Section 178: Nomination and Remuneration Committee and Stakeholders Relationship Committee
This section is for constituting and outlining the responsibilities of the Nomination and Remuneration Committee and the Stakeholders Relationship Committee in certain companies.
Penalty
(8) In case of any contravention of the provisions of section 177 and this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be 3[liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of one lakh rupees]:
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In plain terms
(1)The Board of Directors of 3[every listed public company] and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors: Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.
Every listed public company and other prescribed classes of companies must have a Nomination and Remuneration Committee with at least three non-executive directors, half of whom must be independent directors, and the company's chairperson can be a member but not the chair of this committee.
(2)The Nomination and Remuneration Committee 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 1[shall specify the manner for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance].
The Nomination and Remuneration Committee must identify qualified director and senior management candidates, recommend their appointment and removal, and specify how to evaluate the performance of the Board, its committees, and individual directors.
(3)The Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.
The Nomination and Remuneration Committee must formulate criteria for determining director qualifications and independence, and recommend a remuneration policy for directors, key managerial personnel, and other employees to the Board.
(4)The Nomination and Remuneration Committee shall, while formulating the policy under sub-section (3) ensure that—
When formulating the remuneration policy, the Nomination and Remuneration Committee must ensure it is reasonable, reflects performance, and balances fixed and incentive pay, and the policy must be placed on the company's website and disclosed in the Board's report.
(4)(a)the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;
(4)(b)relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
(4)(c)remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals:
proviso2[Provided that such policy shall be placed on the website of the company, if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board's report.]
(5)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 anytime during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non- executive director and such other members as may be decided by the Board.
Companies with over 1,000 shareholders, debenture-holders, deposit-holders, and other security holders must have a Stakeholders Relationship Committee with a non-executive director as chairperson and other members decided by the Board.
(6)The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the company.
The Stakeholders Relationship Committee must consider and resolve security holders' grievances.
(7)The chairperson of each of the committees constituted under this section or, in his absence, any other member of the committee authorised by him in this behalf shall attend the general meetings of the company.
The chairperson or an authorised member of each committee must attend the company's general meetings.
(8)In case of any contravention of the provisions of section 177 and this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be 3[liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of one lakh rupees]:
Companies that contravene the provisions of this section and section 177 are punishable with a fine of at least 1 lakh rupees but not more than 5 lakh rupees, and defaulting officers are liable to a penalty of 5 lakh rupees and 1 lakh rupees respectively.
provisoProvided that 4[inability to resolve or consider any grievance] by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of this section.
explanationExplanation.—The expression “senior management” means personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive directors, including the functional heads.
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. The proviso ins. by Act 21 of 2015, s. 14 (w.e.f. 14-12-2015).
- 2. Ins. by Act 1 of 2018, s. 57 (w.e.f. 7-5-2018).
- 3. Subs. by Act 1 of 2018, s. 58, for “every listed company” (w.e.f. 7-5-2018).
- 1. Subs. by s. 58, ibid., for “shall carry out evaluation of every director’s performance” (w.e.f. 7-5-2018).
- 2. Subs. by Act 1 of 2018, s. 58, for the proviso (w.e.f. 7-5-2018).
- 3. Subs. by Act 29 of 2020, s. 36, for certain words (w.e.f. 21-12-2020).
- 4. Subs. by Act 1 of 2018, s. 58, for “non-consideration of resolution of any grievance” (w.e.f. 7-5-2018).
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.