Business Laws and Ethics · Directors - Role, Responsibilities, Qualification, Appointment, Removal, Remuneration and Powers

Nomination and Remuneration Committee and Stakeholders Relationship Committee

Updated 10 October 2026 · Fact-checked

Section 178 of the Companies Act, 2013 requires every listed public company, and other prescribed classes, to form a Nomination and Remuneration Committee: three or more non-executive directors, at least half independent. A Stakeholders Relationship Committee, led by a non-executive chairperson, is needed where security holders exceed one thousand. It resolves their grievances.

Understand Nomination and Remuneration and Stakeholders Relationship Committees

Section 178 creates two Board committees. Each one handles a sensitive area where the Board needs independent, focused attention. One deals with who sits on the Board and how they are paid. The other deals with complaints from investors.

The Nomination and Remuneration Committee (NRC) must be formed by the Board of every listed public company and by such other classes of companies as may be prescribed. It must have three or more non-executive directors, and not less than one-half of them must be independent directors. The chairperson of the company, whether executive or non-executive, may be a member but cannot chair the NRC.

The NRC has three jobs. First, it identifies persons qualified to become directors or to be appointed in senior management, using the criteria laid down, and recommends their appointment and removal to the Board. Second, it specifies the manner of evaluating the performance of the Board, its committees and individual directors. That evaluation can be done by the Board, by the NRC or by an independent external agency. The NRC also reviews its implementation and compliance. Third, it formulates the criteria for qualifications, positive attributes and independence of a director, and recommends a remuneration policy for directors, key managerial personnel and other employees.

The Stakeholders Relationship Committee (SRC) is needed where the company has more than one thousand shareholders, debenture-holders, deposit-holders and other security holders at any time during a financial year. Its chairperson must be a non-executive director. The Board decides the other members. The SRC considers and resolves grievances of security holders.

The chairperson of each committee, or another member authorised by him, must attend the general meetings of the company. Do not confuse these committees with the Audit Committee under section 177. That is a separate committee with a different composition and role.

Key rules to remember

NRC: who must form it: Every listed public company + other prescribed classes; Section 178(1). The word 'public' was added in 2018. A listed company is not covered unless it is a public company.
NRC composition: Minimum 3 members, all non-executive directors, at least 1/2 independent; Section 178(1). The chairperson of the company can be a member but cannot chair the NRC.
NRC functions: Identify and recommend directors and senior management; specify evaluation manner; frame criteria and remuneration policy; Sections 178(2) and 178(3).
Remuneration policy tests: Reasonable and sufficient pay; clear link to performance; balance of fixed and incentive pay; Section 178(4)(a), (b) and (c). Policy goes on the company website, if any. Its salient features go in the Board's report.
SRC trigger: More than 1,000 security holders at any time during a financial year; Section 178(5). Holders include shareholders, debenture-holders, deposit-holders and other security holders.
SRC composition and role: Chairperson = non-executive director; other members decided by Board; considers and resolves grievances; Sections 178(5) and 178(6).
Penalty for contravention: Company: fine ₹1,00,000 to ₹5,00,000. Officer in default: liable to a penalty as stated in section 178(8); Section 178(8) covers sections 177 and 178. Inability to resolve a grievance in good faith is not a contravention.

How to solve Nomination and Remuneration and Stakeholders Relationship Committees questions

Use this method for any question on section 178, whether it is a theory answer or a case study asking if a committee is validly formed.

1Identify which committee the question is about: NRC or SRC.
2Check applicability. For the NRC, is it a listed public company or a prescribed class? For the SRC, does the company have more than one thousand security holders?
3Check composition. For the NRC, count members (at least three), confirm all are non-executive, and confirm at least half are independent. For the SRC, confirm the chairperson is a non-executive director.
4Check the chair. The company's chairperson may be an NRC member but must not chair it.
5Match the function to the right sub-section: recommending directors and evaluation (2), criteria and remuneration policy (3), policy safeguards (4), grievances (6).
6State the consequence of any defect: the penalty under section 178(8), with the good-faith proviso for grievances.
7Conclude clearly in one line: valid or invalid, and why.

Quickest way: Composition checklist for case studies

When to use it: Use when the MCQ or case gives you a list of committee members and asks whether the committee is valid.

NRC: count 3 or more, all non-executive, independents at least half. Then check who chairs it.
SRC: only check that the chairperson is a non-executive director and that holders exceed 1,000.
If a question says 'majority independent' it is about the Audit Committee, not the NRC. The NRC needs 'not less than one-half'.
Eliminate options that mention executive directors as members of the NRC.

