Companies Act Section 378U

Companies Act, Section 378U: Constitution and Functioning of Committees of Directors in a Producer Company

Section 378U of the Companies Act, 2013, provides the statutory framework for the formation of committees of directors within a Producer Company. These committees are intended to assist the Board of Directors in the efficient and organized discharge of their responsibilities, without compromising the central authority of the Board or the Chief Executive.

The section strikes a balance between delegation for efficiency and control for accountability, ensuring that while the Board may receive support from committees, key powers remain non-delegable.

1. Constitution of Committees by the Board

The Board of Directors of a Producer Company is empowered to constitute one or more committees as it deems necessary or appropriate for the efficient performance of its duties.

These committees may be task-specific or set up for recurring responsibilities such as audit, finance, operations, or membership review.
The decision to constitute such committees lies solely at the discretion of the Board based on the company’s functional and governance needs.
Proviso- Restrictions on Delegation of Powers:

However, there is a specific limitation placed on the Board’s power to delegate. The Board shall not delegate:

Any of its core powers, and the powers or functions of the Chief Executive,to any committee.

This means that while committees may support the Board in preparatory or advisory roles, the final decision-making authority on certain core matters remains exclusively with the Board or the Chief Executive, as the case may be.

2. Co-option of Members to Committees

Any committee formed by the Board may, with the Board’s approval, co-opt additional persons as members of the committee if it deems their participation necessary or beneficial.

Such co-opted persons may include experts, professionals, or individuals with specialized knowledge relevant to the functioning of the committee.
Mandatory Membership Requirements:

However, to ensure that the committee remains integrated within the governance structure of the Producer Company, the law mandates that:

The Chief Executive, appointed under Section 378W, must be a member of every such committee, or at the very least, one director of the Producer Company must be a member of the committee.
This condition ensures that each committee maintains a formal linkage to the Board and the company’s executive leadership, and that decisions or recommendations are informed by internal leadership perspectives.

3. Supervision and Control by the Board

Each committee established under this section shall function under the overall supervision, direction, and control of the Board.

The scope of work, duration of functioning, and manner of operation of the committee shall be defined and regulated entirely by the Board.
This ensures that committees remain advisory or supportive in nature, and do not operate independently of the Board’s oversight.
Through this mechanism, the Board retains ultimate responsibility and accountability for the decisions and actions of its committees, thereby preserving organizational hierarchy and governance integrity.

4. Remuneration and Allowances for Committee Members

The fees and allowances (if any) payable to the members of such committees shall be determined by the Board.

These may be designed to compensate for the time, effort, and expertise offered by committee members, particularly if external professionals or experts are co-opted.
The Board has the discretion to define:
The quantum of remuneration, the criteria for eligibility, and the mode of payment.
This provision ensures financial transparency and avoids ad hoc or inconsistent remuneration practices.

5. Reporting to the Board- Minutes of Committee Meetings

To maintain transparency and ensure the Board is kept fully informed of committee proceedings, the Act mandates that:

The minutes of each meeting of any such committee shall be placed before the Board at its next meeting. This allows the Board to:

Review and evaluate the committee’s work, provide additional directions or clarifications, and integrate committee inputs into the broader decision-making framework of the company.
It also ensures that committee activities are documented and traceable, reinforcing accountability.