Section 178 of the Companies Act, 2013
Section 178 of the Companies Act, 2013 – Nomination and Remuneration Committee and Stakeholders Relationship Committee
🔹 Purpose of Section 178:
To ensure transparency and accountability in the appointment and remuneration of directors and senior management, and to protect the interests of stakeholders.
✅ Key Provisions:
1. Constitution of Nomination and Remuneration Committee (NRC) – [Sub-section (1)]:
Certain classes of companies (mainly listed companies and those prescribed) must constitute an NRC comprising:
≥ 3 non-executive directors,
Out of which at least 50% shall be independent directors.
2. Functions of NRC – [Sub-section (2)]:
The NRC shall:
Identify qualified persons for appointment as:
Directors,
Senior management.
Recommend their appointment/removal.
Formulate criteria for:
Performance evaluation of directors.
Recommend remuneration policy for directors and key managerial personnel (KMPs).
3. Remuneration Policy – [Sub-section (3)]:
NRC shall ensure the policy:
Is reasonable and sufficient to attract talent.
Is performance-linked.
Balances fixed and variable pay.
The policy must be disclosed in the Board’s report.
4. Stakeholders Relationship Committee – [Sub-section (5)]:
Companies with >1,000 shareholders, debenture-holders, or security-holders must form a Stakeholders Relationship Committee.
Chaired by a non-executive director.
Looks into grievances of stakeholders (e.g., share transfers, dividend issues, etc.).
5. Board Evaluation – [Sub-section (4)]:
The Board shall carry out evaluation of its own performance and that of:
Committees,
Individual directors,
Based on a formal evaluation process.
6. Disclosure Requirements – [Sub-section (4) & (3)]:
The company's Board report must disclose:
NRC policy,
Manner of formal evaluation.
🧾 Applicability:
Mainly applies to listed companies and public companies meeting prescribed thresholds of paid-up capital or turnover.
📌 Summary Table:
| Committee | Requirement | Role |
|---|---|---|
| NRC | Mandatory for listed companies | Appointment, remuneration, evaluation |
| Stakeholders Committee | >1,000 security holders | Resolves grievances |
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