Audit Committee

(1) Every listed entity shall constitute a qualified and independent audit committee in accordance with the terms of reference, subject to the following:

(a) The audit committee shall have minimum three directors as members.

(b) Two-thirds of the members of audit committee shall be independent directors and in case of a listed entity having outstanding SR equity shares, the audit committee shall only comprise of independent directors.

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

Explanation (1) For the purpose of this regulation, “financially literate” shall mean the ability to read and understand basic financial statements i.e. balance sheet, profit and loss account, and statement of cash flows.

Explanation (2) For the purpose of this regulation , a member shall be considered to have accounting or related financial management expertise if he or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.

(d) The chairperson of the audit committee shall be an independent director and he shall be present at Annual general meeting to answer shareholder queries.

(e)The Company Secretary shall act as the secretary to the audit committee.

(f) The audit committee at its discretion shall invite the finance director or head of the finance function, head of internal audit and a representative of the statutory auditor and any other such executives to be present at the meetings of the committee:

Provided that occasionally the audit committee may meet without the presence of any executives of the listed entity.

(2) The listed entity shall conduct the meetings of the audit committee in the following manner:

(a) The audit committee shall meet at least four times in a year and not more than one hundred and twenty days shall elapse between two meetings.

(b) The quorum for audit committee meeting shall either be two members or one third of the members of the audit committee, whichever is greater, with at least two independent directors.

(c)The audit committee shall have powers to investigate any activity within its terms of reference, seek information from any employee, obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise, if it considers necessary.

(3) The role of the audit committee and the information to be reviewed by the audit committee shall be as specified in part c of schedule II.

Introduction to Audit Committee is a committee formed by the Board of Directors of the Company to look into Financial & other Allied matters of the Company.

An Audit Committee is a key element in the Corporate Governance process of any organization to safeguard the interest of the stakeholders.

Governing Section: Section 177 of the Companies Act, 2013 (“the Act”) read with Rule 6 and 7 of Companies (Meetings of Board and its Powers) Rules, 2014 (“the Rules”) deals with Audit Committee u Regulation 18 of SEBI (LODR) Regulation s, 2015 deals with Audit Committee.

Applicability: Section 177(1) of the Act read with Rule 6 set forth the requirement of constitution of audit committee:

All listed companies, and all public companies with a paid up capital of Rs.10 Crores or more having turnover of Rs.100 Crores or more; having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs.50 Crores or more.

Note: The above criteria shall be as per latest audited Financials.

Composition Companies Act, 2013: - The Audit Committee shall consist of a minimum of 3 directors with independent directors forming a majority.

The majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand the financial statements. The auditors and KMP have a right to be heard in the meetings when it considers the auditor’s report, but have no right to vote.

SEBI (LODR) Regulations, 2015: The audit committee shall have minimum 3 directors as members of which 2/3rd of the members of the 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.

Chairperson of the committee shall be an independent director & shall be present at AGM to answer.

Company Secretary shall act as secretary to the committee. Finance director, representative of the statutory auditor shall be invitees.

Frequency & Quorum SEBI (LODR) Regulation:

Frequency: The listed entity shall meet at least 4 times in a year and not more than 120 days shall elapse between 2 meetings.

Quorum: 2 members or 1/3rd of the committee, whichever is greater, with at least 2 Independent Directors.

Companies Act, 2013: No such specific provisions w.r.t frequency and Quorum, but certain business required to be approved through Audit Committee.

Roles & Responsibilities : Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include—The recommendation for appointment, remuneration and terms of appointment of auditors of the company;

Review and monitor the auditor’s independence and performance, and effectiveness of audit process; Examination of the financial statement and the auditors’ report thereon;

Approval or any subsequent modification of transactions of the company with related parties; Scrutiny of inter-corporate loans and investments; Valuation of undertakings or assets of the company, wherever it is necessary; Evaluation of internal financial controls and risk management systems; Monitoring the end use of funds raised through public offers and related matters.

Powers of Committee: The committee shall have the authority

To 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:

To discuss any related issues with the internal and statutory auditors and the management of the company.

To investigate into any matter in relation to the items or referred to it by the Board.

To obtain professional advice from external sources.

To have full access to information contained in the records of the company.

Vigil Mechanism : Every listed company, companies which accept deposits from the public and companies which have borrowed money from banks and public financial institutions in excess of Rs.50 crores shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed.

The companies shall oversee the vigil mechanism through the committee and if any of the members of the committee have a conflict of interest in a given case, they should rescues themselves to deal with the matter.

Where the companies are not required to constitute an audit committee, the Board of directors shall nominate a director to play the role of audit committee for the purpose of vigil mechanism to whom other directors and employees may report their concerns. The existence of the mechanism may be appropriately communicated within the organization. The details of establishment of Vigil mechanism shall be disclosed by the company in the website, if any, and in the Board’s Report.

Penalty Reasons: Repeated frivolous complaints being filed by 1. Director (or) 2. Employee , Amount of Penalty: 25,000-1,00,000 (or)  Imprisonment up to 1 year(or  Both)

Major Differences: Companies Act, 2013 Independent Director forming majority Chairman need not be an independent director  CS need not be secretary of the Audit Committee Majority (including Chairperson )shall be Financially literate.

Various committees under SEBI listing regulations & Companies Law

Audit Committee

Nomination & Remuneration Committee

Stakeholder Relationship Committee

Audit Committee Listing agreement Vs The Companies Act, 2013

The Board of directors of every listed Companies and the following classes of companies, as prescribed under Rule 6 of Companies (Meetings of Board and its powers) Rules, 2014 shall constitute an Audit Committee.

(i) all public companies with a paid up capital of Rs.10 Crores or more;

ii) all public companies having turnover of Rs.100 Crores or more;

iii) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs.50 Crores or more.

The paid up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposes of this rule.