Economic and Business Environment · Elements of Corporate Governance

Board of Directors and Board Committees for CSEET

Updated 11 October 2026 · Fact-checked

The board of directors is the group of individuals who direct a company. Under the Companies Act, 2013, it has set size limits, independent directors for listed public companies, and committees such as Nomination and Remuneration and Stakeholders Relationship. Solve questions by identifying the company type, then applying the number, composition and role rules.

Understand Board of Directors and Board Committees

A company is an artificial person. It cannot decide or act by itself. The Board of Directors decides for it. Directors are individuals, and together they guide the company's policy, watch over management and protect the interests of shareholders and other stakeholders.

Directors can be executive or non-executive. An executive director (such as a managing director or whole-time director) works in the company's day-to-day management and draws a salary for it. A non-executive director does not manage daily affairs. They attend board meetings, give independent views and take part in committees.

An independent director is a non-executive director who has no material link with the company. Under section 149(6), the person must not be a managing director, whole-time director or nominee director. The Board must see them as a person of integrity with relevant expertise. They must not be a promoter or related to promoters or directors. They must have no pecuniary relationship with the company beyond remuneration as director, or transactions not exceeding ten per cent of their total income or a prescribed amount. Their independence matters because they can question management without fear or favour.

Work is divided through committees. This page covers two from section 178: the Nomination and Remuneration Committee (NRC) and the Stakeholders Relationship Committee (SRC). The audit committee comes under section 177, which is not in the text supplied here, so learn its role from your study material. In short, it deals with financial reporting and audit matters.

The pattern to remember is simple: the Act fixes who sits on the board, how many, and which committees must exist. Exam questions test these numbers and the role of each body.

Key rules to remember

Board size (s. 149(1)): Minimum: public company 3, private company 2, One Person Company 1. Maximum: 15; A company may appoint more than fifteen directors by passing a special resolution.
Resident director (s. 149(3)): At least one director who stays in India for not less than 182 days in the financial year; For a newly incorporated company, it applies proportionately in the year of incorporation.
Independent directors in a listed public company (s. 149(4)): At least one-third of total directors; any fraction is rounded up to one; Example: a board of 8 gives 8 ÷ 3 = 2.67, so the fraction is rounded off as one and the answer is 3 independent directors.
Term of independent director (s. 149(10), (11)): Up to 5 consecutive years per term; maximum 2 consecutive terms; Reappointment for a second term needs a special resolution and disclosure in the Board's report. A cooling-off period of 3 years applies before fresh appointment.
Independent director declaration (s. 149(7)): At the first board meeting they attend, then at the first meeting of every financial year, and whenever circumstances change; The declaration states that they meet the independence criteria.
Nomination and Remuneration Committee (s. 178(1)): Three or more non-executive directors; at least one-half independent; Required for every listed public company and other prescribed classes. The chairperson of the company may be a member but cannot chair this committee.
Stakeholders Relationship Committee (s. 178(5), (6)): Required if the company has more than 1,000 shareholders, debenture-holders, deposit-holders and other security holders at any time in the financial year; chairperson must be a non-executive director; It considers and resolves grievances of security holders.
Penalty for contravention of s. 178 (s. 178(8)): Company: fine ₹1,00,000 to ₹5,00,000. Each officer in default: penalty of ₹1,00,000; As per the text supplied. Inability to resolve a grievance in good faith is not a contravention.

How to solve Board of Directors and Board Committees questions

Use this method for any question on the board, independent directors or committees.

1Read the question and identify what is asked: board size, independent director, a committee, or a difference between two terms.
2Identify the type of company: public, private, One Person Company or listed public company. Most rules depend on it.
3Name the rule and its section only if you are sure of it, for example section 149 for the board and independent directors, and section 178 for NRC and SRC.
4State the rule in plain words with its exact numbers: minimum, maximum, one-third, one-half, five years, 182 days.
5Apply the rule to the facts given. For fractions in the one-third rule, round up.
6For a descriptive question, add the purpose: why the rule exists and what role the director or committee plays.
7Close with a one-line conclusion that answers the question directly.

Quickest way: Number-and-company-type check

When to use it: Use for short-answer or case-style questions where you must decide quickly whether a company complies.

Write the company type first.
Match it with the rule: size 3 / 2 / 1 and maximum 15; one-third independent for listed public companies.
For a committee, check three things: who must have it, how many members, and who may chair it.
Divide the total number of directors by 3 for independent directors and round any fraction up.
State comply or not comply, with one reason.

