Board Roles & Responsibilities under Companies Act 2013
Understanding the essential roles and responsibilities of the board as outlined in the Companies Act, 2013 and Clause 49 of the Listing Agreement is crucial for effective corporate governance. Compliance with these regulations ensures transparency, accountability, and ethical conduct within the organization. Familiarize yourself with the specific provisions to uphold the principles of good governance and protect the interests of stakeholders.
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Presentation Transcript
Board Roles & Responsibilities under Companies Act, 2013 & Clause 49 of Listing Agreement 3/5/2025
An Introduction Board- An Introduction Decision making by Board Changing role & state of Board Significant provisions relating to Board New and Mandatory Committees Policies of Company 3/5/2025
BOARD AN INTRODUCTION 3/5/2025
Definitions Director Director appointed to the Board of a company Board of directors or Board Collective body of directors of the company Whole Time Director Director in the Whole Time Employment of the Company Executive Director means a whole time director. 3/5/2025
Board Composition- Companies Act, 2013 Women Director Independent Director Small Resident Director Shareholder Director Board to have an optimum combination of executive & non-executive and not less than 50% of Board of Directors comprising non-executive directors. 3/5/2025
Woman Director & Resident Director on the Board Board shall have at least one Woman Director on the Board by 1st April, 2015 Company is required to have at least one director on its Board as Resident Director who has stayed in India for a minimum of 182 days during the previous calendar
Number of Independent Directors on the Board Chairman of Board Non-Executive Director Executive Director 1/3rd of Board to comprise Independent Directors 1/2ndof Board to comprise Independent Directors If the Non-executive Chairman is a promoter of the company or is related to any promoter or person occupying management positions at the Board level or at one level below the Board, at least 1/2nd of the Board shall consist of Independent Directors.
Independent Directors (ID) on the Board Qualifications of ID has been separately provided. Nominee director not considered as ID. Independent director to furnish declaration of independence on yearly basis Appointment to be approved at a general meeting with explanatory statement justifying appointment ID are not liable to retire by rotation and thus not taken in the limit of rotational directors; ID is not entitled for stock options. Familiarization programme for ID is introduced. ID s to conduct their separate meetings at least once in year. Limited liability of ID
Role & Functions of Independent Director Help in bringing independent judgement on issues like strategy, key appointments, etc. Bring an objective view in performance evaluation of board & management Safeguard interest of all stakeholders particularly minorities. Determine appropriate levels of remuneration for ED s, KMP & senior management Balance conflicting interest of stakeholders Satisfy themselves on integrity of financial statements & financial controls & system of risk management are robust Scrutinize performance of management in meeting agreed goals Moderate & arbitrate in the interest of the company in conflict situations 3/5/2025
Duties of Independent Director Undertake induction & regularly update skills Seek clarifications & professional advice where necessary Ensure their concerns about running of company are well addressed Strive to attend and participate in all Board , Committee & general meetings Be well informed about company & external environment Do not unfairly obstruct the functioning of meeting Pay attention & ensure adequate deliberation are held before approving RPT Ascertain & ensure functioning of vigil mechanism Not to disclose confidential information Report concerns about unethical behavior , actual or suspected fraud 3/5/2025
Small Shareholder Director on the Board Listed Company either Suo Motto Notice of atleast 1000 small shareholders/ or 1/10th of total small shareholders, whichever is lower May appoint a small shareholder director elected by small shareholders.
