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Environmental, Social and Governance (ESG) - Principles and Practice · Stakeholders Rights

Stakeholders Relationship Committee under Section 178

Updated 11 October 2026 · Fact-checked

The Stakeholders Relationship Committee (SRC) is a board committee that considers and resolves the grievances of security holders. Section 178(5) requires it where a company has more than 1,000 security holders at any time in a financial year. Its chairperson must be a non-executive director. Answer by stating the trigger, composition, functions and penalty.

Understand Stakeholders Relationship Committee under Section 178

A company owes duties to the people who hold its shares, debentures and deposits. These holders often have everyday complaints: share transfer delays, non-receipt of dividend, missing annual reports, refund problems. The Stakeholders Relationship Committee (SRC) is the board's tool to handle these complaints in an organised way.

Section 178(5) sets the trigger. The Board of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year must constitute the SRC. Notice that the test is about the number of holders, not about whether the company is listed or public. It also covers all kinds of security holders, not only shareholders. The trigger is met if the count crosses 1,000 even for a single day in the year.

On composition, the Act is short. The committee has a chairperson who is a non-executive director, and such other members as the Board decides. The Act does not fix a minimum number of members or require independent directors. Do not import the rules of the Audit Committee or the Nomination and Remuneration Committee here.

The committee's job under Section 178(6) is to consider and resolve the grievances of security holders. Under Section 178(7), the chairperson of each committee under this section (or any other member authorised by him if he is absent) must attend the general meetings of the company, so shareholders can raise questions directly.

The Act does not lay down a minimum number of SRC meetings or a quorum. For listed companies, the SEBI LODR Regulations add their own rules on composition and meetings. State these as listed-company requirements under SEBI, not as Section 178 rules, and give the figures only if you are sure of them.

Key rules to remember

Trigger for constituting the SRC
Number of security holders > 1,000 at any time during a financial year → Board must constitute the SRC
Security holders include shareholders, debenture-holders, deposit-holders and any other security holders. Exactly 1,000 does not trigger it.
Composition
Chairperson (non-executive director) + other members as decided by the Board
No minimum number of members and no independent-director requirement in Section 178(5).
Function
SRC considers and resolves grievances of security holders
Section 178(6).
Attendance at general meetings
SRC chairperson (or member authorised by him in his absence) attends general meetings
Section 178(7). Applies to each committee under Section 178.
Penalty for contravention
Company: fine ₹1,00,000 to ₹5,00,000. Officer in default: penalty up to ₹1,00,000 (as the text reads after the 2020 amendment)
Section 178(8). Inability to resolve or consider a grievance, if in good faith, is not a contravention.

How to solve Stakeholders Relationship Committee under Section 178 questions

Use this method for any case question on the SRC. Work from the facts to the provision and then to a conclusion.

  1. 1Identify the company and count all its security holders: shareholders, debenture-holders, deposit-holders and others. Add them together.
  2. 2Check whether the count exceeded 1,000 at any time during the financial year. If yes, the SRC is mandatory under Section 178(5).
  3. 3If the company is listed, note that SEBI LODR Regulations also apply and may add requirements on composition and meetings.
  4. 4Test the chairperson: he must be a non-executive director. An executive director or a managing director cannot chair it.
  5. 5Test the other members: the Board decides them, so check the Board resolution rather than looking for a fixed number.
  6. 6Identify the function in the facts: if it is a security holder grievance, it belongs to the SRC under Section 178(6).
  7. 7Check attendance of the chairperson at the general meeting under Section 178(7).
  8. 8Conclude clearly: compliant or not, the consequence under Section 178(8), and the practical step such as a Board resolution and a minutes entry.

Quickest way: Count, chair, function

When to use it: Use when a short question gives a few facts and asks whether the company has complied.

  1. Count: more than 1,000 holders of all security types at any time in the year? If not, no SRC under Section 178(5).
  2. Chair: non-executive director? If not, a breach.
  3. Function: grievances of security holders only. Other tasks go to other committees.
  4. Meeting: chairperson (or authorised member) at the general meeting.
  5. Penalty: cite Section 178(8) and mention the good-faith protection.

Common mistakes in Stakeholders Relationship Committee under Section 178

  • Applying the Audit Committee or NRC composition rules to the SRC, such as three members or independent director majority.

    All three committees sit in Section 178 and 177, so their rules blur together.

