Different Committees as per the Companies Act, 2013 - Part III

Hello Friends,

Once again thanks a lot for your warm response to my previous articles. In continuation of my previous two articles on the Corporate Social Responsibility Committee (click here) and the Nomination & Remuneration Committee (click here), let us further take a look into another Committee mandated by the new Companies Act, 2013 (“the Act”).

THE STAKEHOLDERS RELATIONSHIP COMMITTEE

Subsection 5 of Section 178 of the Act stipulates that if a Company has a combined total of, all its shareholders, debenture-holders, deposit-holders and any other security holders, greater than one thousand members at any time during a financial year, than its Board of Directors shall constitute a Committee to be known as the Stakeholders Relationship Committee. It further states that such a Committee will consist of a chairperson who shall be a non-executive director and such other members as may be decided by the Board.

As stated above, in addition to the shareholders, debenture-holders, deposit-holders, there is also a term “other security holders” used. To understand the scope of this term, it is necessary to know the different types of securities. Section 2 (81) of the new Act, read with Section (h) of the Securities Contracts (Regulation) Act, 1956 states that the term “securities” includes the following-

(i)  shares, scripts, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(ia) derivative;

(ib)units or any other instrument issued by any collective investment scheme to the investors in such schemes;

(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

Accordingly, security receipt" means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitisation;

(id) units or any other such instrument issued to the investors under any mutual fund scheme;

(ii) Government securities;

(iia)   such other instruments as may be declared by the Central Government to be  securities; and

(iii) rights or interest in securities.

Thus, the above definition of securities widens the scope of the term “other security holders.”

Subsection 6 of Section 178 further lays down the role of the Committee which shall be to consider and resolve the grievances, if any, of all the security holders of the Company.

Furthermore, the chairperson of this committee or, in his absence, any other member of the committee authorized by him in this behalf will be required to attend the general meetings of the Company.

Penalty: The Act further lays down the penalty for contravention of any of these provisions. In case of contravention, the company shall be punishable with fine which shall not be less than One Lakh rupees but which may extend to Five Lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Twenty-Five Thousand rupees but which may extend to One Lakh rupees, or with both. However, there is also provision that in case a resolution of any grievance is not considered by this Committee in good faith, it shall not constitute a contravention of this section and the penalty clause would not be applicable.

Conclusion: Dubious accounting practices, abuses of corporate power, unequal voting rights, conflict of interest, etc. have been subjects of active debate in the media in the last few years thereby highlighting the vulnerability of the stakeholders of the Company. To overcome such practices and to safeguard the interest of the investors, a number of measures are being undertaken by the regulators.  A recent step taken in this direction by the Securities & Exchange Board of India (SEBI) is the “SCORES (Sebi COmplaints REdress System)” system introduced by it. Formation of this Committee will be another measure undertaken by the Ministry for investors’ protection.

In the next article, we will look into the last and the most important Committee mandated by the Companies Act, 2013-the Audit Committee.

P.S: This article is based on the research and contains the views of the author on the above subject. The author does not assure error free content and cannot be held liable for any errors in the article. The users and readers are advised to cross check with the concerned Act before acting upon this article.