by Yogesh Chande and Manendra Singh. Yogesh is an Associate
Partner and Manendra is an Associate with ELP. Views of the authors are
the Companies Act, 2013 (Act) read with rule 6 of the
Companies (Meetings of Board and its Powers) Rules, 2014 (Rules), following
companies are required to constitute an audit committee:
borrowings or debentures or deposits exceeding INR 500 million or more.
the Act, every company which was required to constitute an audit committee
under section 292A of the Companies Act, 1956 (1956 Act) was required to
reconstitute the audit committee within one year.
public company having paid-up capital of more than INR 50 million was required
to constitute an audit committee.
has notified Companies
(Meetings and Powers of Board) Amendment Rules, 2014 [Sic]
dated 12 June 2014 (Amendment
Notification). The Amendment Notification states that
public companies covered under Rule 6 of the Rules which were not required
to constitute audit committee under Section 292A of the 1956 Act are obliged to constitute audit
committee within one year from the commencement of these rules or appointment of
independent directors by them, whichever is earlier.
the companies which are required to form an audit committee under the Act and
which were required to form an audit committee under the 1956 Act:
292A of the 1956 Act
companies having paid-up capital of not less than INR 50 million.
2013 Act read with rule 6 of the Rules
INR 100 million or more;
1000 million or more; and
outstanding loans or borrowings or debentures or deposits exceeding INR 500
million or more.
public companies which were having paid-up capital of not less than INR 50
million are outside the purview of the Amendment Notification, since these
companies are not those which were not required to constitute audit committee under
Section 292A of the 1956 Act, and therefore the extended time period mentioned
in the Amendment Notification to constitute an audit committee will not be
available to such companies.
mentioned in the row (2), (3) and (4) (Targeted
Companies) above are covered by the Amendment Notification.
Targeted Companies are required to constitute their audit committee within one
year from the ‘commencement of these rules’ or appointment of
independent directors by them, whichever is earlier. It appears that, the reference
is made to the Rules and not to the amended Rule 6 of the Amendment
within one year is triggered at the time of happening of following, whichever
the reference is made to commencement of the Rules,
the deadline for constituting an audit committee is 31 March 2015, since not
only the Rules have commenced with effect from 1 April 2014, but even the
requirement of appointment of independent director
has commenced i.e. to be appointed within one year from 1 April 2014.
is therefore not clear, should the term “whichever is earlier” when read in
relation to appointment of independent director, should be read to mean that,
the obligation of constituting an audit committee for such companies will
commence when the independent director is “actually” appointed, therefore effectively
providing time beyond 31 March 2015 to constitute an audit committee.
– Yogesh Chande &
(Meetings of Board and its Powers) Rules, 2014
company” means a company which has any of its securities listed on any recognised
stock exchange. This could therefore even include within its purview
non-convertible debentures issued on a private placement basis by a private
company and which are listed on the debt segment of a recognised stock
exchange. Thus, even such a private company will need to constitute an audit
from 1 April 2014
149(5) of the Act