    Fix: Remember that the SRC has only one fixed rule: a non-executive director as chairperson. Other members are as the Board decides.

  • Counting only shareholders when testing the 1,000 limit.

    The committee's name suggests equity holders.

    Fix: Count shareholders, debenture-holders, deposit-holders and any other security holders together.

  • Saying the SRC is required only for listed companies.

    Students link it to SEBI LODR.

    Fix: The Act's trigger is the number of holders. A company with more than 1,000 security holders needs it even if the Act's wording does not mention listing.

  • Testing the holder count only at year end.

    Students assume balance-sheet-date thinking.

    Fix: The section says at any time during a financial year, so a mid-year peak counts.

  • Treating any unresolved grievance as a contravention.

    The penalty provision is read without its proviso.

    Fix: Quote the proviso: inability to resolve or consider a grievance in good faith is not a contravention.

  • Stating that an executive director can chair the SRC if the Board agrees.

    Confusion with the proviso for the NRC, where the company chairperson can be a member but not chair.

    Fix: The SRC chair must be a non-executive director. The Board cannot override this.

Worked examples

Example 1

Sundaram Textiles Ltd has 640 equity shareholders, 280 debenture-holders and 150 fixed deposit holders during FY 2026-27. Its Board has no SRC. The Board argues that no committee is needed since shareholders are below 1,000. Advise.

Show the solution
  1. Provision: Section 178(5) requires an SRC where the company has more than 1,000 shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year.
  2. Analysis: Total holders = 640 + 280 + 150 = 1,070. The Board counted only shareholders.
  3. 1,070 is more than 1,000, so the trigger is met, assuming the counts coexisted at some time in the year.
  4. Conclusion: The Board must constitute the SRC. Failure attracts Section 178(8): fine on the company of ₹1,00,000 to ₹5,00,000 and penalty on officers in default.
  5. Practical step: pass a Board resolution, appoint a non-executive director as chairperson and record the committee in the Board's report.

Answer: The company has 1,070 security holders, which is more than 1,000, so it must constitute an SRC. The Board's argument is wrong because all security holders are counted.

Example 2

Kaveri Industries Ltd has an SRC chaired by Mr. Rao, the executive director (finance). At the annual general meeting, shareholders ask why no committee member attended. Examine compliance.

Show the solution
  1. Provision: Section 178(5) requires the chairperson of the SRC to be a non-executive director.
  2. Analysis: Mr. Rao is an executive director, so the chairperson requirement is not met.
  3. Section 178(7) requires the chairperson of each committee, or in his absence another member authorised by him, to attend general meetings. No committee member attended, so this is also breached.
  4. Consequence: Section 178(8) applies to the contravention of Section 178, with a fine on the company and a penalty on officers in default.
  5. Remedy: reconstitute the SRC with a non-executive director as chairperson and ensure the chairperson or an authorised member attends future general meetings.

Answer: Two breaches arise: an executive director chairs the SRC, and the chairperson or an authorised member did not attend the general meeting. The Board must appoint a non-executive director as chairperson and ensure attendance in future.

Exam tips

  • Write the section number with each point: 178(5) for trigger and composition, 178(6) for function, 178(7) for attendance, 178(8) for penalty.
  • In case questions, show the arithmetic of the holder count before concluding.
  • Keep Section 178 rules and SEBI LODR rules in separate paragraphs. Do not mix them.
  • Always mention the good-faith proviso when discussing penalty.
  • Close with a practical drafting point: Board resolution, terms of reference and minutes.

Practice questions from Stakeholders Rights

Stakeholders Relationship Committee under Section 178 in other exams

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

Stakeholders Relationship Committee under Section 178: frequently asked questions

Who must constitute the Stakeholders Relationship Committee under Section 178?

The Board of a company with more than 1,000 shareholders, debenture-holders, deposit-holders and other security holders at any time during a financial year. The test is on the holder count.

Who can chair the Stakeholders Relationship Committee?

The chairperson must be a non-executive director. The Board decides the other members. The Act does not require independent directors on this committee.

What does the committee do?

It considers and resolves the grievances of security holders of the company. Its chairperson, or an authorised member in his absence, must attend general meetings.

What is the penalty for not complying with Section 178?

The company is liable to a fine of ₹1,00,000 to ₹5,00,000. Officers in default are also penalised under Section 178(8). Inability to resolve a grievance in good faith is not a contravention.