The document discusses the composition and requirements for the Nomination and Remuneration Committee according to the Companies Act 2013 and SEBI regulations. It notes some potential contradictions between the Act, which requires the committee for all listed companies, and Clause 49 of listing agreements, which provides some exemptions. Specifically, it examines whether the Act takes precedence over Clause 49. It also outlines penalties for non-compliance with the Act's provisions for this committee.

1. Article on Nomination and Remuneration Committee
For the sake of this Article:
“Act” here means Companies Act, 2013.
“Circular” here means SEBI Circular dated September 15, 2014 on Corporate
Governance in listed entities – Amendments to Clause 49 of the Equity Listing
Agreement.
“Rules” here means The Companies (Meetings of Board and its Powers) Rules, 2014.
“Prescribed Authority” here means Registrar of Companies (ROC) or Regional
Director (RD) or Securities & Exchange Board of India (SEBI).
“FAQ’s”:
Who shall constitute Nomination & Remuneration Committee?
* (Rule 6)
Nomination & Remuneration Committee
Every Listed Company
*Every Other Public
Company having
Paid-up Capital of Rs. 10
Crore or more or
Turnover of Rs. 100 Crore
or more or
Aggregate O/s Loan,
Debentures & Deposits
Exceeding Rs. 50 Crore or
more

2. Note:Paid-up Share Capital, Turnover or O/s 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 purpose.
As per sub-section (64) of Section 2 of the Act “Paid-up Share Capital” or
“Share Capital Paid-up” means such aggregate amount of money credited as paid-up
as is equivalent to the amount received as paid-up in respect of shares issued
and also includes any amount credited as paid-up in respect of shares of the
company, but does not include any other amount received in respect of such shares,
by whatever name called
As per sub-section (91) of Section 2 of the Act “Turnover” means the
aggregate value of the realization of amount made from the sale, supply or
distribution of goods or on account services rendered, or both, by the company
during a financial year.
As per sub-section (30) of Section 2 of the Act “Debenture” includes
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.
As per sub-section (31) of Section 2 of the Act “Deposit” includes 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 amount as may be prescribed in consultation with the
Reserve Bank of India.

3. What will be the Composition of the Committee?
Section 178 (1) read with Clause 49 (IV) (A) as amended vide circular-
Composition of Committee shall be
3 or more non-executive
directors
½ of which shall be
Independent Directors
As per sub-section (1) of Section 178 of the Act,Chairman of the Company
whether executive or non-executive can become a member of the Nomination &
Remuneration Committee, however he cannot hold chair of such committee.
As per Clause 49 (IV) (A) of the Circular, Chairman of the nomination and
remuneration committee shall an Independent Director. The circular is applicable
to Listed Companies having Paid-up Equity Share Capital exceeding Rs. 10 crore and
Net Worth exceeding Rs. 25 crore. However, the same is not applicable to
companies whose equity shares are listed on SME or SME-ITP platform.
As per sub section (57) of Section 2 of the Act “Net Worth” means aggregate
value of the paid-up share capital and all reserves created out of the profits and
securities premium account, after deducting the aggregate value of the
accumulated losses, deferred expenditure and miscellaneous expenditure not
written off, as per the audited balance-sheet, but does not include reserves
created out of revaluation of assets, write-back of depreciation and amalgamation.

4. What are the contradictions between Act and Clause 49 on Listing Agreements
on Nomination and Remuneration Committee?
Act here specifically speaks about the applicability of appointment of Nomination
and Remuneration Committee to Every Listed Company, however Clause 49 of the
Listing Agreement exempts companies having Paid-up Equity Share Capital not
exceeding Rs. 10 crore and Net Worth not exceeding Rs. 25 crore. It also exempts
companies whose equity share capital is listed exclusively on the Small and Medium
Enterprises (SME) platform.
According to Sub-section (52) of Section 2 of the Act, “Listed Company”
means a company which has any of its securities listed on any recognized stock
exchange.
According to Clause (h) of Section 2 of Securities Contracts (Regulation) Act,
1956 “Securities” include –
i) shares, scrips, stocks, bonds, debentures, debenture stock or other
marketable securities of a like nature in or of any incorporated company or
other body corporate
ia) derivative (w.e.f. 22.02.2000)
ib) units or any other instrument issued by any collective investment scheme to
the investors in such schemes
ic) security receipt as defined in clause (zg) of section 2 of the Securitization
and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (w.e.f. 21.06.2002)
id) units or any other such instrument issued to the investors under any mutual
fund scheme (w.e.f. 12.10.2004);
ii) Government Securities (w.e.f. 30.01.1992)
iia) such other instruments as may be declared by the Central Government to be
securities; and
iii) rights or interest in securities.

5. So question here arises whether the Act overrides the provisions of Clause 49
of the Equity Listing Agreement on Nomination and Remuneration Committee?
Prima Facie on plain reading of the definitions as given in the Act and other
legislations we can conclude that Act over rides the provisions of clause 49 of the
Equity Listing Agreement. However, a clarification on the matter may be sought
from the prescribed authority.
What are the consequences of the contravention of the provision of the Act?
As per sub-section (8) of Section 178 of the Act the fine and penalty
prescribed are as follows:
Company Officer in default
Fine not less than Rs. 1 Lakh
but may extend to Rs. 5 Lakh
Imprisonment upto 1 year or fine not less
than Rs. 25 Thousand which may extend to
Rs. 1 Lakh