Board Governance, Committees and Business Ethics — Practice

Question 1

What is the minimum independence requirement for a board chaired by an arm's-length non-executive chairperson?

Accepted Answer

At least one-third independent directors.

Question 2

What is the current NRC independence requirement, and from what date did it take effect?

Accepted Answer

At least two-thirds independent directors, effective 1 January 2022.

Question 3

What is the borrowing threshold above which an unlisted company must have a vigil mechanism under Section 177(9)?

Accepted Answer

Borrowings from banks or public financial institutions exceeding Rs. 50 crore.

Question 4

State the Audit Committee's minimum composition and independence requirement, and how it compares to the Companies Act's own general requirement for the committee.

Accepted Answer

A minimum of 3 directors, with at least two-thirds independent under LODR Regulation 18 — stricter than the Companies Act's own general requirement of a bare majority independent, meaning the LODR figure controls for listed companies.

Question 5

At what shareholder count does a Stakeholders Relationship Committee become mandatory, and what additional requirement applies where the company has superior-voting-rights shares outstanding?

Accepted Answer

More than 1,000 shareholders, debenture-holders, deposit-holders or other security holders at any point in the financial year. Where SR shares are outstanding, the Stakeholders Relationship Committee (along with the Audit Committee) must be composed entirely of independent directors.

Question 6

Who conducts the performance evaluation of an individual independent director under LODR, and what is specifically excluded from that evaluating body?

Accepted Answer

The entire board conducts the evaluation, specifically excluding the independent director who is being evaluated from participating in their own assessment.

Question 7

A listed company's managing director steps down as chairperson and is replaced by a non-executive director with no promoter connection or prior management role. Explain how this change affects the company's minimum board-independence obligation, and why.

Accepted Answer

The company's minimum independence requirement drops from one-half to one-third, because Regulation 17(1)(b)'s threshold is tied to the chairperson's status. With the managing director (an executive, promoter/management-linked chairperson) replaced by an arm's-length non-executive chairperson with no promoter connection or recent management role, the lower one-third threshold now applies instead of the stricter one-half threshold that applied under the executive chairperson.

Question 8

An unlisted company has never accepted public deposits and has borrowed only Rs. 30 crore from a bank, but plans to raise borrowings to Rs. 60 crore next year. Explain its current vigil-mechanism obligation and how it would change.

Accepted Answer

Currently, the company has no mandatory vigil-mechanism obligation under Section 177(9), since it is unlisted, has not accepted public deposits, and its Rs. 30 crore borrowing does not exceed the Rs. 50 crore threshold. If borrowings are raised to Rs. 60 crore, the company would cross the Rs. 50 crore threshold and become obligated to establish a vigil mechanism with the safeguards and Audit-Committee-chairperson access (or a nominated director, if no Audit Committee is required) that Section 177(10)/LODR Regulation 22 mandate.

Practice — Board Governance, Committees and Business Ethics

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