SECTION 177. AUDIT COMMITTEE
[Effective from 1st April, 2014; Proviso to sub-section 4(iv) inserted by Companies (Amendment) Act, 2015 effective from 14th December, 2015]
Section 177 shall not apply to Specified public company, vide Notification no. 08(E) dated 04th January, 2017.
(1) The Board of Directors of  [every listed public company] and such other class or classes of companies, as may be prescribed, shall constitute an Audit Committee.
(2) The Audit Committee shall consist of a minimum of three directors with independent directors forming a majority:
In case of Section 8 Company, the words in Section 177(2), “with independent directors forming a majority” shall be omitted vide Notification No. GSR 466(E) dated 5th June, 2015.
The above mentioned exception shall be applicable to a Section 8 company which has not committed a default in filing its financial statements under section 137 of the said Act or annual return under section 92 of the said Act with the Registrar, vide amendment notification G.S.R. 584(E) dated 13th June 2017.
Provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement.
(3) Every Audit Committee of a company existing immediately before the commencement of this Act shall, within one year of such commencement, be reconstituted in accordance with sub-section (2).
(4) Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall inter alia, include,—
(i) the recommendation for appointment, remuneration and terms of appointment of auditors of the company;
In case of a Government Company, in section 177(4)(i), for the words “recommendation for appointment, remuneration and terms of appointment of auditors of the company” words “recommendation for remuneration” shall be substituted; vide Notification No. GSR 463(E) dated 5th June, 2015.
The above mentioned exception shall be applicable to a government company which has not committed a default in filing its financial statements under section 137 of the said Act or annual return under section 92 of the said Act with the Registrar, vide amendment notification F. No. 1/2/2014- CL-V dated 13th June 2017.
(ii) review and monitor the auditor’s independence and performance, and effectiveness of audit process;
(iii) examination of the financial statement and the auditors’ report thereon;
(iv) approval or any subsequent modification of transactions of the company with related parties;
[Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions as may be prescribed;]
 [Provided further that in case of transaction, other than transactions referred to in section 188, and where Audit Committee does not approve the transaction, it shall make its recommendations to the Board.
Provided also that in case any transaction involving any amount not exceeding one crore rupees is entered into by a director or officer of the company without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee within three months from the date of the transaction, such transaction shall be voidable at the option of the Audit Committee and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it.
Provided also that the provisions of this clause shall not apply to a transaction, other than a transaction referred to in section 188, between a holding company and its wholly owned subsidiary company.]
(v) scrutiny of inter-corporate loans and investments;
(vi) valuation of undertakings or assets of the company, wherever it is necessary;
(vii) evaluation of internal financial controls and risk management systems;
(viii) monitoring the end use of funds raised through public offers and related matters.
(5) The Audit Committee may 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 and may also discuss any related issues with the internal and statutory auditors and the management of the company.
(6) The Audit Committee shall have authority to investigate into any matter in relation to the items specified in sub-section (4) or referred to it by the Board and for this purpose shall have power to obtain professional advice from external sources and have full access to information contained in the records of the company.
(7) The auditors of a company and the key managerial personnel shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor’s report but shall not have the right to vote.
(8) The Board’s report under sub-section (3) of section 134 shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons therefor.
(9) Every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed.
(10) The vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases:
Provided that the details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.
Companies (Meetings of Board and its Powers) Rules, 2014
[Effective from 1st April, 2014]
[Rule 6. Committees of the Board – The Board of directors of  [“every listed public company] and a company covered under rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 shall constitute an ‘Audit Committee’and a ‘Nomination and Remuneration Committee of the Board’.]
