CG UNIT 2 LEGAL FRAMEWORK.pptx lfklfkvgfkflk

Zeal Group of Management Institutes
Course Name : CG UNIT -2
COPRPORATE GOVERNANCE
DR. SHRIPAD SHINGWEKAR

LEGAL FRAMEWORK FOR C.G.
• Key provisions of companies act 2013 on Corporate Governance
• The Companies Act, 2013 together with the Companies Rules provide a
robust framework for Corporate Governance. The requirements inter alia
provide for: Qualifications for Independent Directors along with the duties
and guidelines for professional conduct (Section 149(8) and Schedule IV
thereof).
• Appointment of Board:
• According to the Companies Act of 2013, an open and additionally
privately owned business can have a maximum of fifteen executives on the
Board and naming more than fifteen executives would require the approval
of investors through an uncommon decision in the General Meeting. It also
allows for the appointment of at least one female executive to the Board of
Directors for whatever class or classes of companies are
recommended. The Act requires organizations to have at least one
executive who has lived in the country for at least a year.

LEGAL FRAMEWORK FOR C.G.
• Independent Directors:
• The majority of the qualities of the posting understanding are contained in the definition of
independent director given in the Companies Act, 2013. An independent director should be
a man of integrity with significant aptitude and experience. The Act expressly states that
independent director should not have any material monetary relationship with the
organization, its promoters, executives, or auxiliaries that could influence the director’s
autonomy in the current fiscal year or in the next two years. According to the Companies Act
of 2013, each registered organization must have at least 33 present of its total number of
directors as independent directors.
• Independent Directors’ Code of Conduct :- Schedule IV of the Act includes a Code for
Independent Directors, which independent directors must follow. The “Code for
Independent Directors” establishes clear guidelines for professional leadership, roles, and
responsibilities. It includes Professional conduct; data illumination; safeguarding the
interests of all partners; actual performance of obligations and duties; and evaluation of
board and administration execution, among other things.
• Independent Directors’ Liabilities-
• Under the Companies Act of 2013, an independent director and a non-official executive who
is not a promoter will be held liable for such demonstrations of oversight or commission by
an organization that occurred with his insight, as evidenced by board forms, and with his
assent, or where he did not act decisively.

LEGAL FRAMEWORK FOR C.G
• Committees of Board:
•
• (A). Audit Committee- Review panels are required for recorded companies and other recommended
classes of companies under Section 177 of the Companies Act of 2013. According to the Act, the
review panel should consist of at least three chiefs, with independent executives playing a dominant
role. The 1956 Act made no mention of academic or professional qualifications for executives.
According to the 2013 Act, the majority of members of the Audit Committee, including the
Chairperson, must be able to read and comprehend financial articulations.
• (B). Committee on Nominations and Remuneration- Review boards are required for recorded
companies and other recommended classes of companies under Section 177 of the Companies Act of
2013. According to the Act, the review panel should consist of at least three executives, with
independent chiefs playing a dominant role. The 1956 Act made no mention of scholarly or
professional qualifications for executives. According to the 2013 Act, the majority of individuals on the
Audit Committee, including the Chairperson, must be able to read and know the directors.
• (C). The Committee on Corporate Social Responsibility (CSR)- According to the Act, any
organization that meets certain criteria must form a Corporate Social Responsibility Committee of the
Board, comprised of at least three executives. At least one independent executive should serve on the
CSR Committee. CSR strategies should be planned and screened by the CSR advisory group, and they
should be discussed in the Board’s report. The board must endorse the CSR strategy and reveal the
substance in the board report, which must be posted on the organization’s website.

• (D). Committee for Relationships with Stakeholders-
• The Act protects all security holders, including value speculators. It is required that
an organization with more than 1000 investors, debenture holders, store holders,
and other security holders form a Stakeholders Relationship Committee at some
point during the fiscal year. It will be led by a non-official executive and will be
made up of individuals chosen by the board. The board will consider and resolve
the organization’s security holders’ grievances.
• (E). Related Party Transactions-
• According to the Companies Act of 2013, a related gathering exchange can be
entered into only if it is approved by a unanimous decision at the general
gathering. A member of the organization who is a related gathering cannot vote on
such an extraordinary decision. The restrictions will have no effect on any
transactions conducted by the organization in its normal course of business, other
than transactions conducted on an at-a-distance premise. Each agreement or
course of action entered into with a related gathering should be mentioned in the
Board’s report, along with the defense for entering such contract or game plan.
The central government may propose additional conditions for participating in
related gathering exchanges.

