This masterclass discusses the constitution and roles of various board committees (Audit, Nomination & Remuneration, Stakeholder Relationship, and Risk Management) under SEBI's LODR regulations, emphasizing the increased responsibilities and liabilities of independent directors in ensuring corporate governance.
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minute you can just go to the top and
yeah
so I think you have to make it SL show
actually okay okay you did you did ah
now it is now uh am I audible sir yeah
yeah very much very much yeah okay so
friends welcome you uh one more time uh
one more Saturday and we have a
different faculty every time so we are
uh running a master class on a codar
today is a third part and the topic for
the discussion is the Constitutions and
the role of board
committee uh friends uh this regulatory
architect under the companies act and
lodr uh the places lot of
responsibilities on the independent
directors for the implementation of the
corporate governance in the company the
statistics shows that more than 75% of
the listed company in India are the
promoters driven and those independent
directors have been appointed by the
appointed by the promoters only the
regulator like MCA Sab expect
independent directors to play a key role
for the safeguarding the interest of the minority
minority
sholders and um yeah and and and today's
time the independent directors are
loaded with the plethora of
responsibility on a various Committees
of board such as the audit committee uh
NRC committee uh you know and there are
many other committees also even all
those related party transactions are
placed before the audit committee can be
now has to be only approved by the
independent directors
only now uh even the independent
directors uh are also responsible for
for the the compliance of the pit
regulations and also for those sdd
maintenance and Etc and Etc so what I'm
trying to convey uh the the liability of
the independent directors has gone
manyfold and uh of course you know uh
the the company runs through a
committees and it is mandatorily uh
required that you know you need to have
a committees particularly for a listed
companies and a and a companies you know
of a certain categories uh so to discuss
in detail uh
today we have a two speaker and let me
introduce them uh so yeah our penist of
course Mr Bala sonali and HMA Kumari uh
and just to give you their background uh
so HMA to begin with you know Hima
Kumari she's a fellow member of The
Institute of company secretes of India
and a law graduate and she also holds
the bachelor degree she has almost two
decades of experience in the uh the
listed companies and current he works
for a company called uh a den Network
know company uh as a secretary company
secretaries and the compliance officer
and she has worked in the uh she was
associated with the JK group of
companies in the past and of course has
also worked with the uh India groups and
the run irrigations the our next
panelist is uh uh sonali SAS and she's
not new phase to uh in our platform and
also she's a regular speaker at icsi
she's a water Alum and she has done her
postgraduate in a financial management
and also a law graduate and of course a
member of our Institute and she has also
done her pmq uh in her corporate
governance see very few people has done
this uh pmq course even though icsi has
launched this but the experience is not
so great and she's also a diploma in the
general manager management from IM am
tyur um she has also two decades of more
than two decades of EXP experience
presently se's a chief legal officer
company secretary and strategy of a SRA
cement one of the leading cement company
in the industry and a listed company she
she has worked in a ispat group of
company which was belongs to the mythal
group of companies as a vice president
corporate Affairs and legal and she was
managing the uh the corporate uh secal
work of the Pasar group in the past and
she has worked with the heartway group
of companies also in the past so yeah of
of course and uh Mr Bala doesn't
require um uh any introductions he is
our regular panelist and uh four Decades
of experience I was also a student of
his so I've learned many things from him
in icsi ccgt so thank you Mr Bala always
being a part of our journey thank you
sir and uh yeah he's a regular
contributing articles and you know I can
see in a WhatsApp every weekly you know
somewhere uh his uh learning passions
you know doesn't stop so he keeps on
writing a lot of articles in uh the
various magazines so thank you Mr Bala
being with us so I'll say Mr Bala to uh
say some few words and then probably we
can start you know
yeah good morning to all of you I have a
great pleasure in welcoming you all on
my own behalf and also on behalf of the methon
methon
method and really these programs are
actually I'm looking for every Saturday
Father which is rather enhancing
knowledge keep in touch with the
profession interact with many of
you and learn many things in the
process and asul has put it it is a
series of seminar which we are
conducting on the lodr regulations and
today being the third one having
discussed the preliminary things and
obligations of the companies General
applications Etc in the first series and
the second series we talked about the
board composition the respons of the
director other things Etc today we are
moving to
Committee of the board when we talk
about the committee of the board of
course the committee of the board is
actually governed by the company S as
well as the lodr regulations also but
today what we are going to talk since
topic is restricted to LOD regulation we
won't be taking of the committee other
than the elodia regulation specified
mandatory committees namely audit
committee and nomination remuneration
committee and the risk management
committee Etc although other committees
are also Reed to be constituted of the
company like such as CSR committee under
the npsc ass liability management
committee those thing not forming a part
of the thing but coming to the committee
what are these committees committies is
nothing but a subset of the board it is
I can call it as a smaller board
because the complexity of the business
which is growing on with the
globalizations which is happening
today and the way the economy is
actually moving Market is actually
bouncing back Etc and other thing and
all the business is becoming very very
complex with and the role and
responsibility of the board is very
immense as saids in the beginning most
of the companies are promoter one
company people would like to appoint
their known people rather the
recruitment because they don't want to
bring Outsider Unknown People Etc other
thing and but all then regulator would
like to ensure as we see the prle of the
SE act it says very clearly protection
of just small
shareholders and also production of the
small shareholders small investor that
is what it talking about in general it
is the produ of the shareholder
particularly to the small shareholders
what happens is The Regulators is very
much interested to bring a very stin and
regulation thrust upon the non-executive
director especially independent
directors the more responsibility and be
in the transparent Manner and minorities
are safeguarded and majority is not
taking the advantage and exploit the
minori that is the whole purpose so that
what happen the board does not have much
of the time to deliberate all the issue
but at the same time all said and done
there are many people who are having a
particular expertise when it come to the
audit committee Financial literate
people when it come to the risk
management people people who are well in
the risk mitigation Etc and other things
and all so what they do is they identify
the expert people who can actually
deliberate the matter in a smaller group
and come out with a valuable advises to
the board on the specific areas of the
operation that is the whole idea
with this again as you we have been
seeing in the last two three decade the
corporate government which is actually
coming in the Forefront especially after
the Enron issue and also the big five
becoming the big four and various
regulatory things which has happened not
only in India but also across the world
now what happens is the corporate
governance is much more in the corporate
everybody want to excel in the corporate
governance everybody want to be a good corporate
corporate
citizen as such so in the light of that
what is happening is there lot of trust
is thrown upon on the non-executive
director and especially to the
independent director asul suggested one
of the example the related party
transaction are required to be approved
