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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board Effectiveness and Building Better Boards

Kaveri Textiles Ltd's NRC decides that board evaluation for the year will be done by an independent consulting firm instead of by the directors themselves. Is this permissible under section 178(2) of the Companies Act, 2013?

Yes. Section 178(2) allows the evaluation of the Board, its committees and individual directors to be carried out by the Board, by the NRC or by an independent external agency. The NRC specifies the manner and reviews implementation and compliance, with no shareholder approval needed.

  1. ANo, evaluation must always be carried out by the Board itself
  2. BNo, evaluation can be done only by the NRC
  3. CYes, evaluation may be carried out by the Board, the NRC or an independent external agencyCorrect
  4. DYes, but only if the shareholders approve by special resolution

Explanation

Section 178(2) says the manner of evaluation is specified by the NRC and may be carried out either by the Board, by the NRC or by an independent external agency. No shareholder resolution is required. The NRC must still review implementation and compliance, so an external agency is a valid choice.

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