• (F). Prohibition of Insider Trading-
• No one, including any executive or KMP of a company, should
engage in insider trading aside from correspondence required
in the ordinary course of business, profession, or work, or
under any law. Insider trading by any executive or key
administrative faculty of an organization is punishable by
imprisonment for up to five years and a fine of up to 25 Cr
INR or three times the amount of profits made from insider
trading, whichever is greater, or both.
• Clause 49 was presented as a major aspect of the posting
contract for the organizations listed on the Indian stock
exchange in response to the recommendations of these
committees.

2.2 CORPORATE GOVERANCE FOR LISTED AND UNLISTED COMPANIES
• Difference between Listed and Unlisted Companies:
•
The listed companies in India- are regulated by the Security and Exchange Board of India(SEBI).
These companies need to follow strict laws & regulations. Unlisted companies are not controlled by
any governing body and follow less stringent laws than listed companies.
• As far as listed companies the Board includes more than four members, it must appoint an audit
committee, an appointments committee and a remuneration committee. Half the seats on the
committees must be held by independent directors. Committees may not be chaired by the chair of
the Supervisory Board or by a member of the Board of Directors.
• In case of shares of unlisted companies are not traded in public equity markets, unlike those of listed
companies backed by strong policy support, the inclusion of corporate governance in the domain of
unlisted companies provides them comfort and security while dealing with buying and selling
unlisted shares.
• Poor corporate governance weakens a company's potential and at worst can pave the way for
financial difficulties and even fraud. If companies are well governed, they will usually outperform
other companies and will be able to attract investors whose support can help to finance further
growth.
• Good corporate governance creates transparent rules and controls, provides guidance to leadership,
and aligns the interests of shareholders, directors, management, and employees. It helps build trust
with investors, the community, and public officials.

SEBI LODR REGILATIONS
• The Securities and Exchange Board of India (“SEBI”) has recently
introduced significant changes to the governance framework for listed
companies through an amendment to the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015 (“LODR Regulations”).
• SEBI, through a notification dated 14 June 2023, issued various
amendments with respect to disclosure of material events or information by
issuing the SEBI (Listing Obligations and Disclosure Requirements)
(Second Amendment) Regulations, 2023
• The amendments were signed by various consultation papers issued by
SEBI over the last 6-9 months, including consultation papers on ‘Review of
disclosure requirements for material events or information under SEBI
(Listing Obligations and Disclosure Requirements) Regulations, 2015’ and
‘Strengthening Corporate Governance at Listed Entities by Empowering
Shareholders – Amendments to the SEBI (LODR) Regulations, 2015’

SEBI LODR REGILATIONS
• The amendments are largely effective from July 14 and broadly seek to
enforce higher disclosure and governance standards for listed entities. The
changes materially alter key provisions of the LODR Regulations,
including the:
– disclosure framework, by inter alia introducing objective criteria for
determining material events/ information, reducing the timeline for
making disclosures and mandating additional disclosures (including in
relation to agreements binding listed entities and addressing market
rumours),
– (ii) disclosure and approval requirements for special rights granted to
shareholders,
– (iii) approval requirements for business transfer agreements undertaken
outside the scheme of arrangement route, and
– (iv) validity of permanent board seats and timelines for filling
vacancies of directors and KMPs.
•

CLAUSE 49- LISTING AGREMENT
BACKGROUD
As per recommendations of Kumar Mangalam Birla Committee, constituted by SEBI, led to the
addition of Clause 49 in the Listing Agreement in February 2000. These recommendations, aimed at
improving the standards of corporate governance are divided into mandatory and non-mandatory
recommendations.
• In late 2002, SEBI constituted a Committee to assess the adequacy of current corporate
governance practices and to suggest improvements. Based on the recommendations of this
committee, SEBI issued a modified Clause 49 on 29 October 2004 (the ‘revised Clause
49’) which came into operation on 1 January 2006.
• The revised Clause 49 has suitably pushed forward the original intent of protecting the
interests of investors through enhanced governance practices and disclosures.
• 1) The independence criteria for directors have been clarified. The roles and
responsibilities of the board have been enhanced.
• 2)The quality and quantity of disclosures have improved.
• 3) The roles and responsibilities of the audit committee in all matters relating to internal
controls and financial reporting have been consolidated, and the accountability of top
management—specifically the CEO and CFO—has been enhanced. Within each of these
areas, the revised Clause 49 moves further into the realm of global best practices .
•