only by the independent directors so the
whole idea is a removing the conflict of
the interest be looking the things at
neutrally and taking a better decision
making process put in place in the board
and work
for majority of the shareholders all the
interest of the shareholders to the
greater extent that is the whole purpose
is there of course the board can appoint
the people but the thing is regulator
says if you are talking about the audit
committee who should be the chairman
what should be their quality what is the
literacy especially in terms of the
financial statement reading and
understanding the financial not
necessarily they need to be a CA or NBA
so long as they understand to interpret
the financial ratio financial statement
they can read they can understand that
is what the requirement is there as a
regulatory say so committees definitely
can deliberate on the smaller issue they
can come out with the solution there are
regulator want committees actually to
approve certain things and committee to
recommend certain things to the board
these are all the things there and
another thing is today we have the two
panelists who are having more than two
decades of the experience who are still
with the industry who are working they
are handling the day and day out you
will come across between the two
committee the overlapping things
especially when you are talking about
the nomination ration committee when you
talk about the audit committee there are
responsib that cost on the same subject
for both the Committees the nomination
ration committee has actually going to
the Recruitment suitability and
recommend where the audit committee
certain things are to be approved there
are overlapping there there likely to be
you know one committee is saying
something other committee does not agree
for something how do we tackle these are
all the Practical issues which are
actually going to come out and although
LOD regulation talks about a various
things as said in the beginning
especially the P regulation P regulation
is not part of the LOD regulation but it
is a separate regulation of the insiding
trading regulation on which the lot of
responsibility cost of the audit
committee also periodically monit in
assessing reporting Etc and all those
the lities are also there so today our
presenter affilia who one of the part is
going to actually run the presentation
and we look forward to learn from both
the panelist their valuable experiences
their knowledges their comments Etc on
the topic and I look forward that I
request to sonali to say a few words on
the topic before we start and followed by
by
then we can run the go to sonali please
sonali you may note now we are almost 99
people actually there in the beginning
of the seminar that shows the interest
of the people hea you can also take a
note of it always we have around 140 to
150 people participate the seminar of
course there are some few people they
think that this a introductory section
they'll join after introduction that
also happened okay for to sonali please
thank you thank you well sir it was a
nice introduction and you have set the
stage right so now uh coming to the
Committees and my view on this before we
go forward with Alia would be that
committees are in a listed entity and
unlisted also so unlisted entity
committees are equally important as it
is in the listed entity listed entity
have certain additional responsibilities
under lodar but unlisted entities today
also have the similar kind of roles and
respons responsibilities because it to
some extent is responsible to certain
stakeholders not exactly the public at
large but we have other stakeholders we
have suppliers we have vendors we have
the government we have uh the lender we
have uh the funds which have invested in
the private entity so I just wanted to
put that the procedures which are there
in the lodr for listed entity can be
reserv as followed by unlisted entities
too in order to set the stage right for
the corporate governance for the
unlisted entities and also for those who
are looking for future
listings further coming to the
remuneration committee the stakeholder
committee the risk management committees
which are the core committees in a
listed entity and the audit Committee of
course uh these committees actually have
most of the bunch of the independent
directors we will go through Alia's
presentation and as to how the Quorum is
there and uh what kind of uh
Independence is needed to be maintained
by the directors in taking various decisions
decisions
but uh having said so these independent
directors play a integral role and a key
role in the corporate governance of any
listed entity the independent directors
when a company anytime hires independent
director they think that their role is
just statutory compliance but it is much
much more than that it's just that the
running of the organization in
accordance with the framework as
provided by sebi is with the independent director
director
many decisions as Mr Atul MAA also
rightly pointed out like the related to
party transactions can only be taken by
the independent directors so independent
directors plays a key role and the
selection of independent directors
become as important as selection of the
Senior Management in any
organization when we talk about the
Diversified experience the experience
which the independent directors needs to
bring in the audit committee financial
literacy is important but also Financial
L literacy in perspective of the
industry and the businesses become even
more important uh they have to actually
use their own mindset and the business
equipment and the tools which they have
as directors for the purpose of
assessing the financial statements of
the organization they are uh being
Guided by the company Senior Management
but uh independent directors
Independence matters a lot while taking
further decisions so over to uh Hima and
this thank you sonali Bala and S it was
really a nice uh beginning to begin with
the role of committees and the mainly
the role of the independent directors
basically as sonali said there are other
committees also apart from the mandatory
committees which which we are going to
see through the presentation of Alia
today and the main role of these
committees are that the focused role has
responsibility and decision making on
the focused area where more detailed
discussion is required which can be done
by the expertise in the set area has
been delegated to these committees
coming to the role of audit committee
the audit committee has been interested
with the responsibility of uh Finance
oversight of the financial reporting
financial statements dealing with the
internal and statutory Auditors then
apart from that the committee has also
been interested with the responsibility
of visil mechanism any any complaints
receiv received further apart from the
mandatory terms of reference which has
been given in SEI lodr there are other
references also which are company
specific which may be delegated to these
committees coming to the role of
nomination and remniscent committee the
nomination and remison committee is one
of the uh gate of Entry to the company's
board and also to the Senior Management
so it also plays an important role in
recruting and nominating and
recommending the right candidat who can
add to the Strategic goals of the
company or coming to the role of the
risk management committee
uh now the role of risk management
committee has emerged uh as a very
crucial one uh seeing the recent coid
and the geopolitical risk which we all
are seeing in recent years so the
committee should be well equipped to
identify and to take it steps and
recommend it strategies to mitigate the
risk stakeholder relationship committee
is also interested with the
responsibility of seeing the interest of
all the stakeholders attached with the
company and these committees uh affirm
give airation to the public as well as
the board that yes everything is on the
right part and details roles and
responsibilities we can see through the
presentation of Elia and composition of
these committees plays an important role
so hence I think that's why the
composition of committee has been uh
given the minimum requirement of the
compostition of committees has been
given by the law to fulfill the
requirement and responsibilities so
alifia over to
you so before alifia starts let me
recognize know the presence
of Mr jambunathan panku warang an
kumashi HRA partners and partti thank
you all you know for supporting this
yeah uh alifia you can start yes sir
thank you sir so good morning to all my
professional colleagues MAA and MAA
brings you the master class on SE lodr
