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Can MD be a member of audit committee?

Kannan (Company Secretary) (168 Points)

28 September 2011

Can a Managing Director be a member of Audit Committee, constituted under section 292A of the Companies Act. 1956? Is ther any legal restriction?

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11 Replies

CS RAJESH C.CHOUDHARY (ASSISTANT MANAGER) (14607 Points)
Replied 28 September 2011

A whole Time Director can be appointed as a member of Audit Commitee,as long as you comply with sec 292A / clause 49 of the listing agreement as the case may be .

As per section 292A of Companies Act , every public Company having a paid up capital of not less than Rs. 5 Crore shall constitute Audit Committee consisting ofatleast 3 members of which two- third shall be the directors other than managing or whole time director.

In the case of listed Company, clause 49 states that:

The audit committee shall have minimum three directors as members.Two-thirds of the members of audit committee shall be independent directors.

All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise.

For details, you can refer the listing agreement.

Yes, a whole time director can be a member of audit committee if your company having more than two third director other than Managing Director or Whole time director i.e. two director should be independent/non-executive.

All the best.

2 Like

CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 28 September 2011

agreed with rajesh

Abhijeet Deshpande (Co-Founder & Manager @ Tax-Yantra) (1171 Points)
Replied 28 September 2011

Useful Information Rajesh

Thanks for sharing

RG - A Helping Hand (Company Secretary) (13867 Points)
Replied 28 September 2011

Provision given in Law:

Section 292A (1): Every public company having paid-up capital of not less than five crores of rupees shall constitute a committee of the Board knows as "Audit Committee" which shall consist of not less than three directors and such number of other directors as the Board may determine of which two thirds of the total number of members shall be directors, other than managing or whole-time directors.

My Analysis:

Minimum members for an Audit committee are 3. Out of these 3 members 2/3 members i.e. 2 members should be simple directors and 1 director can be a MD or WTD.

Hence we may conclude that there is no restriction in section 292A regarding MD being member of Audit committee.

Kalyan Babu Muvva (M.COM,CA FINAL ) (63 Points)
Replied 28 September 2011

Can any one please Explain ......Suppose if the simple Director has been appointed as the member of Audit Committee after such appointment he turned as Whole Time Director (WTD) is this appointment is valid or not ?