• By Circular dated 8 April 2008, the Securities and Exchange Board of India
amended Clause 49 of the Listing Agreement to extent the 50% independent
directors rule to all Boards of Directors where the Non-Executive Chairman is a
promoter of the Company or related to the promoters of the company.
• At the end of the first India Corporate Week in December 2009, the Ministry of
Corporate Affairs issued new Corporate Governance Voluntary Guidelines and new
Corporate Social Responsibility Voluntary Guidelines
• As per Clause 49, for a company with an Executive Chairman, at least 50 per cent
of the board should include independent directors. In the case of a company with a
non-executive Chairman, at least one-third of the board should be independent
directors.
• The revised clause 49 shall apply to all the listed companies, in accordance with the
schedule of implementation given in the revised clause 49.

• Roll of 49 clause :- Clause 49 has the following provisions regarding Risk Management: ❖The
Company should form a Risk Management Committee ❖The Board should be responsible for
framing, implementing and monitoring the risk
• Includes :- Clause 49 has the following provisions regarding subsidiary companies:
– At-least one independent Director of the company should be a director on the Board of a
material non-listed Indian subsidiary.
– The audit committee should review financial statements of and investments made by the
unlisted subsidiary.
• The basic document which is executed between the company and the stock exchange (when the
shares of the company are listed on any stock exchange) is the listing agreement. It is like an
employment contract in which the broker is hired to represent the principal, but no real property is
transferred between the two
• Motive :- The main motive of this clause is that company should be fair with its stakeholders.
Everything in the company must be done effectively & fairly. Since the Stakeholders have social &
financial interest in the company hence company is bound to provide a safeguard to their interest.
• Section 49C in The Wild Life (Protection) Act, 1972. *49C. Declaration by dealers.— (1) Every
person carrying on the business or occupation referred to in sub-section (1) of section 49B shall,
within thirty days from the specified date, declare to the Chief Wild Life Warden or the authorized
officer.

• Important provisions Clause 49
• As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of the
board should include independent directors. In the case of a company with a non-
executive Chairman, at least one-third of the board should be independent directors.
• It would be necessary for chief executives and chief financial officers to establish and
maintain internal controls and implement remediation and risk mitigation towards
deficiencies in internal controls, among others.
• Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliance report
to stock exchange in the prescribed form. The clause also requires that there be a
separate section on corporate governance in the annual report with a detailed
compliance report.
• A company is also required to obtain a certificate either from auditors or practicing
company secretaries regarding compliance of conditions as stipulated, and annex the
same to the director's report.
• The clause mandates composition of an audit committee; one of the directors is required
to be "financially literate".

2.5 BOARD COMPOSITION
• Concept and meaning :- What Is Board Composition? Board composition refers to the
people in an organization's board of directors and what they bring to the board table,
such as their management background and skills. Board composition varies widely
depending upon an organization's goals and industry. Diversity in terms of members’
experience, skills, and backgrounds can improve board performance. It offers deep
insights, a wealth of experience, and the multiple perspectives necessary for an
organization to tackle challenging industry issues.
• Composition of Board of Directors Companies Act 2013 :- A company, though a legal
entity in the eyes of law, is an artificial person, existing only in contemplation of law. It
has no physical existence. It has neither soul nor body of its own. As such, it cannot act in
its own person. It can do so only through some human agency. The persons who are in
charge of the management of the activities of a company are called directors. They are
collectively known as Board of Directors or the Board. The directors are the brain of a
company. They occupy a pivotal position in the structure of the company. Directors take
the decision regarding the management of a company collectively in their meetings
known as Board Meetings or at the meetings of their committees constituted for certain
specific purposes. Let’s take a look at the composition of the board of directors
companies Act, 2013.