part three which is the Constitution and
role of the both committees so SE lodr
provides for the constitution of three important
important
one regulation 18 of SE elodia provides
for the Constitution of audit
committee so every listed entity shall
have an independent audit committee with
a minimum of three directors whereby
two-thirds of the members of the audit
committee shall be independent
directors so here this is very important
part of the composition of the audit
committee where independent directors
play an important role in the decision
making of various transactions which the
listed entity may enter into so though
the regulation provides for minimum of
three directors a company depending on
its size and the scale of its operation
may require more number of independent
directors in its audit committee so that
any important transactions are uh
cleared without any
ha further it provides that all members
of the audit committee shall be
financially literate and at least one
member shall have accounting or
financial management expertise so this
is very important as audit committee
deals with mainly the financial
transactions which entity enters into so
the expertise of the members of the
committee in the finance uh part is very
important so uh sonali uh see this is
very subjective you know when you say
literacy financial literacy means what
even a bcom graduate he also comes from
the Commerce background so can you say
that you know he's also financially
literate because yeah I don't know yeah
that that itself says actually
explanation has been provided if you go
through there she also puts it here
actually what is financially literate
means you you see the slide itself she
has already put it there it only says
there the ability of the people to read
and understand the financial
statements that mean they should be able
to know what is actually there in the
financial what it ref what is it what
are the ratios in terms of profitability
in terms of the earning ratios in terms
of the various concept Associated not
necessarily they need to be you know a
typical ched accountant or MBA or
something that it is not like that in
fact I remember in company called W Lael
long time back which is become ala
limited there was actually a person who
was actually the Chief Financial Officer
who was only a matriculate those days he
occupied the POS of the Chief Financial
Officer the way he he deliver he present
the things Etc even many of the
qualified people they were really taken
a shock the way the interpretation other
things come to them so that is what the
ability to know the things that is what
it is me financially literate not
necessarily a particular qualification
if I understand other panelist your views
views
please yeah baj you're right that the
law doesn't provide that they have to
have any specific qualifications like uh
a qualified a professional like ca or
CFA or something but the point here is
that if uh only a bcom graduate set on a
board of a listed entity with has many
subsidiaries or a turnover of say
minimum say 2,000 to 500 5,000 crores so
he may or may not be able to give the
real inputs I understand from where you
are coming from that they have been
leaders in the industry and in the
profession which although they were not
qualified enough but were given
providing the best insights and even it
holds today good but the way the law is
evolving in India and also
internationally more so when you are
looking onto the context of the
subsidiaries overseas um they need to
have some insights and that is where the
role of the nomination rtion committee
actually comes into play wherein uh they
have to see that whenever independent
director is been appointed and is part
of the audit committee then that person
should have something beyond the normal
financial literacy which is either he or
she should carry the industry expertise
or an expertise in particular field
which has to do more with the technical
skills which he can apply for the
purpose of taking the right decision and
sitting on the chair because the Senior
Management is the management and
independent directors nowadays are
totally a separate set of directors
which are not actually part of the
Senior Management per se so there a
balance is required to be maintained and
where the role of NRC and the board also
comes into play in assing that who would
be the right person for the audit
committee if I actually run a check with
the people also here in the participant
and also other people who is the
chairman of the audit committee or who
are the members of the audit committee
I'm sure you will get answer many of the
people will have
the director or chairman of the audit
committee a qualified charted
retiring from the leading what you call
auditing for et other that is that is
what it is in practice because having
worked with the listed company almost
about 20 years as a company secretary
even the company where I was working I'm
talking about 20 years back actually we
also recruit the independent director
one of the senior partner of the price
waterhous who's retired he was actually
there on the audit committee as a
chairman yeah yeah practically that is
what it is really speaking Yeah yeah
true and that creates a proper balance
also between and another thing as you
right said as you rightly said there are
very few people in the industry who are
non-qualified people who are having this
sort of thing you can't expect at large
you'll get such people that is also true conversing
conversing
yeah your you H yes sir yes sir I also
Endor the same view though law does not
provide for any particular
uh means qualification the only thing
which the law has said is financially
literate but in most of the uh listed
entities uh it's the Chartered
Accountants mainly who form uh or person
with the background of having this
financial uh expertise which forms part
of the uh audit committee sir correct
that is what it is in practice yeah okay
so tomorrow if SB can come and say look
know you have appointed a bcom graduate
or SS and and uh you know he's been
question mark about his ability to read financial
statements sir uh in case that person is
member of the audit committee that means
the nomination and reminisent committee
must have gone through its background uh
its uh experience previous experience
also matters in with simply become
honors or life qualification if that
person has the expertise in the
so yeah sonali your views so actually it
when we talk about financial literacy it
is a word which can be interpretated on
the left and the right both the
ways when I go on the left side what
himma is saying it's absolutely right
that a bom graduate is also a financial
literate but you when you go on the
right side of the law not the left side
of the law then the person should
actually understand the financial in a
way that which is little Beyond than
what a bcom graduate can do uh because
when you read the financial statements
of a industry viser is a qualified bcom
graduate reading a financial statements
it's a quite a c difference
so basically if I if if I have to choose
between a bcom graduate or an MBA then
definitely yes uh as a remuneration
committee I would go with a person who
is qualified at least like an MBA if not
Ro of NRC comes into
picture in fact in fact the companies
which are having subsidiaries overseas
they are also trying to hire CPA now
CPAs also on their roles and CF is
qualified from us uh just to ensure that
globally all their subsidiaries are in
the control of the holding company in
India so and not only that where they
interpret financial literacy in view of
their businesses actually it is actually
financial literacy in view of your
business how your business runs if not
only that the NRC committee has been
given the very you know responsibility
to the independent director to go in the
selection process and work out the skill
MATC which is actually needed by the
company and analy and judge and then
recommend as sonali puts it in the very
beginning what is the choice between the
bcom and the NBA they will go by the NBA
when the things comes to the NRC
committee they would like to choose the
best people who suits to the industry
rather than you know going by the word
you know literacy Etc and everything and
all that's what I think and as I said in
the practice also if you look at any of
the balance sheet of the company listed
company is available on the public
domain invariably you will find actually
a qualified MBA or qualified chter
accountant is only heading the audit
committee that you can always find it
that is there okay now we have a minan
Das know can you minan Das he has raised
