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

Sunrise Textiles Ltd, a listed public company, has an Audit Committee of four directors: two independent directors and two non-executive non-independent directors. Under Section 177 of the Companies Act, 2013, what is the position?

The composition is invalid. Section 177(2) requires an Audit Committee of at least three directors with independent directors forming a majority. Two independent directors out of four is only half, not a majority, so the committee must be reconstituted.

  1. AThe composition is valid because the committee has at least three directors
  2. BThe composition is invalid because independent directors must form a majorityCorrect
  3. CThe composition is valid because non-executive directors count towards the majority
  4. DThe composition is invalid because all 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 4 are independent, which is exactly half and not a majority. The option that treats non-executive directors as counting is wrong because the Act speaks only of independent directors.

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