Royal Chemicals Limited (RCL), a company listed with National Stock Exchange (NSE) is having 60% market share in paint manufacture industry. It also deals in petrochemicals, which are used in numerous household products

CS Professional · Environmental, Social and Governance (ESG) Principles and Practice · PYQS · December 2024
Royal Chemicals Limited (RCL), a company listed with National Stock Exchange (NSE) is having 60% market share in paint manufacture industry. It also deals in petrochemicals, which are used in numerous household products like wax, detergents, dyes, carpeting, safety glasses, etc. RCL is one among the top 1000 companies listed on NSE. As per the latest audited financial statements as on March 31, 2024, its paid-up capital stood at ₹300 crore against its authorized Capital of ₹500 crore and it had a revenue of ₹2,250 crore. RCL has thirteen Directors on its Board, of which five were independent directors. The Articles of Association of the Company restricts the maximum number of Directors to fifteen. RCL remains ever-conscious to corporate governance and ensures compliance with the statutory and legal provisions in both letter and spirit. Roya, an executive director, is chairperson of the Company and Minu is the only woman Director. The Company has constituted requisite committees as per the requirements of Companies Act, 2013 and SEBI LODR. The Audit Committee consists of five Directors as members—Aman, Jatin, Rohan, Keyn and Jitu. Among the five independent directors, Rohan was reappointed on August 1, 2019 after completing his term of 5 years. His efficient performance was ranked first in the performance evaluation carried out as per SEBI guidelines. To recognise the outstanding results towards the Company's growth, the Board wanted to reappoint Rohan for the third term. The Board also sought Company Secretary's opinion in this regard. The Company had successfully concluded its Annual General Meeting (AGM) for the financial year ending March 31, 2024, on May 25, 2025, at its registered office at Pune. On the fateful day of AGM, while returning to Mumbai from Pune by road, after her re-appointment at AGM, a fatal accident claimed the life of Minu, thus snatching an efficient and trustworthy Director from the Company. Later on, a Board Meeting was held on August 9, 2024 and Neeru, a finance professional and daughter of deceased director Minu, was appointed as Director to fill the vacancy of woman director. RCL is a growing company which wants to diversify its business into the sphere of agrochemicals and therefore, desires to bring on its Board Ojas, who is a chemical engineer with hands-on experience of about twenty years post his qualification in the field of agrochemicals and other petroleum products. Besides production, he is well versed in marketing of agrochemicals, both in India and abroad. It is hoped that he shall prove to be a valuable asset to the Company. Accordingly, in the Board Meeting held on August 9, 2024, Ojas was appointed as an additional Director. Ojas already held directorships in one dormant company, two Section 8 companies, eight public limited companies and nine private limited companies. However, out of nine private limited companies, two are subsidiaries of public limited companies. Based on the above facts, answer the following questions: Explain provisions of the Companies Act, 2013, related to the role of Nominations and Remuneration Committee, in performance evaluation of directors. The Company Secretary informs you that, Roya says it is not necessary to include in the Board's report, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance, including independent directors. Is Roya's view correct?

Answer & Explanation:

It is necessary to include in the Board's report, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors. Inclusion of Performance evaluation in Board' Report According to Rule 8 (4) of the Companies (Accounts) Rules, 2014, every listed company and every other public company having a paid-up share capital of twenty-five crore rupees or more calculated at the end of the preceding financial year shall include, in the report by its Board of directors, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors. The Role of the Nominations and Remuneration Committee in performance evaluation of directors: According to Section 178 (2) of the Companies Act, 2013 the Nomination and Remuneration Committee shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down. recommend to the Board their appointment and removal and shall specify the manner for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance. Independent Directors' role in performance evaluation of Boards, non-independent directors and Chairperson Schedule IV (Part VII): The independent directors of the company shall hold at least one meeting in a financial year, without the attendance of non-independent directors and members of management. All the independent directors of the company shall strive to be present at such meeting. The meeting shall: (a) review the performance of non-independent directors and the Board as a whole; (b) review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors. (c) assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties. Performance evaluation of Independent Directors Schedule IV Part V: Re appointment - The reappointment of the independent directors would be based on their report of performance evaluation. Schedule IV Part VIII: Evaluation mechanism - The performance of the independent directors would have to be done by the entire Board excluding the director to be evaluated. On the basis of the report of performance evaluation, the continuance or extension of the term of appointment of the independent director would be determined.

Topics: Corporate Governance

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