the hand you wanted to ask some question
ask seems to be not
there yeah uh alifia you can continue
you can ask anytime
yeah before that I just wanted to
highlight that while uh deciding the
composition of audit committee also the
limit of uh the committee me membership
which that person is having need also to
be seen like there's a limit of 10
committees and chairmanship in five
committees so that also need to be seen
end yeah Alia you can continue yes F LOD
are provides that the chairperson of the
audit committee shall be an independent
director and he shall also be present at
the annual Journal meeting to answer the
queries of the shareholders
the moment you say chairperson shall be
present that means it is mandator it is
required genuinely the chairperson fell
sick unforeseen circumstances it is
happens board nominates board nominates
an alate chairman chairperson who is a
member of the audit committee
okay Bard us to actually nominate
somebody else and and to resolve at the
meeting actually this is the standard
corporate governance practice which
people follow okay chairman of the audit
committee and it is quite natural it is
not necessary that chairman has to
attend every time but nowadays now we
are experiencing this last four five
years when you you're having online agms
the chairman is generally able to
present but in the good old days when it
was not online and that time the board
used to resolve in with proper Quorum at
the board meetings yeah you are actually
right in fact long back not now earlier
in some of the places the audit
committee chairman was actually not
present and R has left and right taken
the issues and companies have been
penalized I think what you are saying
now in the absence of the chairperson I
think probably later on somebody can be
there after the board results ET those
things have come up later on I think
while SE lodr does not give any carve
out but the companies act SS says that
that can be authorized mean any other
member can be authorized as for the
company yeah company it is there and I
think the specific thing the unforeseen
circumstance happen we have to go by
that only that's what I think as sonali
puts it board can take a call they can
resolve the issue and it can happen
view adul what do you think because you
have been dealing with the many
companies you might have seen also the
AGM yeah but I think I agree with no
sonali what she said when the uh you
know the director presents can always
choose you know
yeah yeah go ahead yes further the
company secretary acts as the secretary
to the audit committee also Al the
invitees to the audit committee may be
the finance director head of the finance
function head of the internal audit
Department a representative of the
statutory auditor and any other
Executives who are taking care of the
finance data of the company they can
committee toally I want to ask you one
small thing at this point whenever the
invitees are actually called then
invites are called to address a specific
subject not for the entire agenda of the
item very true yeah okay because one or
two subjects they are actually invited
so in which case the invite has been
called only the appropriate time and
they are present there they leave the
meeting that that that's very true and
rightly put in because audit committee
goes into the details of the entire
Financial operations and also the
business operations of the organization
more so in the context of the internal
Auditors when their scope has been
specified by the audit committee and uh
they are not there to have a preview of
the entire business operations of the
organization and their review is limited
to the scope as is defined by audit
committee then generally most of the
listed entities have internal Auditors
only up to their report and then they
leave similar is the case with certain
uh senior leadership which has come in
to discuss the internal Auditors report
uh with the members and the
chairperson in fact I also remember even
in our days also when I was a company
secretary we used to call for the
inviting and we used to call only for
the particular time once the things are
over we will ask him okay thank you very
much and they leave even we record the
minutes also accordingly for this
particular item so inv has actually
joined and given this
presentation done after the discussion
is over he left the meeting he used to
record that way yes somebody's asking
can there be a permanent invite to the
board which regulation does this emanate
from the question is asked I don't know
about the regulation other thing and all
we always used to have the permanent
invite of the Chief Financial Officer
person in the audit committee meeting
when the things were discussed and of
course in the board meeting he used to
be called for a particular item of the
business only not through the board
meeting that only the company secretary
is there in all the meeting persons yeah
your view
please agree with you I agree with you
that there can be permanent invitees and
CFO as you rightly pointed out is a
permanent invite some companies also
have this chro Chief human resource
officer as an invite permanent invite in
the nomination remuneration committee
and the board also for the purpose of
the senior leadership discussions and
decision to be taken so these certain
functional people do come as a permanent
invitees in certain agendas which are
fixed for certain meetings which are on
regular basis somebody is putting a
question can a chairperson of the audit
committee address the queries of the
shareholders when the chairman is
actually addressing the
meeting see normally the general meeting
what happens is Chairman conducts the
meeting generally and whenever the or r
at other things and all what happen
chairman answers otherwise he request
the audit committee chairman to answer
that is the way it happen if the cor is
put specifically to the audit committee
chairman I think that will happen like
that it's all depends upon how the
meeting is being conducted in
practically and what protocol is set by
the chairman for the that is right it is
yeahia further the regulation provides
for the meetings of the audit committee
it provides that the audit committee
shall meet at least four times in a year
and not more than 120 days shall elapse
between any two meetings so usually at
the end of the quarter the audit
committee meets for to approve the UN
audited quarterly results or the uh
yearly audited results but apart from
them uh that audit committee needs to
meet a number of times at it as it has a
wider role to look into and it may audit
committee approval may be needed under
for various transactions that may be
undertaken by the
company Quorum the Quorum shall be
either two members or onethird of the
members of the audit committee whichever
is dater with at least two independent
directors here again the composition of
audit committee is very important as two
independent directors need to be always
present whenever a meeting of the audit
committee is being called
somebody has actually put a question
here is the general Council entitled to
attend the audit and NRC meetings the
moment you put entitle the entitlement
of the attending the meeting is only on
the directors who are the members of the
board so long as general council is not
the members of the board there is no
question of any entitlement Etc comes
unless the board
permits then only the general Cil can
attend because you cannot say this my
entitlement because nobody can enter in
the Board Room except the board members
and of course the company secretary he
is invariably going to there he the only
person who going to be present
throughout all the meeting and committee meeting
meeting
yeah F the audit committee has the
powers to investigate any activity which
are in the terms of its 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 so again the audit
committee has the power to call for
further expertise where it may need
while approving your
transaction so generally to answer both
the questions like what is coming on the
slide also obtain outside legal or other
professional advice this is again
need-based decided by the committee
whenever they want to seek an advice in
this the role of the GC also comes in
general counsel that whenever uh they
want to seek a professional advice the
audit committee or the NRC then the
chairman permits the GC to join the
audit committee and the NRC meetings so
this is how they draw the powers and
this is how they permit the GCS to be
part of the meetings and in generally in
the NRC committees I have seen that gc's
are part of the NRC committee but
permitted by the chair it is