 [6A. Omnibus approval for related party transactions on annual basis.- All related party transactions shall require approval of the Audit Committee and the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to the following conditions, namely:-
(1)The Audit Committee shall, after obtaining approval of the Board of Directors, specify the criteria for making the omnibus approval which shall include the following, namely:-
(a) maximum value of the transactions, in aggregate, which can be allowed under the omnibus route in a year;
(b) The maximum value per transaction which can be allowed;
(c) Extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus approval;
(d) Review, at such intervals as the Audit Committee may deem fit, related party transaction entered into by the company pursuant to each of the omnibus approval made;
(e) Transactions which cannot be subject to the omnibus approval by the Audit Committee.
(2) The Audit Committee shall consider the following factors while specifying the criteria for making omnibus approval, namely: –
(a) repetitiveness of the transactions (in past or in future);
(b) justification for the need of omnibus approval.
(3) The Audit Committee shall satisfy itself on the need for omnibus approval for transactions of repetitive nature and that such approval is in the interest of the company.
(4) The omnibus approval shall contain or indicate the following: –
(a) name of the related parties;
(b) nature and duration of the transaction;
(c) maximum amount of transaction that can be entered into;
(d) the indicative base price or current contracted price and the formula for variation in the price, if any; and
(e) any other information relevant or important for the Audit Committee to take a decision on the proposed transaction:
Provided that where the need for related party transaction cannot be foreseen and aforesaid details are not available, audit committee may make omnibus approval for such transactions subject to their value not exceeding rupees one crore per transaction.
(5) Omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh approval after the expiry of such financial year.
(6) Omnibus approval shall not be made for transactions in respect of selling or disposing of the undertaking of the company.
(7) Any other conditions as the Audit Committee may deem fit.]
Rule 7. Establishment of vigil mechanism.—(1) Every listed company and the companies belonging to the following class or classes shall establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances—
(a) the Companies which accept deposits from the public;
(b) the Companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees.
(2) The companies which are required to constitute an audit committee 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 recuse themselves and the others on the committee would deal with the matter on hand.
(3) In case of other companies, 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.
(4) The vigil mechanism shall provide for adequate safeguards against victimisation of employees and directors who avail of the vigil mechanism and also provide for direct access to the Chairperson of the Audit Committee or the director nominated to play the role of Audit Committee, as the case may be, in exceptional cases.
(5) In case of repeated frivolous complaints being filed by a director or an employee, the audit committee or the director nominated to play the role of audit committee may take suitable action against the concerned director or employee including reprimand.
 Inserted by the Companies (Amendment) Act, 2015 and notified vide S.O. 3388 (E) dated 14th December, 2015.
 Inserted by the Companies (Meetings of Board and its Powers) Amendment Rules, 2014 vide Notification No. GSR 398 (E) dated 12th June, 2014.
 Inserted by the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2015 vide Notification No. G.S.R. 971(E)-Cl-V-Part dated 14th December, 2015.
 Substituted by the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2017 vide Notification No. G.S.R. 880(E) dated 13th July, 2017. Prior to the substitution it read as under:
” The Board of directors of every listed companies and the following classes of companies shall constitute an Audit Committee and a Nomination and Remuneration Committee of the Board—
(i) all public companies with a paid up capital of ten crore rupees or more;
(ii) all public companies having turnover of one hundred crore rupees or more;
(iii) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding fifty crore rupees or more.
Explanation.—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.
[Provided that public companies covered under this rule which were not required to constitute. Audit Committee under section 292A of the Companies Act, 1956 (1 of 1956) shall constitute their Audit Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier:
Provided further that public companies covered under this rule shall constitute their Nomination and Remuneration Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier.]
 Substituted for the words “every listed company” by the Companies (Amendment) Act 2017 vide Notification No. S.O. 1833(E) dated 7th May, 2018.
 Inserted by the Companies (Amendment) Act 2017 vide Notification No. S.O. 1833(E) dated 7th May, 2018.
 Substituted for the words “every listed company” by the Companies (Meetings of Board and its Powers) Amendment Rules, 2018 vide Notification No. F. No. 1/32/2013- CL-V-Part dated 7th May, 2018