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Section 177 of the Companies Act 2013: Audit Committee

SECTION-177 (Audit Committee) under CHAPTER-XII (Meeting of Board and its Powers) of the Companies Act, 2013

(1) The Board of Directors of every listed company and such other class or classes of companies, as may be prescribed, shall constitute an Audit Committee.

(2) The Audit Committee shall consist of a minimum of three directors with independent directors forming a majority:

Provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement.


(3) Every Audit Committee of a company existing immediately before the commencement of this Act shall, within one year of such commencement, be reconstituted in accordance with sub-section (2).

(4) Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include,—
(i) the recommendation for appointment, remuneration and terms of appointment of auditors of the company;
(ii) review and monitor the auditor’s independence and performance, and effectiveness of audit process;
(iii) examination of the financial statement and the auditors’ report thereon;
(iv) approval or any subsequent modification of transactions of the company with related parties;
Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions as may be prescribed;
(v) scrutiny of inter-corporate loans and investments;
(vi) valuation of undertakings or assets of the company, wherever it is necessary;
(vii) evaluation of internal financial controls and risk management systems;
(viii) monitoring the end use of funds raised through public offers and related matters.
(5) The Audit Committee may call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board and may also discuss any related issues with the internal and statutory auditors and the management of the company.

(6) The Audit Committee shall have authority to investigate into any matter in relation to the items specified in sub-section (4) or referred to it by the Board and for this purpose shall have power to obtain professional advice from external sources and have full access to information contained in the records of the company.

(7) The auditors of a company and the key managerial personnel shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor’s report but shall not have the right to vote.

(8) The Board’s report under sub-section (3) of section 134 shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons therefor.

(9) Every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed.

(10) The vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases:

Provided that the details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.







Extra Notes for Readers

(1) The Companies Act, 2013 received the assent of the President on the 29th August, 2013 (Published in the Gazette of India, Extraordinary, Part II - Section 1 by Ministry of Law and Justice, Legislative Department on 30th August, 2013) - link


(2) Section 177 of the Companies Act 2013 was notified by MCA Notification S.O. 902(E) dated 26th March 2014 (w.e.f. 1st April, 2014) - link

(3) Relevant rules of the Companies (Meeting of Board and its PowersRules, 2014 (w.e.f. 1st April, 2014) - link
  • Rule 6 - Committees of the Board
  • Rule 6A - Omnibus approval for related party transactions on annual basis
  • Rule 7 - Establishment of vigil mechanism
[Also check amendments, if any, to the Companies (Meeting of Board and its Powers) Rules, 2014]

(4) Proviso to clause (iv) of sub-section (4) of Section 177 of the Companies Act 2013 was inserted by the Companies (Amendment) Act, 2015 (w.e.f. 14th December, 2015 - link).


(5) Section 8 Companies - MCA Notification G.S.R. 466(E) dated 5th June, 2015 - link

Serial
Number
Provisions of the Act
Exceptions, Modifications and Adaptations
16.
Sub-section (2) of section 177.
The words “with independent directors forming a majority” shall be omitted.

(6) Govt. Companies - MCA Notification G.S.R. 463(E) dated 5th June 2015 - link


Sl. No.
Chapter Number/Section number/Sub-section(s) in the Companies Act, 2013
Exceptions, Modifications and Adaptations
22.
Chapter XII, clause (i) of sub-section (4) of section 177.
In clause (i) of sub-section (4) of the section 177, for the words “recommendation for appointment, remuneration and terms of appointment” the words “recommendation for remuneration” shall be substituted.

(7) Specified IFSC Public Company - MCA Notification G.S.R. 08(E) dated 4th January, 2017 - link

Serial
Number
Provisions of the Companies Act, 2013 (18 of 2013)
Exceptions/Modifications/Adaptations
48.
Section 177
Shall not apply.





This page was last updated on 30th March, 2017.

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