• Section 149 of the Companies Act states that every company's board of directors must
necessarily have a minimum of three directors if it is a public company. Two directors if it
is a private company and one director in a one person company. The maximum number of
members a company can assign as directors is fifteen.
• 4 meetings
• Every company shall hold the first meeting of the Board of Directors within 30 days of the
date of company incorporation. A minimum number of 4 meetings of its Board of
Directors shall be held every year in such a manner that not more than 120 days shall
intervene between two consecutive meetings of the Board.
•
• How it is measured :- Board composition is measured in terms of different degrees of
heterogeneity. Common assessments of board composition are usually, insider/outsider
director ratio, executive/nor-executive directors ratio, age and gender diversity among
board members and board size.
•

• Recruiting a Diverse/Varied Board :- Identifying what diversity looks like is the first step
toward building a more diverse board. Run an audit of your board’s composition and
identify diversity gaps to identify where to focus. Consider all types of diversity, from
race, gender, and abilities to backgrounds, skills, and qualifications. Diversify your board
with these tips.
• Cast a Wide Net:- According to PwC research, one of the biggest misconceptions in
organizations is that there’s a shortage of qualified candidates to diversify board
composition. To reach more candidates, one consider expanding recruitment efforts .In
addition, many boards rely on their internal networks when finding new members. Go
beyond this inner circle to explore untapped recruitment opportunities who will truly
diversify your board and drive real change.
• Sources for finding qualified candidates include executive leadership programs,
professional associations, local universities and colleges, and MBA programs. You can also
use executive search firms if the organization’s budget allows it.
• Add a New Seat Fortunately, there’s a simple way to solve this problem: A company can
add a new board seat temporarily or permanently without waiting for a board member to
reach their term limit or retire.

Have Adequate Succession Planning :-Most boards only begin examining succession planning
when a member is about to retire. And even then, they are not always clear about the
succession plans. Last-minute succession planning hinders effective recruitment, which may
hinder diversity efforts. Your board should have clear succession plans before they are needed.
Then, it should regularly revise the plans to ensure they address changing requirements and
priorities tied to diversity. Most importantly, the plans should be clear to all board members so
they can voice concerns if diversity isn’t prioritized appropriately.
• Use a Board Skills Matrix :- An effective board skills matrix maps out directors’ attributes
and skills to help companies identify what they already have and are missing. A board
skills matrix covers various skill sets, values, and perspectives, including;
• Professional rank
• Area of expertise
• Years of board service
• Demographic information
• When recruiting, consider a mix of first-time seat holders and veteran directors to
maintain a good balance in the board composition. Boards with long-time directors
provide insights that can only be acquired through experience and can help the
organization stay true to its goals. On the other hand, first-time directors who are not
retired can diversify the board by providing knowledge to handle current trends.

BOARD MEETINGS
• MEANING :- A Board Meeting is a formal meeting of the board of directors of an
organization and any invited guests, held at definite intervals and as needed to review
performance, consider policy issues, address major problems and perform the legal
business of the board.
• AS PER COMPANY LAW :- What is a Board Meeting? :- A formal meeting of the
Directors of a company organized to discuss the problems encountered and the plans for
future to ensure the company functions smoothly. The meetings are organized at definite
places, at definite times and aim to achieve certain goals and predetermined objectives.
• IMPORTANCE: - Successful companies use board meetings to create and improve key
business strategies. The board of directors of a company is primarily an oversight board. It
oversees the management of the company to ensure that the interest of non-controlling
shareholders is protected. It also functions as advisory board.
• WHO INCLUDED :- According to Section 174 of Companies Act, 2013, the minimum
number of members of the board required for a meeting is 1/3rd of a total number of
directors. At any rate, a minimum of two directors must be present. However, in the case
of One Person Company, the rules of Section 174, do not apply.