Maximum No. of Directorships A person can be director in maximum 20 companies out of which maximum 10 can be public companies. The directorships in private companies that are either holding or subsidiary of public companies are treated as public companies. Alternate Directorship shall be included in calculating the maximum directorships limit. Members by Special Resolution can specify any lesser number of companies in which a director can act as directors. A transition period of 1 year is provided to comply with the requirement of maximum no. of directorships. An intimation of their choice of companies shall be given to the respective company as well as to ROC. 3/5/2025
Maximum No. of Directors on the Board Maximum no. of directors to be appointed in a company has been increased from 12 to 15. More than 15 directors can also be appointed by passing Special resolution. 3/5/2025
DECISION MAKING BY BOARD 3/5/2025
Board Meetings Frequency of Board meeting: Min. 4 meetings in a year with a maximum Notice shall be sent to all the directors gap of 120 days between 2 consecutive at least 7 days before the date of meetings meeting Notice may be sent, through electronic means or others Notice of Board meeting shall specify the option to attend the meeting through video conferencing or through other audio visual means 3/5/2025
Meeting through video conferencing Participation through video conferencing or other audio visual means to be counted as quorum. With respect to every meeting conducted through video conferencing the scheduled venue of the meeting as set forth in the notice convening the meeting shall be deemed to be the place of said meeting & all recordings of the proceedings at meeting shall be deemed to be made at such place. Chairman required to make a roll call with respect to every director participating through video conferencing. Company to send draft minutes to all directors within fifteen days of the meeting Confirmation of accuracy of draft minutes by every directors who attended meeting within 7 days (or some reasonable time decided by the Board) of receipt of draft minutes, failing which it will be deemed approved. 3/5/2025
Matters not to be dealt through video conferencing Matters not to be dealt in meeting through video conferencing To approve the annual financial statements; To approve the board s report; To approve prospectus; To approve merger, amalgamation, demerger, acquisition and takeover; and The audit committee meetings for consideration of financial statement including consolidated financial statement, if any, to be approved by the Board under the Act. 3/5/2025
Quorum for Board Meeting Dis-interested quorum Quorum for the Board Meeting shall be 1/3rd of total strength or 2 directors whichever is higher If interested directors are 2/3rd of the board, dis-interested directors not less than 2 will form the quorum. Interested Director Meeting of Board to transact urgent Director who in any way whether by :- Himself; Through relatives; Firm; Body corporate; Association of individuals business at shorter Notice : Presence of at least 1 Independent Director required in the meeting called at shorter notice. Else decision to be circulated to all the in which he or any relative is partner/ director or member, interested in a contract or arrangement, entered into or to be entered into by or on behalf of company. directors and to be valid only after ratification by at least one ID 3/5/2025
Circular Resolution Draft resolution to be sent to all directors whether in India or outside India Draft Resolution may be circulated to the directors along with necessary papers by e-mail /fax /post /courier or by hand. Approval of majority directors required, who are entitled to vote on the resolution In case of 1/3rd or more Directors decide that the resolution shall be decided at the meeting, then the resolution shall be decided at the meeting and not by circulation Circular resolution shall be noted at a subsequent Board meeting or committee meeting and shall form minutes of such meeting. 3/5/2025
Powers of Board to be exercised in its meetings Following powers shall be exercised by the Board only at their meeting:- To make calls on shareholders in respect of money unpaid on their shares; To authorise buy-back of securities; To invest the funds of company; Issue of Securities Equity, Preference, Debentures; Grant Loans, give guarantee or provide security in respect of loans; Approve financial statements and Director s report; To make political contribution; To diversify the business of company; To approve amalgamation, merger or reconstruction; To appoint internal auditors and secretarial auditors. 3/5/2025
Powers of Board to be exercised in its meetings To appoint or remove KMP or take note of appointment(s) or removal(s) of one level below KMP; To take note of the disclosure of director s interest and shareholding; To buy, sell investments held by company constituting 5% or more of paid up share capital and free reserves of investee company; To invite/ accept/ renew/ review/ the public deposits; To take over a company or acquire a controlling or substantial stake in another company; To review or change the terms & conditions of public deposits; To approve quarterly, half early and annual financial statements or financial results. 3/5/2025
CHANGING ROLE & STATE OF BOARD 3/5/2025
Responsibilities of Board Directors & key executives are required to disclose the Board whether they, directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting company. Board & top management to conduct themselves to meet the expectations of operational transparency to stakeholders Maintaining confidentiality of information in order to foster a culture for good decision making Board should provide strategic guidance to the company, ensure effective monitoring of management & should be accountable to company & shareholders.
Responsibilities of Board Board should encourage continuing directors training to ensure Board members are kept up to date. Board should treat all shareholders fairly. Board should apply high ethical standards. It should take into account the interest of stakeholders. Board should be able to exercise objective independent judgment on corporate affairs.
Responsibilities of Board Board should consider assigning a sufficient number of non-executive Board members capable of exercising independent judgment to tasks where there is a potential of conflict of interest. Board should have ability to stepback to assist executive management by challenging the assumptions underlying: strategy, strategic initiatives, risk appetite. When committees of the Board are established, their mandate, composition & working procedures should be well defined & disclosed by Board. In order to fulfil their responsibilities, board members should have access to accurate, relevant & timely information. Board & senior management should facilitate the independent directors to perform their role effectively as a Board member and also a member of a committee.
Role of Board Reviewing & guiding corporate strategy, major action plans, risk policy, annual budgets & business plans, setting performance objectives, etc. Monitoring effectiveness of company s governance practices & making changes as needed. Selecting, compensating, monitoring &, when necessary, replacing key executives & overseeing succession planning. Aligning key executive & board remuneration with the longer term interests of company & shareholders. Ensuring transparent board nomination process with diversity of thought, experience, knowledge, perspective & gender in the Board.
