The Audit Committee of Polar Ltd., a company listed with BSE, consists of three directors, Ashish, Nitin and Rekha. Ashish is the chairman of the Audit Committee and is also the CEO of Polar Ltd., Nitin and Rekha are ind

The legal requirement for the composition of the Audit Committee are mentioned under sub section (1) and (2) of section 177 of the Companies Act, 2013 which states that the Board of Directors of every listed public company shall constitute an Audit Committee. The Audit Committee shall consist of a minimum of three directors with independent directors forming a majority. Provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement. Further regulations 18(1) of the SEBI (LODR) Regulations, 2015 requires that every listed entity shall constitute a qualified and independent audit committee in accordance with the terms of reference, subject to the following: The audit committee shall have minimum three directors as members. Two-thirds of the members of audit committee shall be independent directors All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise. Explanation (1).- For the purpose of this regulation, "financially literate" shall mean the ability to read and understand basic financial statements i.e. balance sheet, profit and loss account, and statement of cash flows. Explanation (2).- For the purpose of this regulation, a member shall be considered to have accounting or related financial management expertise if he or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any other comparable experience or background which results in the individual's financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. The chairperson of the audit committee shall be an independent director and he shall be present at Annual general meeting to answer shareholder queries. In the given case There are three directors in the audit committee. All the directors are financial literate. Majority (2/3) of the members of the audit committee are independent directors. One director, namely Rekha is chartered accountant and have accounting and related financial management expertise. But the chairman of the audit committee is Ashish who is also CEO of Polar Ltd. and not an independent director. Thus the conditions of regulation 18(1) of the SEBI (LODR) Regulations, 2015 is not fully complied with. Therefore in order to validate the composition of audit committee either Nitin or Rekha should be appointed as the Chairman of the audit committee.