Recognition of Corporate Governance

Under Companies Act 2013

Pawan Kumar Yadav

LLM (2YR) First Year
Faculty of Law
University of Delhi
Corporate Governance Under Companies Act 2013
 RELEVANT PROVISIONS OF
CORPORATE GOVERNANCE

1. Composition of Board: Significant changes to the

composition of the boards of directors : Resident
Directors, Independent Directors, Women Directors.

2. Constitution of a number of Committees.

3. Internal Audit.

4. Compliance Report.

5. Serious Fraud Investigation Office.

1. Composition of Board
 Company to have a minimum three for public company, two
for private company and one for OPC ; maximum of 15
Directors.

 More than 15 after passing Special Resolution.

 At least one women director.

Classes of Directors
 Classes of Directors

 Resident Director : (Section 149 (3) ) Person who has stayed in India for a
total period of not less than 182 days in the previous calendar year.
 Independent Directors : (Section 149(4) of CA-2013 & (6) and R.4 of the
Companies (Appointment and Qualification of Directors) Rules, 2014.)
 Public listed company: At least one third of the board to be comprised of
independent directors.
 At least 2 (two) independent directors for public companies which have paid
up share capital of Rupees one hundred million, a turnover of Rupees one
billion, having in the aggregate, outstanding loans, debentures and deposits
exceeding Rupees five hundred million. (R.4)
 An independent director shall possess appropriate skills, experience and
knowledge in one or more fields of finance, law, management, sales,
marketing, administration, research, corporate governance, technical
operations or other disciplines related to the company’s business. (R.5)
 Women Director: (Section 149 (1) & R.3) At least One Women Director for
all Listed Companies and Non-listed public companies having paid up share
capital of Rs.100 crores or more or having turnover of Rs.300 crores or
more.
 2. Constitution of a number of Committees
Audit Committee
Both private and public company have to constitute audit
Committee. With minimum with three independent directors on
the board along with the chairperson who should be able to read
and understand the financial statement. (Section 177 of the
Companies Act,2013)
All listed and following class of companies should have Audit
Committee (Rule 6 of Companies (Meetings of Board and its
powers) Rules,2014).
 All public companies with a paid-up capital of Rs.10 Crores or
more;
 All public companies having turnover of Rs.100 Crores or more;
Nomination and Remuneration Committee:
(S.178(1) of CA-2013 and R.6 of the Companies (Meetings of
Board and its Powers) Rules, 2014 Companies (Meetings of Board
and its Powers) Rules, 2014)

Every listed Company and following class of the companies shall

have NRC:
The Public company-
1. Having Paid up capital of Rs.100 crores or more; or
2. Which have, in aggregate, outstanding loans or borrowings or
debentures or deposits exceeding Rs.50 Crores.
The NRC 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.
Stakeholder Relationship Committee:
(S.178(5) & (6) of CA-2013)

 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 SRC consisting of a chairperson
who shall be a non-executive director and such other members as
may be decided by the Board.

 The Stakeholders Relationship Committee shall consider and

resolve the grievances of security holders of the company.
Corporate Social Responsibility Committee:
(S.135(1) of the CA-2013)

Every company having

 Net worth of rupees five hundred crore or more, or
 Turnover of rupees one thousand crore or more or
 A net profit of rupees five crore or more
during any financial year shall constitute a CSR Committee of the
Board consisting of three or more directors, out of which at least
one director shall be an independent director.
The Committee shall:
(a) formulate and recommend to the Board, a CSR Policy which
shall indicate the activities to be undertaken by the company as
specified in Schedule VII;
(b) recommend the amount of expenditure to be incurred on the
activities referred to in clause (a); and
(c) monitor the CSR Policy of the company from time to time.
 3. Internal Audit

(Section 138 of CA-2013 and R.13 of the Companies (Accounts)

Rules, 2014)

Internal audit is mandatory for certain classes of companies under

Section 138.

These companies includes:

• All the listed companies,
•All the non-listed companies having paid up share capital of
Rs.50 crores or more, turnover of Rs.200 crores or more in the
preceding financial year, outstanding loans or borrowings from
the banks or public financial institutions of Rs.100 crores or more.
4. Compliance Report
 The 2013 Act has made the requirement of compliance by
stipulating a mandatory requirement of positive affirmation from
the Directors as part of the Directors responsibility statement
under section 134. The Report should state that directors have
devised proper system to ensure compliance with the applicable
laws and that such systems are operating effectively.

 Section 205 of the Act requires the Company Secretary to provide

a report to the board about compliance with the provisions of this
Act, the rules made there under and other laws applicable to the
company.
5. Serious Fraud Investigation Office (SFIO)

Section 211 (1) of the Companies Act, 2013, the Central

Government shall establish an office called the Serious Fraud
Investigation office to investigate fraud relating to Company.

SFIO can investigate the affairs of the company (S.212):

 On receipt of a report of the Registrar or inspector under
section 208 where further investigation into the affairs of
the company is necessary;
 On intimation of a special resolution passed by a company
that its affairs are required to be investigated;
 In the public interest; or
 On request from any Department of the Central Government
or a State Government.