BOARD MEETINGS
• HOW CALLED :- Any director may call a directors' meeting by giving notice of the
meeting to the directors or by authorising the company secretary to give such notice.
No specific length of notice is required but reasonable notice should be given. For some
companies one week may be reasonable for others it may be shorter.
• Who starts a board meeting? :-The presiding officer
• The presiding officer kicks off the meeting at the designated start time. Call roll. The
board secretary calls roll for all attendees, including presiding officers, staff members,
and guests.
•
• WHO HEAD :-The chairman of a company is the head of its board of directors. The
chairman's authority is laid out in the organization's bylaws. The chairman presides over
the board of director meetings and conducts its business in an orderly fashion. The
chairman typically manages the board's agenda.
•
• WHO LEAD -The Board Chair is often seen as a meeting facilitator. In reality, the Board
Chair responsibilities are far greater than that. The Board Chair maintains focus on what
is best for the company or organization. He/she facilitates good board leadership and
governance and sets the tone for the meetings.
•

BOARD MEETINGS
• Who is chairman of meeting ? :- Chairperson also called chairman, chairwoman, or
chair, senior officer of a committee, board, or organization responsible for presiding over
its annual general meeting. The term also refers to the person in charge of meetings in
general, as opposed to an attendee or a participant.
•
• Who is higher than a chairman?
• Rank: The chairman is the most senior member of the board of directors or trustees. The
CEO is the highest-ranking executive in the organization's operating hierarchy. Reporting:
The chairman directly manages the company's board members. The CEO directly
manages the company's senior executives.13-Dec-2022
•
• Does CEO have to attend board meeting?
• A corporate board meeting is solely for the board of directors. The board will require
certain members of management to attend depending on the agenda. Some companies
want all senior executives to attend. However, when it comes to conducting the
meetings, board meeting belongs to the Directors.
•

BOARD MEETINGS
• Who cannot attend board meeting?
• Except the Board of Directors and persons required by the Board, no other members are
allowed to attend the Board Meetings. A Director cannot appoint another person as his
proxy to attend a Board Meeting.
• Who signs board minutes? :- The chairperson
• Once signed by the chairperson, the minutes are evidence of the proceedings at that
meeting. The approval of board minutes is often seen by directors as a mere procedural
step but directors should ensure, as far as possible, that the minutes form an accurate
record of what actually happened at the relevant meeting.
• Who gives notice of board meeting?
• 2 Notice shall be issued by the Company Secretary or where there is no Company
Secretary, any Director or any other person authorised by the Board for the purpose. For
any Meeting to be valid, it should be called by proper Notice given by a person duly
authorised to do so.
• How many board meetings in a year?four board meetings
• As per Section 173 of the Act, all public and private companies must hold four board
meetings in a calendar year. If the company is registered under Section 8 of the Act, it may
hold a meeting of the board or the government body at least once in six months.
•

BOARD MEETINGS
• What are the 4 types of minutes?
• Minutes serve to record what happened in a meeting. Opinion and speculation do not
belong in the minutes of a meeting. There are three standard styles of minutes: action,
discussion, and verbatim/precise. Each style has a specific use.
•
• What is the penalty for not holding board meeting?
• As per the provisions of section 173 (4) of the Companies Act 2013, every officer of the
company whose duty is to give notice under this section and who fails to do so shall be
liable to a penalty of twenty five thousand rupees.
• What is the time limit for board meeting notice? :- The Notice for Board Meeting is a
mandatory notice that needs to be circulated amongst the Board of Directors of a
Company prior to a Board Meeting. The notice for board meeting must be provided to the
Directors of a Company at least seven days before the date of Board Meeting.
• How many directors should be attend the board meeting? :-Two directors
• According to Section 174 of the Companies Act, 2013, the minimum number of members
of the board required for a meeting is 1/3rd of the total number of Directors or two
directors whichever is higher

BOARD MEETINGS
• What is the best time for board meetings?
• By far, board candidates prefer early morning meetings that allow them to give their time
generously; to a cause they care about, and then get on with their day. If your board can't
meet in the morning for some reason, the second most attractive time for boards to meet
is at 6 or later in the evening.
•
• What to do before a board meeting?
• Review bylaws and meeting protocol. ...
• Study the agenda and meeting materials. ...
• Take attentive notes. ...
• Complete any assigned tasks in a timely manner. ...
• Be well rested before the meeting.
• What to do after a board meeting?
• Send a post-meeting survey.
• Distribute the meeting minutes.
• Review your action items.
• Establish a leadership debrief.

