CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board Effectiveness and Building Better Boards
Sundaram Textiles Ltd, a listed public company, has a five-member Audit Committee with two independent directors and three non-independent directors, one of whom chairs it. A director points out that the committee still has more than three members. Under section 177 of the Companies Act, 2013, what is the deficiency in the composition?
The deficiency is that independent directors are not a majority. Section 177(2) requires at least three directors with independent directors forming a majority. With two independents out of five members, the majority condition is not met, even though the size exceeds the minimum of three.
- AIndependent directors do not form a majority of the committeeCorrect
- BThe committee must have exactly three members
- CThe chairperson must be a key managerial personnel
- DAll members must be independent directors
Explanation
Section 177(2) requires a minimum of three directors with independent directors forming a majority. Here only 2 of 5 are independent, so the majority condition fails. The size is not the problem because three is only a minimum, and there is no requirement that all members be independent.
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