions carried out by the company and its founder
directors. Apart from the chairperson, the board has the discretion to decide any number and qualification of
members of this committee. Although the discretion of the board is a good way to permit the formation of the
committee, it should always be in the best interests of the company. There should not be a member of this
committee who may be an interested party to a dispute or non-compliance that has occurred in the company
and referred to the stakeholder relationship committee. The board should have a policy in place to decide the
members of the committee to serve the best interests of the company.

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Investors who provide financial assistance to a company also usually include the appointment of their
representatives on board committees such as stakeholder relationship committee, audit committee, etc. in the
same form and manner as their representation on the board of the company. Such investor directors (usually of
a non-executive nature) should have sufficient knowledge of the operations or the management of the company
to be able to contribute productively to such committees. The board representatives may also have a casting
vote in their favor in the event of a dispute that occurs in decisions or resolutions by such committee.

The chairperson appointed in the stakeholders’ relationship Committee or any other member of the company,
(due to reasons of his absence, provided the chairperson authorizes him) is mandatorily required to attend the
general meetings of the company.

Functions of the Stakeholder Relationship Committee

The main function of the stakeholders’ relationship Committee is to consider and resolve the grievances of the
security holders of the company. Although this is a very wide function of the committee, the Act does not
provide for enabling of provisions as to how this would be implemented. Will the company have a policy in place
to implement the means and methods of resolving a dispute? Or will they take it on a case-to-case basis and
consider the best method to resolve a grievance?

The manner of resolution and situations of a deadlock are also things that need to be considered by the board
for the policies in such committees. There seems to be no clarity on this front, and while some direction is
always good to ensure practices are created and followed, complete discretion may allow each company to
customize it according to their businesses and management.

Redressal of Grievances

The Act also does not provide for any specific kind of grievances that may be considered by the stakeholder
relationship committee and while this may have both its pros and cons, the onus is on the board to decide the
priority for a particular grievance of a stakeholder. Some examples may be non-receipt of dividends or financial
statements. The recourse for these grievances are already available in law, but the creation of a stakeholder
relationship committee helps to resolve such grievances at an earlier and less disputed level.

Shareholders may approach the committee or submit their grievance, and if it is something that is procedural,
it could be managed by the company itself and if it is something that needs the inputs of a professional, board
may decide to engage the services of such professional to resolve the grievance. The biggest advantage of such
a stakeholder relationship Committee is the non-adversarial approach that would be adopted by the company to
resolve issues and to ensure smooth management of the company.

The Act also does not provide for the time periods within which a particular grievance needs to be resolved.
This may work against the interest of the company as there is no statutory requirement binding the company to
resolve the matter. The board should, in the best interests of the company, provide for timelines based on the
grievance submitted to the board or the board may also categorize the issues by priority, provided it is done in
the best interests of the company.

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Penalties

The Act further provides for penalty for non-compliance with provision 178, i.e., constitution and
functioning of a stakeholder relationship committee in a company which consists of more than one
thousand shareholders, debenture holders, deposit holders and any other security holders.

Such company shall be punishable with fine which shall not be less than Indian Rupees one lakh but
which may extend to Indian Rupees five lakh and 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 Indian Rupees twenty-five thousand but which may extend to Indian Rupees One lakh or with
both. The Act has made stringent provisions for non-compliances leading to not just fine but also
including imprisonment to every officer in default in the company.

The only exception to the contravention of Section 178 is in situations where the non-consideration of a
resolution of any grievance by the Stakeholder Relationship Committee is in good faith. It is suggested
that there should be reasoned responses to the non-consideration of any grievance or the non-
consideration of a resolution of any grievance (provided it is in good faith) submitted by a stakeholder or
debenture holder or deposit holder or any other holders by the committee.

The Act has made stringent provisions for non-compliances leading to not just fine but also including
imprisonment to every officer in default in the company. The only exception to the contravention of
Section 178 is in situations where the non-consideration of a resolution of any grievance by the
Stakeholder Relationship Committee is in good faith.

It is suggested that there should be reasoned responses to the non-consideration of any grievance or the
non- consideration of a resolution of any grievance (provided it is in good faith) submitted by a
stakeholder or debenture holder or deposit holder or any other holders by the committee.

Conclusion

While stakeholders can be hopeful that more processes being included in a company will only improve the
management and operations of a company, it is still to be seen how the inclusion of such a committee
would improve the corporate governance of a company. It is a suggestion that specific guidelines be
provided for situations where the company is unable to resolve a grievance of a stakeholder and this may
be referred to a higher committee (possibly within the company) for guidance.

It is also suggested that a report be included by this committee which records the manner and methods
of resolution of grievances in every financial year in the company. This may also be included in the board
report of the company to act as a precedent for the company.