Common mistakes in Board of Directors and Board Committees

Saying every company must have independent directors.
Students remember the one-third rule but forget the company type.
Fix: Section 149(4) names every listed public company. Other public companies are covered only if the Central Government prescribes. Always name the company type.
Rounding down the one-third fraction.
Ordinary arithmetic habit.
Fix: The Act says any fraction in the one-third number is rounded off as one. So 2.67 becomes 3, not 2.
Allowing the company chairperson to chair the NRC.
Students read that the chairperson may be a member and assume more.
Fix: The chairperson may be a member of the NRC but shall not chair it.
Mixing up NRC and SRC membership rules.
Both are in section 178 and look alike.
Fix: NRC: three or more non-executive directors, at least half independent. SRC: a non-executive director as chairperson, other members decided by the Board. The SRC trigger is more than 1,000 security holders.
Treating all non-executive directors as independent.
Both terms mean the person is not in management.
Fix: An independent director must also meet the section 149(6) tests, such as not being a promoter and having no material pecuniary relationship. Every independent director is non-executive, but not every non-executive director is independent.
Saying an independent director can serve any number of terms.
Students remember the five-year term but not the limit.
Fix: A maximum of two consecutive terms of up to five years each. After that, a gap of three years is needed before fresh appointment, and no association with the company in any capacity during that gap.

Worked examples

Example 1

Shree Textiles Ltd is a listed public company with 8 directors. How many must be independent directors? Explain the rule.

Show the solution

Company type: listed public company, so section 149(4) applies.
The rule: at least one-third of the total number of directors must be independent.
Calculate: 8 ÷ 3 = 2.67.
The Explanation to section 149(4) says any fraction in the one-third number is rounded off as one. So 2.67 is rounded up to 3.
Conclusion: the company needs at least 3 independent directors.

Answer: At least 3 independent directors, because one-third of 8 is 2.67 and the fraction is rounded up.

Example 2

Explain the composition and functions of the Nomination and Remuneration Committee under the Companies Act, 2013.

Show the solution

Who must form it: the Board of every listed public company and other prescribed classes of companies (section 178(1)).
Composition: three or more non-executive directors, of whom at least one-half must be independent directors.
Chair: the company chairperson may be a member but cannot chair the committee.
Functions: identify persons qualified to become directors or senior management, recommend their appointment and removal, and specify how the performance of the Board, its committees and individual directors is to be evaluated.
Policy role: formulate criteria for qualifications, positive attributes and independence of a director, and recommend a remuneration policy for directors, key managerial personnel and other employees.
Policy tests: pay must be reasonable and sufficient to attract, retain and motivate; the link to performance must be clear; and pay must balance fixed and incentive pay for short and long-term objectives.
Disclosure: the policy is placed on the company's website, if any, and its salient features are disclosed in the Board's report.

Answer: The NRC has three or more non-executive directors, at least half independent, and its chairperson cannot be the company chairperson. It recommends appointments and removals, sets evaluation methods, and recommends criteria and a remuneration policy that is fair, performance-linked and balanced.

Exam tips

Learn the numbers as a list: 3 / 2 / 1, 15, 182 days, one-third, one-half, 5 years, 2 terms, 3 years, 1,000 holders.
In written answers, state the rule first, then the purpose. Examiners give marks for both.
For difference questions, such as executive versus non-executive or non-executive versus independent, use a point-by-point comparison in bullets.
In case questions, name the company type and show the arithmetic before concluding.
Write section numbers only for rules you are sure of, such as sections 149 and 178.

Practice questions from Elements of Corporate Governance

Board of Directors and Board Committees in other exams

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

Board of Directors and Board Committees: frequently asked questions

What is the difference between executive and non-executive directors?

An executive director takes part in day-to-day management and is usually a full-time employee, such as a managing director or whole-time director. A non-executive director does not manage daily affairs and attends board and committee meetings. Independent directors are a special type of non-executive director.

What is the role of independent directors under the Companies Act, 2013?

They bring an unbiased view to the board, which protects minority shareholders and other stakeholders. They must meet the independence criteria in section 149(6) and give a declaration of independence. They also form at least half of the Nomination and Remuneration Committee.

How many directors must a company have?

A public company needs at least three directors, a private company at least two, and a One Person Company at least one. The maximum is fifteen, and a company can go beyond that by passing a special resolution.

Which companies must form a Stakeholders Relationship Committee?

A company with more than one thousand shareholders, debenture-holders, deposit-holders and other security holders at any time during a financial year. The committee is chaired by a non-executive director and resolves grievances of security holders.