Role of Board Monitoring & managing potential conflicts of interest of management, board members & shareholders, including misuse of corporate assets & abuse in related party transactions Ensuring the integrity of the company s accounting & financial reporting systems & that appropriate systems of control are in place, in particular, systems for risk management, financial & operational control, and compliance with law & relevant standards. Overseeing the process of disclosure & communications. Monitoring & reviewing Board evaluation framework
Duties of Directors To act in accordance with the company s Articles To act in good faith in order to promote the objects of the company Exercise his duties with due and reasonable care, skill and diligence. Not to have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. Director shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates. Shall not assign his office and any assignment so made shall be void 3/5/2025
Restrictions on Powers of Board Restriction for sale/ leasing of undertaking applicable to all classes of companies Term Undertaking and Substantial Undertaking has now been defined to invest otherwise in trust securities the amount of compensation received by it as a result of merger or amalgamation Borrowing in excess of the paid up capital & free reserves To remit, or give time for the repayment of, any debt due from the director A special resolution is required to be passed instead of Ordinary resolution 3/5/2025
Restrictions on non-cash transactions Director of a company or of its holding/ subsidiary/Associate company or any connected person can not acquire assets for consideration other than cash from the company & vice versa. Approval at a general meeting is required If the Director or connected person is director of holding company then approval of holding company in general meeting is also required Valuation of the assets by registered valuer 3/5/2025
Prohibition on forward/insider dealing Forward dealing in the shares and debentures of a company, its holding, subsidiary or associate by Directors and KMPs is prohibited Both forward contracts and option contracts are banned Securities acquired in violation to be surrendered to company Restriction on Directors, KMP and any other person for indulging in Insider trading Communication required in ordinary course of business or under law exempted 3/5/2025
Related Party Transactions (RPTs) Following transactions are the related party transactions under Companies Act, 2013 and clause 49 of the Listing Agreement:- Transfer of resources, services or obligations, regardless of whether a price is charged or not. sale, purchase or supply of any goods or materials Selling or otherwise disposing of, or buying, property of any kind; Leasing of property of any kind; availing or rendering of any services; Appointment of any agents for purchase or sale of goods, materials, services or property; Appointment of any related party to any office or place of profit in the company / its subsidiary company / its associate company; Contract for underwriting the subscription of securities or derivatives thereof.
Role of Audit Committee in RPTs Every related party transaction shall require prior approval of audit committee. Audit Committee may grant omnibus approval for Related Party Transactions proposed to be entered into by the company as the criteria laid down by the Audit Committee subject to the following conditions: Criteria for granting the omnibus approval shall be laid down Transaction shall be repetitive in nature. Omnibus approval should be in the interest of the company. Such omnibus approvals shall be valid for a period not exceeding one year. Review the details of RPTs entered into by the company pursuant to each of the omnibus approval given at least on a quarterly basis.
Approval of Board & Shareholder Consent of Board of Directors and prior approval of shareholders by special resolution, if transaction or transactions to be entered into with related parties exceeding by such limit as prescribed under law. Company is not required to take consent of the Board and approval of shareholders by way of special resolution if such related party transaction entered into by the company in its ordinary course of business and on an arm s length basis However, all material Related Party Transactions shall require approval of the shareholders irrespective of the fact whether the transaction is on arm s length basis and on ordinary course of business.
Material Related Party Transaction What is Material Related Party Transaction? A transaction with a related party shall be considered material if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year, exceeds ten percent of the annual consolidated turnover of the company as per the last audited financial statements of the company. What about existing Related Party Transaction/s? All existing material related party contracts or arrangements as on 1st October 2014 which are likely to continue beyond March 31, 2015 shall be placed for approval of the shareholders in the first General Meeting subsequent to October 01, 2014.
