Section 177 of the Companies Act, 2013
Section 177 of the Companies Act, 2013 deals with the constitution and functioning of the Audit Committee in certain classes of companies.
🔹 Section 177 – Audit Committee
This section mandates the formation of an Audit Committee by certain companies to enhance corporate governance through oversight of financial reporting and auditing processes.
✅ Key Provisions:
🢠1. Applicability (Section 177(1)):
The Board of Directors of the following companies must constitute an Audit Committee:
Every listed public company
Other prescribed public companies having:
Paid-up share capital of ₹10 crore or more, or
Turnover of ₹100 crore or more, or
Outstanding loans, borrowings, debentures, or deposits exceeding ₹50 crore
[Thresholds may vary via rules notified by the Central Government.]
👥 2. Composition of the Audit Committee:
Minimum 3 directors
Majority of members must be independent directors
Chairperson must be an independent director
📋 3. Powers and Role of the Audit Committee (Section 177(4)):
The committee shall act in accordance with the terms of reference specified by the Board. It shall include:
Recommending appointment, remuneration, and terms of auditors
Reviewing financial statements and auditor’s report
Approval or any subsequent modification of related party transactions (RPTs)
Scrutiny of inter-corporate loans and investments
Evaluation of internal financial controls and risk management systems
Monitoring end use of funds raised through public offers
📣 4. Vigil Mechanism (Whistleblower Policy) – Section 177(9):
Companies required to constitute an audit committee must also establish a vigil mechanism for directors and employees to report genuine concerns.
The mechanism must provide for:
Direct access to the chairperson of the audit committee in appropriate or exceptional cases
Protection to whistleblowers
🛑 5. Consequences of Non-compliance:
While Section 177 itself does not prescribe penalties, violations may attract penalties under Section 450 (general penalty clause), and companies may also face regulatory or stock exchange action in case of listed companies.
📌 Related Rules:
Companies (Meetings of Board and its Powers) Rules, 2014
Rule 6 deals with the class of companies required to constitute an audit committee.
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