specifically mentioned that invite
meeting
B you are on
mute I also
said when the question is asking is see
entitle there's no entitlement it is
only by the permission not at all no
entit it can be a permanent permission
it can be a need based permission it can
be a restricted permission whatever it
is it is again subject to the permission
from the board members not the
entitlement as such yeah so while they
want to exercise their powers if they
need support then they may permit them
but there is no entitlement to any
except CS yeah yeah that is right
somebody is actually asking either a
checklist for an independent director on
the various committees or is it too
difficult to list
down one thing is there whenever you
talk about the committee there is always
a terms of reference has been well laid
down for each of the committee which is
made available to the members members is
very much aware of it that is one and
the second thing is the every time the
agenda is actually set out it is sent
when the agenda is sent all the
documents relating to the agenda item is
actually sent to the people for their
study Etc and other thing and all so
apart from that they are entitled to ask
any clarification questions Etc and
other things that's what I think so yeah
your view please both the
panelists and yes
the terms of reference which govern the
independent who is part of that
committee apart from that only one thing
in audit committee the related party
transactions can be approved by only the
independent director rest terms of
reference are same for all the directors
sir yeah
alifia part C of schedule two of SE lodr
regulation provides for the role of the
audit committee as we all are aware that
audit committee has a very wide role in any
any
organization so the important roles are
oversight of the financial reporting
process and creditability of the
financial statements recommendation for
the appointment remuneration and terms
of appointment of the Auditors of the
entity so here again uh the expertise of
audit committee is needed uh keeping in
mind the size of the organization uh
whether the particular auditor who is
being appointed is eligible has the
proper infrastructure to cater to the
size of the organization and accordingly
they decide on the Auditors approval of
payment of statutory Auditors for any
other services rendered by them
reviewing the statement of uses and
application of funds raised to any issue
so here again whenever a company has a
public issue or a preference issue then
uh the audit committee reviews quarterly
all the statement uh of uses and
application of funds further it also
reviews the report that is submitted by
the monitoring
agency reviewing and monitoring the
auditor's Independence and performance
and effectiveness of audit process again
this is very important role which an
audit committee plays so that uh it
takes into account the performance of
the auditor whether all the audit
processes and audit trails are being
properly followed by
them and there are no lapses in the audit
audit
any subsequent modification of
transactions of listed entity with
related parties so again the related
party transactions approval prior
approval is needed as per regulation 23
so here an audit committee plays a very
important role to approve the related
party transactions which a listed entity
is about to enter and also any
subsequent modification that may be
taken in that related party
transaction further every half cly the
listed entity is required to submit its
related party transaction statement to
the exchanges so here again it has to
monitor the whatever transactions the
company has entered into during the half
year period and accordingly submit a
statement to the
exchanges scrutiny of intercorporate
loans and
Investments so the audit committee also
looks into any loans which the company
has given to other uh entities and also
the Investments made by The Entity
whether they are profitable whether as
for the business of the entity the
surplus funds are properly invested or
not so all this scrutiny is being done
by the audit
committee somebody has actually put the
question here relevant to this
understand the scrutiny of the
investment means the post factor review
of the investment does it mean that
prior to the investment the audit
so as a as a role of the audit committee
is concerned inter corporate loans and
Investments it's part of the overall
roles and responsibility forming part
under the financial statements of the
audit committee so um intercorporate
loans and Investments as a protocol it
goes in every time before the audit
committee then it travels to the board
scrutiny of intercorporate loan and
investment audit committee can only do
once it has approved it did so the
scrutiny can't be done till the time the
approval is not there by the audit
committee so yes the process uh under
law although it is not very clear in the
lodr but companies act do state that it
has to be by the audit committee the
when when you refer to the terms of
reference and compare under the
companies act and lodr intercorporate
loans and Investments approval comes
under the audit committee's preview and
then and then followed by the scrutiny yeah
yeah
scr and post also both here it can't be
just interpretated that the way it is
mentioned it is
post see my concern is sonali it's like
a full-time job you if I to a company
like yours you know with some thousand
CR T hour if I have to look through all
those you know so I don't know it's it's
like a full-time job Mr Bala I me you
understand what I'm saying uh you know
oversight financial reporting process
recommendations you know all those like
it's like a if somebody is to really
give a Justice to this function know
that person has to be full-time so what
the companies generally do they also
constitute a finance committee in
addition to the audit committee which is
a very minimum number of people because
it's not a statutory committee it has
just internal board members and that
finance committee audit committee uh the
V delegates to the finance committee and
finance committee then provides a proper
reporting to the audit committee after
scrutinizing it so this some some
companies like our company does this so
this is one of the ways of doing it
yeah one more thing is asking reporting
Authority and the risk management
committee report to the audit committee
is the appointment of the chief risk
officer mandatory I think in my opinion
the Committees are actually subset of
the board yeah so risk management
committee cannot report to the audit
committee risk management committee has
necessarily has to report to the board
only that is very clear actually and
second thing is when it come to the
appointment of the chief risk officer I
think it's a regulation 30 if I'm not
mistaken that actually covers the
things yes your views Chief risk officer
appointment yes it is mandatory but it
is not necessary that company should
create a separate position of a cro C
Chief risk officer it can be an over in
role with any of the senior leadership
uh second coming to the uh this
reporting of the risk management
committee to the audit committee as
balasar mentioned yes it is no risk
management committee doesn't report to
the audit committee but the report of
the steering committee of the company
which relates to the risk of the entire
organization also travels in parallel to
the audit committee along with the risk
management committee because the audit
committee has to also review the risk of
the organization so so uh they also
become equally responsible for reviewing
the risk but at the board level both the
reports both the Committees provide
their views and then the chairman
deliberates with the audit committee
chairman and the risk management
committee chairman and then finally the
uh risk are formulated and
mitigated how does the audit committee
how does the audit committee ensure arms
length transaction should we take an
expert opinion from a third party in
in
fact my experience I can share with you
whenever the matter comes Etc
categorically we need to check up with
the finance department as well as the
taxation Department in terms of the
ordinary course of the business also in
terms of the ons business we take a
specific undertaking letter from them to
save guard the IND wherever the doubt
wherever they are not or something like
that one are two cases we are actually
gone to outside expert also to take a
opinion of the arms length transaction
ET I would like to hear from both the
panelist their practical views on
this as Sir in our organization we are taking
taking
certificate from the of the company uh
who give the certificate based on the
