Understanding the Structure and Roles of Board Committees under Companies Act 2013 and SEBI Regulations

Aug 14

3 min read

Effective corporate governance depends heavily on the proper functioning of board committees. These committees play a vital role in overseeing specific areas of a company’s operations, ensuring transparency, accountability, and compliance with legal requirements. The Companies Act, 2013, along with SEBI (LODR) Regulations, 2015, set clear guidelines on the composition, leadership, and meeting frequency of these committees. This post explores the key board committees, their structure, and their roles, helping you understand how they contribute to strong governance.

Eye-level view of a conference table with documents and a single chair — Board committee meeting setup

Audit Committee

The Audit Committee is one of the most critical committees mandated by law. Its primary responsibility is to oversee financial reporting, internal controls, and audit processes.

Composition: At least three directors
Executive Directors: Can be members, but the majority should not be executive Directors.
Non-Executive Directors: Majority are non-executive directors (NEDs)
Independent Directors: At least two-thirds of members must be independent directors
Chairman: Must be an independent director
Meeting Frequency: Minimum four times a financial year, with no more than 120 days between meetings

The committee reviews financial statements, discusses audit findings, and ensures compliance with accounting standards. For example, if a company faces irregularities in financial reporting, the Audit Committee investigates and recommends corrective actions.

Nomination and Remuneration Committee (NRC)

The NRC focuses on selecting suitable candidates for the board and deciding their remuneration packages.

Composition: Minimum three directors
Executive Directors: Not allowed as members
Non-Executive Directors: All members must be non-executive directors
Independent Directors: At least two-thirds must be independent directors
Chairman: Independent director
Meeting Frequency: At least once a financial year

This committee ensures that the board has the right mix of skills and experience. It also sets fair and transparent pay structures to attract and retain talent. For instance, when appointing a new CEO, the NRC evaluates candidates’ qualifications and recommends the best fit to the board.

Stakeholders Relationship Committee (SRC)

The SRC handles investor relations and addresses shareholder grievances.

Composition: Minimum three directors
Executive Directors: May be included
Non-Executive Directors: Chairperson must be a non-executive director
Independent Directors: No fixed majority requirement
Chairman: Non-executive director
Meeting Frequency: At least once a financial year

This committee ensures that shareholders’ concerns are addressed promptly. For example, if investors raise issues about dividend payments or voting rights, the SRC investigates and communicates resolutions.

Corporate Social Responsibility Committee (CSR)

The CSR Committee oversees the company’s social responsibility initiatives.

Composition: Minimum three directors
Executive Directors: May be included
Non-Executive Directors: May be included
Independent Directors: At least one independent director if the company is required to have one
Chairman: Can be executive or non-executive director
Meeting Frequency: No specific statutory frequency prescribed

This committee plans and monitors CSR activities, such as community development projects or environmental programs. For example, a company may launch a rural education initiative under the guidance of the CSR Committee.

Risk Management Committee (RMC)

The RMC is required if applicable under SEBI LODR Regulation 21. It focuses on identifying and managing risks.

Composition: Minimum three members
Executive Directors: Senior executives may be members
Non-Executive Directors: Majority should be board members
Independent Directors: At least 1 Independent Director
Chairman: Member of Board of Directors

Meeting Frequency: Meetings shall be conducted such that on a continuous basis not more than 210 days shall elapse between any two consecutive meetings

IMPORTANT NOTE

Risk Management Committee (RMC) is mandatory only for:

· Top 1000 listed entities by market capitalisation; and

· High Value Debt Listed Entities (HVDLEs), to whom the provisions are applicable.

· SME Listed Entities are generally exempt under Regulation 15(2) of SEBI LODR.

· Always refer to applicable laws, regulations and Board-approved policy / Terms of Reference.

The committee assesses risks related to finance, operations, and compliance, and recommends mitigation strategies. For example, in a manufacturing company, the RMC might evaluate supply chain risks and suggest alternative sourcing options.

Understanding these committees helps stakeholders appreciate how companies maintain checks and balances. Each committee has a distinct role but works together to support the board’s overall governance responsibilities. Companies that follow these guidelines tend to have stronger oversight, better risk management, and improved stakeholder trust.

The content provided is intended solely for educational purposes. This disclaimer serves to clarify that the information presented is not to be interpreted as professional advice.