COMMITTEES UNDER SECURITIES AND EXCHANGE BOARD OF INDIA (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015
read with
PROVISIONS AS UPDATED BY KOTAK COMMITTEE
Regulation 18 : AUDIT
COMMITTEE
Regulation 18 under
Chapter IV (Obligations of Listed Entity which has Listed its Specified
Securities) of Securities and Exchange Board of India (Listing Obligations and
Disclosure Requirements) Regulations, 2015 is as under:
"(1) Every listed
entity shall constitute a qualified and independent audit committee in
accordance with the terms of reference, subject to the following:
(a) The
audit committee shall have minimum three directors as members.
(b) Two-thirds of the members of audit
committee shall be independent directors.
(c) All members of audit committee shall
be financially literate and at least one member shall have accounting or
related financial management expertise.
Explanation
(1).-For the purpose of this regulation, 'financially literate' shall mean the
ability to read and understand basic financial statements i.e. balance sheet,
profit and loss account, and statement of cash flows.
Explanation
(2).-For the purpose of this regulation, a member shall be considered to have
accounting or related financial management expertise if he or she possesses
experience in finance or accounting, or requisite professional certification in
accounting, or any other comparable experience or background which results in
the individual‘s financial sophistication, including being or having been a
chief executive officer, chief financial officer or other senior officer with
financial oversight responsibilities.
(d) The chairperson of the audit committee shall be an
independent director and he shall be present at Annual general meeting to
answer shareholder queries.
(e) The Company Secretary shall act as the
secretary to the audit committee.
(f) The audit committee at its discretion shall invite
the finance director or head of the finance function, head of internal audit and
a representative of the statutory auditor and any other such executives to be
present at the meetings of the committee:
Provided that occasionally the audit committee may meet without the
presence of any executives of the listed entity.
(2) The listed entity shall conduct the meetings of the
audit committee in the following manner:
(a) The audit committee shall meet at least
four times in a year and not more than one hundred and twenty days
shall elapse between two meetings.
(b) The quorum for audit committee
meeting shall either be two members or one third of the members of the
audit committee, whichever is greater, with at least two independent directors.
(c) The audit committee shall have powers to
investigate any activity within its terms of reference, seek information from
any employee, obtain outside legal or other professional advice and secure
attendance of outsiders with relevant expertise, if it considers necessary.
(3) The role of the
audit committee and the information to be reviewed by the audit committee shall
be as specified in Part C of Schedule II."
PART C: ROLE OF THE AUDIT COMMITTEE AND REVIEW OF INFORMATION BY AUDIT COMMITTEE
A. The role of the audit committee shall include the following:
(1) oversight of the listed entity’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible;
(2) recommendation for appointment, remuneration and terms of appointment of auditors of the listed entity;
(3) approval of payment to statutory auditors for any other services rendered by the statutory auditors;
(4) reviewing, with the management, the annual financial statements and auditor's report thereon before submission to the board for approval, with particular reference to:
(a) matters required to be included in the director’s responsibility statement to
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be included in the board’s report in terms of clause (c) of sub-section (3) of Section 134 of the Companies Act, 2013;
(b) changes, if any, in accounting policies and practices and reasons for the same;
(c) major accounting entries involving estimates based on the exercise of judgment by management;
(d) significant adjustments made in the financial statements arising out of audit findings;
(e) compliance with listing and other legal requirements relating to financial statements;
(f) disclosure of any related party transactions;
(g) modified opinion(s) in the draft audit report;
(5) reviewing, with the management, the quarterly financial statements before submission to the board for approval;
(6) reviewing, with the management, the statement of uses / application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilized for purposes other than those stated in the offer document / prospectus / notice and the report submitted by the monitoring agency monitoring the utilisation of proceeds of a public or rights issue, and making appropriate recommendations to the board to take up steps in this matter;
(7) reviewing and monitoring the auditor’s independence and performance, and effectiveness of audit process;
(8) approval or any subsequent modification of transactions of the listed entity with related parties;
(9) scrutiny of inter-corporate loans and investments;
(10) valuation of undertakings or assets of the listed entity, wherever it is necessary;
(11) evaluation of internal financial controls and risk management systems;
(12) reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems;
(13) reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit;
(14) discussion with internal auditors of any significant findings and follow up there on;
(15) reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board;
(16) discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern;
(17) to look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors;
(18) to review the functioning of the whistle blower mechanism;
(19) approval of appointment of chief financial officer after assessing the qualifications, experience and background, etc. of the candidate;
(20) Carrying out any other function as is mentioned in the terms of reference of the audit committee.
Amendments by Kotak Committee which widen the role of audit committee:
(21) reviewing the utilization of loans and/ or advances from/investment by the holding company in the subsidiary exceeding rupees 100 crore or 10% of the asset size of the subsidiary, whichever is lower including existing loans / advances / investments existing as as on 1 April 2019
B. The audit committee shall mandatorily review the following information:
(1) management discussion and analysis of financial condition and results of operations;
(2) statement of significant related party transactions (as defined by the audit committee), submitted by management;
(3) management letters / letters of internal control weaknesses issued by the statutory auditors;
(4) internal audit reports relating to internal control weaknesses; and
(5) the appointment, removal and terms of remuneration of the chief internal auditor shall be subject to review by the audit committee.
(6) statement of deviations:
(a) quarterly statement of deviation(s) including report of monitoring agency, if applicable, submitted to stock exchange(s) in terms of Regulation 32(1).
(b) annual statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice in terms of Regulation 32(7).