examination of all the transaction Plus
we are also taking certificate from the
Independent Chartered Accountants too so
both these certificates are placed for
committee
coming I was just looking at some
questions in the chat also and I was
trying to answer to this question I
think there was one question in the
previous slide where in somebody has
mentioned that scrutiny and not approval
by the audit committee scrutiny under
companies Act is interpretated as it has
to go to the audit committee first so
that is how uh traditionally it was only
companies act and then lodr came in 2015
so that procedure companies continues to
follow so that is the part of the
corporate governance under the 56 act
followed by 13 act and uh then 2015 the
regulations came now coming to uh this
particular uh issue with regard to just
yeah inter company loans and investment
is there any limit or restrictions
prescribed so no limits and descriptions
are prescribed as far as related party
transactions is concerned uh rpt uh the
board in the first meeting when they uh
provide the approval for the inter uh
this related party transactions they
provide the criteria how the related
party transactions has to be assessed so
one of the criterias which we also
follow is that we take a independent
chartered accountant certificate and on
the quarterly basis the statutory
Auditors uh verify all the related party
transaction and they give a quarterly
reporting to the audit committee that as
per the approval granted by the audit
committee these transactions have
happened in this quarter and it is an
arms transaction in accordance with the
parameters which has been fixed by the
audit committee now the transactions the
type of transactions vary a lot there
are certain service related transaction
certain product related transactions
certain transactions are with regard to
certain properties so it has to be a
different uh kind of interpretation to
be done by the audit committee and they
have to put set in separate criteria but
one thing which goes in common is the
review of all the RPS as per the
parameters set by um the audit committee
by a statutary auditor which is not part
of any of the regulations or the
companies act but uh that is for the
purpose of this safeguarding the
interest of the audit committee and the
board at the large so that is a protocol
follow further yes further it is the
role of the audit committee to review
the annual and quarterly financial
statements and Auditor's report along
with the management and in particular
reference to matters required to be
included in the director's
responsibility statement changes in the
accounting policies and practices along
with the reasons for such change major
accounting entries involving estimates
based on the exercise of judgment uh by
the management the your audit committee
plays an important role where any
estimates are being made or future
projections are being done by the
management significant adjustments made
in the financial statements so even here
the audit committee reviews whether any
significant impact will be there in the
financial statement of the company or
any adverse impact of any adjustments
that are required to be made compliance
with listing and other legal
requirements relating to financial
statements and disclosure of any related party
party
transactions somebody is actually
putting a question any real time example
of the major accounting Andre involving
estimate based on the exercise of the J
yeah so this is like we I had few
examples in our company uh when you do
certain provisioning in the books of
accounts and that provisioning is out of
a litigation then you obviously the
audit committee relies on external third
party judgment and also they have to
exercise their judgment as to whether
the provisioning to be done or not so
this is where the role of the judgment
and estimates of the audit committee
comes into play and the management had
to specifically highlight to the audit
committee seek a proper uh approval
through a resolution before putting in
certain uh
out of the business kind of exceptional business
items he your
views uh sir recently in uh one of our
company we have seen that that uh we get
the ruling in our favor so the entries
has been uh reversed the provisions
which have were created were reversed
and the profit were increased however
it depends upon the Judgment since the
counterparty has gone to the Supreme
Court so in this case I have seen that
yes the Judgment based on the Judgment
reversed further uh the audit committee
also values the undertakings or assets
of the listed entity wherever it is
necessary it evaluates the internal
Financial controls and risk management
system so here again it plays an
important role if there is any issue
with the internal controls then the
audit committee highlights it and makes
sure that this is not faced by the
organization it reviews the performance
of the statutary and internal Auditors
along with adequacy of internal control
systems and internal audit function it
discusses with the internal Auditors any
significant findings and accordingly
follows up whether any issue is there
and it needs to be resolved it reviews
the functioning of whistleblower
mechanism here again an audit committee
plays an important part wherein The
Whistleblower directly reports to the
audit Committee in case of any issue and
accordingly the action is necessary
action is uh taken by the audit
committee it approves the appointment of
Chief Financial Officer I got a question
actually can you say approval of the
appointment of the Chief Financial
Officer which is one of the senior
position of the company now the nomin
ration committee has got the role to
recommend their recommendations for the
appointment of the
senior now the nomination regeration
committee while it is recommending the
approval is lying with the audit
committee so both the Committees do not
in consense if do not agree if the
recommendations of the nomination
committee not acceptable to the audit
procedure
reinitiated okay proced
reinitiated because approval of both
committees are required sir
simultaneously both committees approval
will be required yeah because the
nomination ration committee is actually
not approving Authority but the recommending
recommending
Authority but whereas the audit
committee is the approving Authority
that is where I said
said
sir you can go beyond and say look you
know the board of directors you know
does not approve it then again you know
as sonali revisit you know the whole
thing yeah anyway so no that's what I
said in the beginning the overlapping of
between the
Committees sometime it may
happen but I do not know in reality
because I not to come across at
least since it is a it is a KMP position
even though the information to the stock
also requires right yeah that's right so
as there is overlapping of the
Committees there are also overlapping of
the members of the Committees so even
the person who is a member of an audit
committee is a part of NRC so according
he is a part of both the Committees yeah
right you're right sir yeah yeah yeah it
is very likely you said it rightly
yeah board approval will be required sir
so anyhow NRC approval would also be
required by the board NRC recommends
then goes to the audit committee and
then to the board yeah right that is the
yeah yeah go ahead AUD committee reviews the findings of any internal
the findings of any internal investigations by the Auditors it
investigations by the Auditors it reviews the utilization of loans and
reviews the utilization of loans and advances or any Investments made by the
advances or any Investments made by the company in its subsidiary which exceeds
company in its subsidiary which exceeds 100 crores or 10% of the asset size of
100 crores or 10% of the asset size of the
the subsidiary any Investments existing as
subsidiary any Investments existing as on date and coming into force of this
on date and coming into force of this position provision it considers and
position provision it considers and comments on the rational cost benefits
comments on the rational cost benefits and impacts of schemes involving merger
and impacts of schemes involving merger Dem merger of the listed entity so here
Dem merger of the listed entity so here again an audit committee plays an
again an audit committee plays an important role in uh the restructuring
important role in uh the restructuring of the organization where it takes into
of the organization where it takes into account whether the same would be
account whether the same would be beneficial to The Entity or
not further lodr also provides the following as the mandatory