ROLL OF INDIPENDENT DIRECTOR
• Concept and Meaning
• Independent Director Roles and Responsibilities :- They provide unbiased advice,
perspective, and judgment to the board of directors. They're also responsible for
evaluating the strength of their board, especially monitoring conflicts of interest
and complying with corporate governance guidelines.
• Independent Director acts as a guide, coach, and mentor to the company. The role
includes improving corporate credibility and governance standards by working as
a watchdog and help in managing risk.
• An independent director is a non-executive director of a company who helps the
company in improving corporate credibility and governance standards. They also
ensure that there is no dominance of one individual or special interest group
• They also help to recommend CSR activities and programmes in accordance with
Schedule VII. Independent Directors are also involved in determining CSR
expenditure and monitoring and evaluating the Company's CSR Policy

Role of an independent director
• Guidance and mentorship: Independent directors serve as guides, mentors, and coaches to the
company, offering their experience and insights to steer the company in the right direction.
• Enhancing corporate credibility: They contribute to improving corporate credibility and governance
standards by upholding transparency, accountability, and ethical behaviour.
• Watchdog and Risk Management: Independent directors act as watchdogs, ensuring that the
company operates within legal and ethical boundaries while also helping manage risks effectively.
• Active committee involvement: They actively participate in various committees set up by the
company, such as audit, nomination, and remuneration committees, contributing to better
governance practices.
• Stakeholder protection: Independent directors safeguard the interests of all stakeholders, especially
minority shareholders, by balancing conflicting interests and advocating for fair practices.
• Strategic decision-making: They provide an independent perspective on key matters such as
strategy, performance, risk management, resource allocation, and key appointments.
• Evaluation and reporting: Independent directors evaluate the performance of the board and
management, ensuring that goals and objectives set in board meetings are met and reported.
• Financial integrity: They monitor the integrity of financial information and ensure effective financial
controls and risk management systems are in place.
• Conflict resolution: In cases of conflicts between management and shareholder interests,
independent directors work towards solutions that serve the company’s best interests.
• Remuneration oversight: They establish appropriate levels of remuneration for executive directors,
key managerial personnel, and senior management

Separation of roles of chair person MD and CEO
• The chairman and chief executive officer are different roles within the company or
organization. Chairman's responsibilities revolve around the board of directors and
strategic oversight of the company, while the CEO supervises day-to-day company
operations.
• Separation of duties is critical to effective internal control because it reduces the risk of
both erroneous and inappropriate actions. All units should attempt to separate functional
responsibilities to ensure that errors, intentional or unintentional, cannot be made without
being discovered by another person.
• Notably, Section 203 of the Companies Act, 2013 provides that the same --individual
cannot hold the position of chairperson and CEO simultaneously. However, Section 203
is a default provision which can be deviated from, if permitted by the company's articles
of association. As such, the focus ought to be on strengthening the ‘independence’ of
independent directors, instead of tackling the chairperson-CEO split, which is relatively
unproblematic in India. Consistent with Section 203 and its underlying spirit of
shareholders’ democracy, shareholders of each company should be allowed to decide
whether they prefer the roles of chairperson and CEO to be vested in the same person or
two different individuals.

Separation of roles of chair person MD and CEO
• The Securities and Exchange Board of India (SEBI), at its board meeting held on 15 February
2022 decided to make it voluntary for the top 500 listed entities to separate the positions of the
chairperson of the Board and the chief executive officer (CEO) of the company
• Earlier in 2018, the SEBI had amended the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 mandating the top 500 listed entities to ensure that the chairperson shall
• be a non-executive director and
• (ii) not be related to the Managing Director or the CEO, in accordance with the definition of
‘relative’ under Section 2(77) of the Companies Act, 2013. While this was sought to be
enforced from 1 April 2020, based on industry representations, the deadline was extended to
1 April 2022.
• SEBI’s proposition to split the roles of the chairperson and CEO was based on the 2017 report of the
Committee on Corporate Governance (Kotak Committee), which, citing the Cadbury Committee
report (1992), recommended the split for reasons including providing a structural advantage for the
board to act independently and reducing excessive concentration of power in a sole individual.
• In recent times, the ability of the board to monitor management has assumed heightened importance.
Accordingly, if the chairperson (as leader of the board) is the same individual as the CEO (the leader
of the management), conflicts of interest may arise.

