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

Anand Foods Ltd had 1,200 security holders (shareholders, debenture-holders and deposit-holders together) at one point in the financial year. Which statement is correct under Section 178 of the Companies Act, 2013?

Because the company had more than one thousand security holders at some time during the year, its Board must constitute a Stakeholders Relationship Committee. The chairperson must be a non-executive director; the Act does not require that person to be independent.

  1. AThe Board must constitute a Stakeholders Relationship Committee with a non-executive director as chairpersonCorrect
  2. BNo such committee is needed because the threshold is based on shareholders alone and is five thousand
  3. CThe Board must constitute the committee, and its chairperson must be an independent director
  4. DThe committee is required only if the company is listed and has over ten thousand holders

Explanation

Section 178(5) applies to a company with more than one thousand shareholders, debenture-holders, deposit-holders and other security holders at any time in a year. 1,200 exceeds this. The chairperson must be a non-executive director, not necessarily independent.

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