following as the mandatory reviewed by the audit committee they are
reviewed by the audit committee they are management discussion and Analysis of
management discussion and Analysis of the financial condition and results of
the financial condition and results of the operation of the entity management
the operation of the entity management letters and letters of internal control
letters and letters of internal control Witnesses issued by statutory Auditors
Witnesses issued by statutory Auditors so again any internal control highlight
so again any internal control highlight being highlighted by the statutory
being highlighted by the statutory auditor is always reviewed by the audit
auditor is always reviewed by the audit committee and accordingly it suggests
committee and accordingly it suggests measures so that the said weakness is
measures so that the said weakness is removed internal audit reports relating
removed internal audit reports relating to internal control weakness es the
to internal control weakness es the appointment removal terms of
appointment removal terms of remuneration of the chief internal
remuneration of the chief internal auditor is also reviewed by the audit
auditor is also reviewed by the audit committee and the statement of
committee and the statement of deviations so this statement of
deviations so this statement of deviations is again approved by the
deviations is again approved by the audit committee every quarter and
audit committee every quarter and submitted to the exchanges regarding the
submitted to the exchanges regarding the utilization of funds and any deviation
utilization of funds and any deviation it also reviews the report by the
it also reviews the report by the monitoring agency and accordingly any
monitoring agency and accordingly any deviation from the objects of
deviation from the objects of utilization of the funds is reported to
utilization of the funds is reported to The Exchange
audit committee and insider trading regulations again the code of conduct
regulations again the code of conduct for listed entities to regulate Monitor
for listed entities to regulate Monitor and Report trading by designated person
and Report trading by designated person provides that the compliance officer of
provides that the compliance officer of the listed entity is required to report
the listed entity is required to report to the chairman of the audit committee
to the chairman of the audit committee at least once in a financial year so
at least once in a financial year so here the compliance officer regarding
here the compliance officer regarding the insider trading mechanism which is
the insider trading mechanism which is present in the organization he has to
present in the organization he has to prepare a report and accordingly submit
prepare a report and accordingly submit it to the audit
it to the audit committee it also reviews the compliance
committee it also reviews the compliance with The Insider regulations at regular
with The Insider regulations at regular intervals so that may be quarterly
intervals so that may be quarterly review of The Insider regulations
review of The Insider regulations present in the
present in the organization the uh structured digital
organization the uh structured digital database sdd is supervised by the audit
database sdd is supervised by the audit committee and compliance officer and
committee and compliance officer and they turn report to the
they turn report to the board so any
board so any more light you want to throw on this
more light you want to throw on this insider trading regulations
insider trading regulations sonali the role of the audit
sonali the role of the audit committee audit committee actually is
committee audit committee actually is vested with a lot of responsibilities
vested with a lot of responsibilities under the in trading regulations earlier
under the in trading regulations earlier it was the compliance officer who had
it was the compliance officer who had been vested with most of the
been vested with most of the responsibility under the pit
responsibility under the pit regulations uh going forward after the
regulations uh going forward after the 2020 Amendment now uh the audit
2020 Amendment now uh the audit committee is actually responsible to
committee is actually responsible to oversee the compliances under insided
oversee the compliances under insided regulations we as a listed entity what
regulations we as a listed entity what we do is on quarterly basis we update
we do is on quarterly basis we update the audit committee on what all
the audit committee on what all compliances has been done during the
compliances has been done during the quarter trading window closure any
quarter trading window closure any non-compliance has been observed by from
non-compliance has been observed by from any of the Insiders what all trades in
any of the Insiders what all trades in the Securities of the companies have
the Securities of the companies have happened so a comprehensive report goes
happened so a comprehensive report goes to the audit committee although their
to the audit committee although their responsibility is reviewing only once in
responsibility is reviewing only once in a year but reviewing once in a year
a year but reviewing once in a year would not give Justice to their roles
would not give Justice to their roles and respons responsibil what is provided
and respons responsibil what is provided under law so we follow on quarterly but
under law so we follow on quarterly but many companies do it on six monthly some
many companies do it on six monthly some of them do on yearly basis also so this
of them do on yearly basis also so this way this becomes actually another
way this becomes actually another additional agenda item in the audit
additional agenda item in the audit committee every
committee every time they were doing it actually
time they were doing it actually quarterly bses yeah yeah somebody's
quarterly bses yeah yeah somebody's asking a question is it a must for the
asking a question is it a must for the CFO to be a qualified chartered
CFO to be a qualified chartered accountant again we go back to the
accountant again we go back to the financially literate what we discuss on
financially literate what we discuss on the audit committee if you actually go
the audit committee if you actually go by the act act it does not prescribe any
by the act act it does not prescribe any qualification at all for the appointment
qualification at all for the appointment of the CF because even if you go in the
of the CF because even if you go in the company s also even LOD regulation also
company s also even LOD regulation also even if you say I think 134 if I'm not
even if you say I think 134 if I'm not mistaken It also says CFO is to be
mistaken It also says CFO is to be appointed that's all and he Reed to sign
appointed that's all and he Reed to sign the financial statement other thing and
the financial statement other thing and all and he has got the responsibility
all and he has got the responsibility oversee the financial statement that's
oversee the financial statement that's what it said no the qualification is
what it said no the qualification is mentioned but as we discussed in the
mentioned but as we discussed in the beginning
beginning the person who is heading the
the person who is heading the financial functions need necessarily to
financial functions need necessarily to be a very well literate person in the
be a very well literate person in the field he should be an expert in the
field he should be an expert in the field that is why if we look at it most
field that is why if we look at it most of the companies almost 99% of the
of the companies almost 99% of the companies I can actually put it either
companies I can actually put it either he a qualified chared accountant or
he a qualified chared accountant or qualified MBA Finance Etc that is what
qualified MBA Finance Etc that is what in
practice butali I have a concern like if you put
butali I have a concern like if you put all those responsibility on the audit
all those responsibility on the audit committee okay so like if I have to be a
committee okay so like if I have to be a chairman of that committee as an
chairman of that committee as an independent
independent directors know my responsibilities are
directors know my responsibilities are unlimited I mean the responsibility and
unlimited I mean the responsibility and probably the liability I don't know
probably the liability I don't know whether the tomorrow if anything goes
whether the tomorrow if anything goes wrong in the statements and all tomorrow
