CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board Committees
Deccan Power Ltd has 1,500 security holders. Its Board has formed a combined 'Risk and Sustainability Committee' chaired by an executive director, and states that this also serves as its Stakeholders Relationship Committee under section 178. Which statement is correct?
The arrangement is invalid because section 178(5) requires the Stakeholders Relationship Committee to have a non-executive director as chairperson. With over one thousand security holders the company must constitute it, and a committee chaired by an executive director does not qualify.
- AValid, since the company has more than one thousand security holders and any committee may handle grievances
- BInvalid, because the Stakeholders Relationship Committee must have a non-executive director as chairperson, so an executive-director-chaired committee does not satisfy section 178(5)Correct
- CValid, provided independent directors form the majority of the combined committee
- DInvalid, only because a Risk Committee can never carry out additional functions
Explanation
Section 178(5) requires a company with more than one thousand security holders to constitute a Stakeholders Relationship Committee with a non-executive director as chairperson. A committee chaired by an executive director fails this. The issue is the chair's status, not independence majority or any bar on combining functions.
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