Common mistakes in Nomination and Remuneration and Stakeholders Relationship Committees

Saying the NRC needs a majority of independent directors.
It is mixed up with the Audit Committee, where independent directors must form a majority.
Fix: For the NRC, write 'not less than one-half independent'. For the Audit Committee under section 177(2), write 'independent directors forming a majority'.
Allowing the company's chairperson to chair the NRC.
Students remember that the chairperson may be a member and forget the limit.
Fix: Remember: may be a member, shall not chair.
Saying every listed company needs an NRC.
Old wording said 'every listed company'.
Fix: Current text says 'every listed public company' and other prescribed classes.
Treating the SRC as mandatory for all companies.
Students ignore the one-thousand security holders threshold.
Fix: Write the trigger: more than one thousand shareholders, debenture-holders, deposit-holders and other security holders at any time during a financial year.
Saying the SRC chairperson can be an independent or executive director without distinction.
The word 'non-executive' is skipped.
Fix: The chairperson must be a non-executive director. The other members are decided by the Board.
Treating any unresolved grievance as a contravention.
The proviso to section 178(8) is overlooked.
Fix: Inability to resolve or consider a grievance in good faith is not a contravention.

Worked examples

Example 1

The Board of Sagar Textiles Ltd., a listed public company, forms an NRC of four directors: two independent non-executive directors, one non-executive non-independent director, and the Managing Director. Is the committee validly constituted? Give reasons.

Show the solution

Applicability: the company is a listed public company, so it must constitute an NRC under section 178(1).
Composition rule: the NRC must consist of three or more non-executive directors, with not less than one-half independent.
Check members: the Managing Director is an executive director, so he cannot be a member. Only three non-executive directors are eligible.
Independent share: if the Managing Director is removed, two of the three members are independent. That is at least one-half, so this part is satisfied.
As formed, the committee has an executive director as a member, which does not comply.

Answer: No. The committee is not validly constituted because the Managing Director, an executive director, is a member. The Board should reconstitute it with the three non-executive directors, which meets the minimum of three and the one-half independent requirement.

Example 2

Kaveri Finance Ltd. has 1,450 debenture-holders and shareholders together. The Board wants to know whether it must form a Stakeholders Relationship Committee, who may chair it, and what the committee does.

Show the solution

Trigger: under section 178(5), the committee is required for a company with more than one thousand shareholders, debenture-holders, deposit-holders and other security holders at any time during a financial year.
Application: 1,450 is more than 1,000, so the Board must constitute the SRC.
Chair: the chairperson must be a non-executive director. The other members are decided by the Board.
Function: under section 178(6), the SRC considers and resolves the grievances of security holders.
Attendance: under section 178(7), its chairperson, or a member he authorises, attends the general meetings.
Penalty note: inability to resolve a grievance in good faith is not a contravention under the proviso to section 178(8).

Answer: Yes, the company must form the SRC. A non-executive director must chair it. It considers and resolves security holders' grievances, and its chairperson or an authorised member attends general meetings.

Exam tips

Write section numbers where you are sure: 178(1) NRC composition, 178(2) and (3) functions, 178(4) policy, 178(5) and (6) SRC, 178(8) penalty.
In a compare question, make a two-column list: composition, trigger, functions, and chair for the Audit Committee and the NRC.
In MCQs, watch for the trap words 'majority', 'executive' and 'listed company'. Each changes the correct answer.
For a remuneration policy question, list the three tests in 178(4) and add the website and Board's report disclosure.
Mention that committee chairpersons attend general meetings. Many students skip this and lose a step mark.

Practice questions from Directors - Role, Responsibilities, Qualification, Appointment, Removal, Remuneration and Powers

Nomination and Remuneration and Stakeholders Relationship Committees in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Nomination and Remuneration and Stakeholders Relationship Committees: frequently asked questions

Which companies must constitute a Nomination and Remuneration Committee?

Every listed public company must do so under section 178(1). Other classes of companies must also do so if prescribed. A company that is listed but not public is not covered by the section text itself.

What is the difference between the Audit Committee and the Nomination and Remuneration Committee?

The Audit Committee under section 177 needs at least three directors with independent directors forming a majority. It deals with auditors, financial statements, related party transactions and internal controls. The NRC needs three or more non-executive directors with at least one-half independent. It deals with director selection, evaluation and remuneration policy.

Can the chairperson of the company be a member of the NRC?

Yes, whether he is executive or non-executive. But he cannot chair the NRC.

What does the Stakeholders Relationship Committee do?

It considers and resolves the grievances of the company's security holders. Its chairperson must be a non-executive director. It is required where the company has more than one thousand security holders at any time during a financial year.

What is the penalty for not complying with section 178?

Under section 178(8) the company is punishable with a fine of not less than ₹1,00,000 but up to ₹5,00,000. Officers in default are liable to a penalty as stated in the sub-section. Inability to resolve a grievance in good faith is not a contravention.