Regulation
19 : NOMINATION & REMUNERATION COMMITTEE
Regulation 19 under Chapter IV (Obligations of Listed Entity which has Listed
its Specified Securities) of Securities and Exchange Board of India (Listing
Obligations and Disclosure Requirements) Regulations, 2015 is as under:
"(1) The board of directors shall constitute the
nomination and remuneration committee as follows:
(a) the
committee shall comprise of atleast three directors ;
(b) all
directors of the committee shall be non-executive directors; and
(c) at least
fifty percent of the directors shall be independent directors.
(2) The Chairperson of the nomination and remuneration
committee shall be an independent director:
Provided that the chairperson of the listed entity,
whether executive or non-executive, may be appointed as a member of the
Nomination and Remuneration Committee and shall not chair such Committee.
QUORUM FOR A MEETING
(2A) The quorum for a meeting of the nomination and remuneration
committee shall be either two members or one third of the members of the
committee, whichever is greater, including at least one independent director in
attendance.
(3) The Chairperson of
the nomination and remuneration committee may be present at the annual
general meeting, to answer the shareholders' queries; however, it shall be
up to the chairperson to decide who shall answer the queries.
(4) The role of the nomination and remuneration
committee shall be as specified as in Part D of the Schedule II."
PART D: ROLE OF NOMINATION AND REMUNERATION COMMITTEE :Role of committee shall, inter-alia, include the following:
(1) formulation of the criteria for determining qualifications, positive attributes and independence of a director and recommend to the board of directors a policy relating to, the remuneration of the directors, key managerial personnel and other employees;
(2) formulation of criteria for evaluation of performance of independent directors and the board of directors;
(3) devising a policy on diversity of board of directors;
(4) identifying persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, and recommend to the board of directors their appointment and removal.
(5) whether to extend or continue the term of appointment of the independent director, on the basis of the report of performance evaluation of independent directors.
(6) recommend to the board, all remuneration, in whatever form, payable to senior management.
Amendments by Kotak Committee
Definition of senior management: The Amendments modify the definition of “senior
management” by specifying that it comprises all members of
the management one level below the chief executive officer /
managing director / whole time director / manager (including
chief executive officer / manager, in case they are a not part
of the board) as well as the company secretary and the chief
financial officer
Regulation 20 : STAKEHOLDERS RELATIONSHIP COMMITTEE
(1) The listed entity shall constitute a Stakeholders Relationship Committee to specifically look into 33[various aspects of interest] of shareholders, debenture holders and other security holders.
(2) The chairperson of this committee shall be a non-executive director.
(2A) At least three directors, with at least one being an independent director, shall be members of the Committee.
This provision has been inserted by the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, w.e.f. 01.04.2019.
(3) The Chairperson of the Stakeholders Relationship Committee shall be present at the annual general meetings to answer queries of the security holders.
(3A) The stakeholders relationship committee shall meet at least once in a year.
Amendments by Kotak Committee
The Amendments introduce the requirement to have at least
three directors, with at least one independent director, as
members of the Stakeholders Relationship Committee (SRC).
Also, it requires the SRC to meet at least once in a year.
(4) The role of the Stakeholders Relationship Committee shall be as specified as in Part D of the Schedule II.
Quorum for Nomination and Remuneration
Committee Meetings
The Amendments specify that the quorum for a meeting of the
NRC shall be either two members or one third of the members
of the committee, whichever is greater, including at least
one independent director in attendance. Further, the NRC is
required to meet at least once in a year.
The role of the committee shall inter-alia include the following:
(1) Resolving the grievances of the security holders of the listed entity including complaints related to transfer/transmission of shares, non-receipt of annual report, non-receipt of declared dividends, issue of new/duplicate certificates, general meetings etc.
(2) Review of measures taken for effective exercise of voting rights by shareholders.
(3) Review of adherence to the service standards adopted by the listed entity in respect of various services being rendered by the Registrar & Share Transfer Agent.
Amendments by Kotak Committee
The current role of the SRC comprises considering and resolving the grievances of the security holders of the listed entity including complaints related to transfer of shares, non receipt of annual report and non-receipt of declared dividends. The Amendments modify and widen the role and responsibilities of SRC to include the following:
(4) Review of the various measures and initiatives taken by the listed entity for reducing the quantum of unclaimed dividends and ensuring timely receipt of dividend warrants/annual reports/statutory notices by the shareholders of the company.
Regulation 21 : RISK MANAGEMENT COMMITTEE.
(1) The board of directors shall
constitute a Risk Management Committee.
(2) The majority of members of Risk Management Committee shall
consist of members of the board of directors.
(3) The Chairperson of the Risk management committee shall be a
member of the board of directors and senior executives of the listed entity may
be members of the committee.
Amendments by Kotak Committee
(3A) The risk management committee shall meet at least once in a
year.
This provision has been inserted by the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, w.e.f. 1.4.2019.
(4) The board of directors shall define the role and
responsibility of the Risk Management Committee and may delegate monitoring and
reviewing of the risk management plan to the committee and such other functions
as it may deem fit 38[such function shall specifically cover cyber security].
(5) The provisions of this regulation shall be applicable to top 500 listed entities, determined on the basis of market capitalisation, as at the
end of the immediate previous financial year.
Applicable w.e.f. 1.4.2019. Earlier applicable for top 100 listed entities
Amendments by Kotak Committee
The Amendments widen the requirements of Risk Management
Committee (RMC) to top 500 listed entities by market
capitalization determined as at the end of the immediate
previous financial year. It introduces as a function of the RMC
to also specifically cover cyber security, given the increase
in the use of cyber and digital technology
Notes:
(1) Various Compliance Formats under Listing Regulations (LODR)
2015 is available at BSE site.
(2) For latest copy of the regulation and any amendments
thereto, kindly check at the SEBI site.
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