Audit Committee
• Audit Committee
• Every listed company and certain classes of public companies to constitute an Audit
Committee, comprising a minimum of three directors, with Independent Directors
forming a majority. Majority of members of Audit Committee including its Chairperson
must have the ability to read and understand the financial statement.
• In India, all public companies having a paid-up capital of Rs 10 crore or more or a
turnover of Rs 100 crore or more should have an audit committee. Also, all public
companies having outstanding loans or borrowings in excess of Rs 50 crore should
constitute an audit committee.
• How many audit committee meetings are there in Companies Act, 2013?
• Audit committee shall have at least 04 meetings in a year and there should be a gap of
maximum 180 days between 02 such meetings. Chairperson of the Audit Committee shall
be an independent director, who shall be answering to shareholder queries in the Annual
General Meeting.

Audit Committee
• How many audit committee meetings are there in Companies Act, 2013?
•
• Audit committee shall have at least 04 meetings in a year and there should be a gap of
maximum 180 days between 02 such meetings. Chairperson of the Audit Committee shall
be an independent director, who shall be answering to shareholder queries in the Annual
General Meeting.
•
• What is Section 177 of the Companies Act, 2013 MCA?
• The Board of Directors of every listed company every listed public company and such
other class or classes of companies, as may be prescribed, shall constitute an Audit
Committee.
•
• Is audit committee mandatory for private companies?
• Every listed company and a public company that has either paid capital of 10 crores and
more or companies with an annual turnover of 100 crores or more should have an audit
committee. There is a minimum of three directors and some independent directors on the
audit committee.
•

Audit Committee
• Do all companies have an audit committee?
• Under Section 301 of the Sarbanes-Oxley Act, national securities exchanges, for example
the NYSE and NASDAQ, must require companies to have an audit committee to be listed,
effectively requiring public companies to have an audit committee.
• What are the rules for audit committee?
• The Audit Committee shall consist of a minimum of three directors with independent
directors forming a majority: Provided that majority of members of Audit Committee
including its Chairperson shall be persons with ability to read and understand, the financial
statement.
• Who can be chairman of audit committee? :-independent director
• The Chairman of the Audit Committee shall be an independent director.
•
• What is the maximum gap between two audit committee meetings?
• one hundred and twenty days
• (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.
•
•

Audit Committee
• What is the tenure of audit committee?
• Term of office of Audit Committee members who are not members of the Board of
Commissioners/Supervisory Board of the Company for a maximum of 3 (three) years
and can be extended once for 2 (two) years, without prejudice to the right of the Board
of Commissioners/Supervisory Board to terminate them at any time .
• What is the scope of the audit committee?
• The audit committee must advise the corporation on the appointment, reappointment,
dismissal and remuneration of the external auditor. The audit committee should also
assess the expertise and resources, effectiveness and independence of the external
auditors regularly
• What is Section 177 and 182 of the Companies Act?
• If a director fails to comply with section 177, the relevant transaction may be voidable
at the instance of the company and the director may be required to repay any profit he
made from the transaction. Under section 182, a director must declare his interest in
any existing transaction or arrangement of the company.
• Who appoints the audit committee? :-the board
• An audit committee is appointed by the board and is composed of between three and
seven board directors who aren't part of the corporation's management.14-Mar-2023

Audit Committee
• When must a company appoint an audit committee?
• The audit committee may be appointed by the incorporators or by the
board within 40 (forty) business days after incorporation. Thereafter the audit
committee is appointed each year by shareholders at the annual general meeting.
•
• What is the role of audit committee in a company?
• Audit committees ensure the organization operates within the legal and ethical
framework, adhering to applicable regulations and industry guidelines. The
committee members review compliance programs to assess their effectiveness
and identify any gaps or areas of improvement
•
• What are the benefits of an audit committee?
• A: The benefits of having an audit committee in place include improved financial
reporting, enhanced internal controls, increased accountability, a stronger
relationship with auditors, compliance, risk management, objectivity, improved
decision-making, and increased investor confidence.

