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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board Committees

Sagar Foods Ltd has 1,250 security holders (shareholders, debenture-holders and deposit-holders together) during the financial year. The Board forms a Stakeholders Relationship Committee chaired by the Managing Director, who is an executive director. Which statement is correct under section 178?

The constitution is defective. With more than one thousand security holders, section 178(5) requires a Stakeholders Relationship Committee whose chairperson is a non-executive director. The Board may decide the other members, but an executive Managing Director cannot chair it.

  1. AThe committee is valid since the chairperson only needs to be a director
  2. BThe committee is valid because the Board may decide its members freely
  3. CThe committee was not required because the threshold is above 2,000 holders
  4. DThe chairperson must be a non-executive director, so the constitution is defectiveCorrect

Explanation

Section 178(5) applies to a company with more than one thousand security holders at any time in the year, and requires a chairperson who is a non-executive director. Other members are for the Board to decide. The Managing Director is executive, so the chairing is defective.

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