wrong in the statements and all tomorrow the director say look it was the uh the
the director say look it was the uh the chairman of the audit committee should
chairman of the audit committee should have taken know so so whatever know he
have taken know so so whatever know he shown we have agreed and approved you
shown we have agreed and approved you know so I don't know on the light on the
know so I don't know on the light on the lighter side we say that audit committee
lighter side we say that audit committee is the core and the Heart of the
is the core and the Heart of the organization and the meetings of the
organization and the meetings of the audit committee runs for more than like
audit committee runs for more than like the double the time of the board
the double the time of the board meeting you are absolutely right son in
meeting you are absolutely right son in fact our audit committee meeting used to
fact our audit committee meeting used to be almost a full day where the board
be almost a full day where the board meeting only half day correct correct
meeting only half day correct correct yes but one thing is there the audit
yes but one thing is there the audit committee isali in the beginning is
committee isali in the beginning is actually guided with the finance
actually guided with the finance committee which is set up in many of the
committee which is set up in many of the companies and also Guided by the Senior
companies and also Guided by the Senior Management and some extent they also
Management and some extent they also take a help of the statutary auditor
take a help of the statutary auditor internal auditor as well but
internal auditor as well but responsibility all s then is actually
responsibility all s then is actually great to the audit committee that is
great to the audit committee that is there I agree with
there I agree with you go the agenda of the audit committee
you go the agenda of the audit committee at the end of the quarter there are
at the end of the quarter there are almost 20 25 items which they need to
almost 20 25 items which they need to approve and take care of yeah right
approve and take care of yeah right looking at the agenda items only we can
looking at the agenda items only we can say how difficult it is to be a part of
say how difficult it is to be a part of an audit committee and approve all those
an audit committee and approve all those transactions somebody is actually asking
transactions somebody is actually asking is it actually practical to all the
is it actually practical to all the members of audit committee to review the
members of audit committee to review the accounts rpt loans
accounts rpt loans Etc see that is where I think what
Etc see that is where I think what happens is
happens is in our secret standard also specifies
in our secret standard also specifies all the documents need to be sent at
all the documents need to be sent at least 7 days in advance
least 7 days in advance in fact in our internally agreed you
in fact in our internally agreed you know the K and kPa
know the K and kPa parameters although the last 7 days once
parameters although the last 7 days once in our case we have been told Ive been
in our case we have been told Ive been given a mandate when I was a company
given a mandate when I was a company secretary I need to send all the agenda
secretary I need to send all the agenda document with the supporting papers in
document with the supporting papers in full 10 working days before the
full 10 working days before the meeting that used to be the agenda
meeting that used to be the agenda actually because the whole idea is to
actually because the whole idea is to give a suff ient time for the people to
give a suff ient time for the people to go through the document understand the
go through the document understand the things prepared and come and put up the
things prepared and come and put up the questioning Etc in fact I heard also
questioning Etc in fact I heard also occasion there are lot of independent
occasion there are lot of independent director they used to call us seek
director they used to call us seek additional information seek additional
additional information seek additional things not only that even they go to the
things not only that even they go to the extent of asking can you actually give
extent of asking can you actually give me what sort of the approval is actually
me what sort of the approval is actually s prop can you give me at least the
s prop can you give me at least the draft resolution what you are expected
draft resolution what you are expected to pass in the meeting to such an extent
to pass in the meeting to such an extent people have actually question actually
people have actually question actually yeah I seek both The panelists View on
yeah I seek both The panelists View on this it is quite
this it is quite interesting yes sir uh the role of audit
interesting yes sir uh the role of audit committee has grown manifold in recent
committee has grown manifold in recent uh Past coming that audit committee not
uh Past coming that audit committee not only have to see the financial reporting
only have to see the financial reporting aspect but also now rpt has been added
aspect but also now rpt has been added to it then visual
to it then visual mechanism Insider and plus now h s to
mechanism Insider and plus now h s to the summ extent like encumberance
the summ extent like encumberance disclosure has has also to be placed
disclosure has has also to be placed before the audit committee so no doubt
before the audit committee so no doubt the audit committee members the
the audit committee members the regulator expect audit committee members
regulator expect audit committee members to be very prudent and of course they
to be very prudent and of course they are backed by the certificates of the
are backed by the certificates of the Senior Management whom they mo in most
Senior Management whom they mo in most cases relied upon and the Senior
cases relied upon and the Senior Management also certificates certified
Management also certificates certified on the basis of the scrutiny so to some
on the basis of the scrutiny so to some extent means the role of audit committee
extent means the role of audit committee members is uh very important but yes
members is uh very important but yes they are supported by the Senior
they are supported by the Senior Management of the company also
sir yes is it is it more practical for one member carry out the review and
one member carry out the review and discuss the findings with other
members not seen that not seen that thing happening the only only issue has
thing happening the only only issue has been that from the time the unpublished
been that from the time the unpublished price sensitive information has become
price sensitive information has become too important Under lodr And The Insider
too important Under lodr And The Insider tring
tring regulations uh board board members the C
regulations uh board board members the C listed entities generally try to provide
listed entities generally try to provide the information in the sealed envelopes
the information in the sealed envelopes of uh the annual report Etc to the board
of uh the annual report Etc to the board members of four or five days prior to
members of four or five days prior to the board meeting and uh they seek their
the board meeting and uh they seek their comment one to one if the uh audit
comment one to one if the uh audit committee members discussed among
committee members discussed among themselves or the board member discussed
themselves or the board member discussed among on themselves that is their choice
among on themselves that is their choice and prerogative but as a company we
and prerogative but as a company we don't show any Initiative for them to
don't show any Initiative for them to come forward on a common platform and
come forward on a common platform and discuss prior to the audit committee and
discuss prior to the audit committee and the board
the board meeting either a mandate audit Committee
meeting either a mandate audit Committee Member should be the member of the NRC
Member should be the member of the NRC understand it can be constituted with a
understand it can be constituted with a totally
totally different directors yes yes totally
different directors yes yes totally different dependent me but
different dependent me but the yeah but the question is you need to
the yeah but the question is you need to have more independent directors on the
have more independent directors on the board thing you're increasing you're