Audit Committee
• When must a company appoint an audit committee?
• The audit committee may be appointed by the incorporators or by the board within 40
(forty) business days after incorporation. Thereafter the audit committee is appointed
each year by shareholders at the annual general meeting.
•
• What is the role of audit committee in a company?
• Audit committees ensure the organization operates within the legal and ethical
framework, adhering to applicable regulations and industry guidelines. The committee
members review compliance programs to assess their effectiveness and identify any
gaps or areas of improvement
•
• What are the benefits of an audit committee?
• A: The benefits of having an audit committee in place include improved financial
reporting, enhanced internal controls, increased accountability, a stronger relationship
with auditors, compliance, risk management, objectivity, improved decision-making, and
increased investor confidence.

Audit Reports / Auditor Qualification
• The Companies Act, 2013 mandates that all companies must undergo a statutory
audit every year. The audit report is presented in the shareholders' meeting and
attached to the financial statements filed by the company in Form AOC-4 with the
Registrar of Companies (ROC).
• What is an Audit Report?
• An audit report of a company is the auditors' formal opinion about the reliability of
the organization's financial statements. The auditor can be either internal or an
independent external one. He/she checks if the preparation of the company's
financial reports follows the Generally Acceptable Accounting Principles (GAAP) or
other reporting frameworks e.g. IFRS, UK, etc. The audit report assesses the
financial statements' validity and credibility. Hence, it must be included in the
company's financial report. The importance of an audit report is that it ensures
that there are no material errors in an organization's financial statements.
However, it must be always remembered that the report is merely an opinion and
not an evaluation of any kind.

• Contents of the Audit Report of a Company
• In the contents of the audit report, the auditor prepares the report on the financial statements and accounts
of the company to the best of his knowledge and information. Later, he/she presents the annual report
auditors report before the organization in the general meeting.
•
• The Specimen of the Audit Report
• During auditing, the auditor might be unable to collect any information. In this case, he has to include the
details and nature of the missing information and also the effect of its absence in the report.
• It is the solemn duty of the auditor to state if proper accounts, as mandated by law, have been kept by the
company.
• The auditor has to include all the reports audited by a person other than the company's auditor in his final
report.
• The annual report auditors report must contain the auditors' comments on financial transactions. The
auditor must also include his observation on matters which might adversely affect the functioning of the
company.
• The auditor opines if the financial statements follow the existing auditing and accounting standards.
• The auditor ensures that the profit loss account and the company's balance sheet mentioned in the report
are according to the account books and returns.
• Every deficiency, qualification, and reservation related to the account books must be included in the
report.

• Components of the Auditor's Report
• Every audit report of a company follows a standard format, as mandated
by the Generally Accepted Auditing Standards (GAAS). An audit report
generally consists of three paragraphs.
• The first paragraph mentions the duties and responsibilities of the
directors and auditors.
• The second paragraph mentions the scope. It states that the report was
prepared following a set of standard practices.
• Finally, the third paragraph contains the opinion of the auditor.
Audit Report Under Companies Act 2013
• The Companies Act, 2013 requires that companies appoint an auditor.
Besides, it also states the procedure of the appointment of an auditor. The
Act lays down the various duties and responsibilities of the auditors. An
audit report has a lot of value; hence proper steps must be taken in order
to ensure that the audit is done without any error.

The Duties and Responsibilities of Auditors
• Auditors can access the account books and vouchers of the audited company anytime. It does not
matter whether the said documents are at the registered office or anywhere else.
• Auditors have the right to access the records of the subsidiary company. These records are essential
for consolidation purposes.
• Auditors have the right to be informed of a general meeting. He may attend it in person or through his
authorized representative, who is also qualified to be an auditor.
• An auditor has the right to receive information about such matters, which are necessary for
performing his duties.
Auditors Qualification
• A person shall be eligible for appointment as an auditor of a company only if he is a chartered
accountant in practice.
• Where a firm is appointed as an auditor of a company, only the partners who are Chartered
Accountants in practice shall be authorized by the firm to act and sign on behalf of the firm.
• Who is eligible for auditor in Companies Act 2013?
• Who is qualified to be an auditor in a company as per Section 141 of Companies Act, 2013 Section
141(1) states that the primary qualification for an individual to be appointed as an auditor of a
company is that the said individual must be a chartered accountant in practice. To be eligible as a
statutory auditor, the person must be a Chartered Accountant, i.e. a member of the ICAI (2) A Firm
including Limited Liability Partnership shall be eligible for Appointment as an Auditor of a Company,
if Authorized Signing Partner is Chartered Accountant.
•

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