Loans to Directors & Persons in whom directors are interested No Company can directly/indirectly give loan/ security/ guarantee in favour of Directors Relative of directors Any other person in whom director is interested Exemption given to MD & WTD if as a part of conditions of service extended to all employees or pursuant to any scheme approved by members by Special Resolution There is no facility of seeking approval of Central Government 3/5/2025
Any other person in whom director is interested Any director of the lending company, or of company which is its holding company or any partner or relative of any such director; Any firm in which any such director or relative is a partner; Any private company of which any such director is a director or member; Any body corporate at a general meeting of which not less than 25% of total voting power may be exercise or controlled by any such director, or by two or more such directors, together, or; Any body corporate, the Board of Directors, Managing Director or Manager, whereof is accustomed to act in accordance with directions or instructions of the Board, or any or director or directors, of lending company. 3/5/2025
Loan & Investments Loan, Investment and Guarantee allowed in : Company All persons (other than directors and person in whom director is interested ) Body corporate Limits : By Board Resolution: 60% of its paid-up capital, free reserves & securities premium account ;or 100% of its free reserves & security premium whichever is higher In case of exceeding above limits: By Special Resolution 3/5/2025
NEW AND MANDATORY COMMITTEES 3/5/2025
Audit Committee Every Listed Company to constitute Audit Committee Composition:- Min 3 directors with majority of ID Audit committee to: Recommend appointment, remuneration and terms of appointment of the auditors Review and monitor auditor s independence, performance and effectiveness of audit process Examine financial statements and auditor s report Approve / modify the transactions of companies with related party Scrutinize inter-corporate loans and investments Monitor end use of funds raised through Public offers and related matters Perform valuation of undertaking or assets of the company. Evaluate internal financial controls and risk management systems 1 year transition period for constitution / reconstitution of Audit committee 3/5/2025
Nomination & Remuneration Committee Every Listed Company to constitute Audit Committee Composition:- Min 3 Directors (all to be non-executive directors) comprising IDs. Nomination & Remuneration committee to :- Formulate criteria for determining qualifications, positive attributes & independence of director; Recommend to board a policy relating to remuneration of directors, KMP s & other employees; Identification of qualified Directors and senior management personnel Performance evaluation of directors & Board; Devising a policy on Board Diversity. 1 year transition period for constitution / reconstitution of Nomination & Remuneration committee 3/5/2025
Stakeholder Relationship Committee In Every Company having more than 1,000 share / debenture / deposit / security holders. Composition:- to be decided by BoD. Chairperson to be an NED. Mandate of the Committee:- Consider and resolve the grievances of Securities holders. 3/5/2025
Corporate Social Responsibility Committee CSR Committee to be constituted (3+ Dir incl. at least 1 ID) CSR Committee for promoting following CSR welfare initiatives CSR Activities to be undertaken as projects or programmes excluding activities undertaken in pursuance of the normal course of business of a company In the area nearby the operations of the company May implement the same through trust/society set up by company or otherwise having track record of three years Activities to be undertaken within India Activities not exclusively for the benefit of employees or their family members Nature of projects/programmes to be covered for eradicating extreme hunger and Poverty, for promotion of education ..etc as given in schedule VII 3/5/2025
POLICIES OF BOARD 3/5/2025
Corporate Social Responsibility Policy CSR spend of at least 2% of avg. Networth 500 Crs or net profits made during 3 Turnover 1000 Crs or immediately preceding FYs Net Profits 5 Crs COMPLY OR EXPLAIN CSR Committee to be constituted (3+ Dir incl. at least 1 ID) To promote welfare Initiatives; Committee recommend CSR policy and amount of expenditure as well as monitor CSR activities (CSR policy on web) shall formulate and Sustainable Business Development; More business opportunities; Preference to local areas in which the company operates Satisfied Stakeholders; Long term future for your business. Activities specified in Schedule VII Board report to contain details about such policy development & initiatives taken by company during the year.
Nomination & Remuneration Policy Objective Lay down criteria & terms & conditions with regard to identify persons qualifying for directors & senior management; To determine remuneration based on company s size & financial position; To carry out evaluation of performance of directors, KMP, Senior Management Functional heads & the Board; To have a diversified Board Scope Applicable to the following in the company:- Directors; Key Managerial Personnel (KMP); Senior Management Personnel, and Other employees Disclosure Such policy shall be disclosed in Board s Report.
Material Subsidiary Policy Material Subsidiary If the investment of company in subsidiary exceeds 20% of consolidated net worth as per audited balance sheet of P.Y; or Subsidiary has generated 20% of consolidated income during the P.Y. Except with the Special Resolution following transactions are not possible:- Disposing shares of material subsidiary company which reduce its shareholding (either on its own or together with other subsidiaries) to less than 50% or cease exercise of control over subsidiary; Selling, disposing & leasing of assets to more than 20% of assets of material subsidiary. Note: Exceptions are also provided. Disclosure Disclosure of policy on the company s website; Web-link to be provided in Annual Report.
Risk Management Policy Company to lay down procedure for risk assessment & minimization procedures. Board to be responsible for framing, implementing & monitoring the risk management plan. Company may constitute a Risk Management Committee to delegate monitoring & reviewing of risk management plan.
Whistle Blower Policy/ Vigil Mechanism Objective Established to report concerns about unethical behavior, actual or suspected fraud or violation of company s code of conduct or ethics policy. Provides adequate safeguard against victimization who avail mechanism. Provides direct access to Chairman of Audit Committee in exceptional cases. Scope Applicable to the following in the company:- Directors; KMP s; & Stakeholders including individual employees & their representative bodies. Disclosure Disclosure of such policy in Board s Report; Disclosure of details of establishment of mechanism on website.
