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    Question

    In the landmark case Shriram Transport Finance Company

    Limited v. NCLT (2014), the National Company Law Tribunal and subsequently the courts addressed the scope of Audit Committee authority and auditor independence. The case involved disputes over auditor appointment and related party transactions. The Court established that: Which principle regarding Audit Committee authority was established?
    A The Audit Committee has no independent authority; it merely advises the Board. Correct Answer Incorrect Answer
    B The Audit Committee must comply with statutory provisions mandatorily; deviation from provisions like Section 177 (mandatory composition) cannot be permitted for operational convenience. Correct Answer Incorrect Answer
    C Auditors have complete discretion to approve related party transactions without committee approval. Correct Answer Incorrect Answer
    D The Audit Committee's functions are advisory only and the Board can override all committee recommendations. Correct Answer Incorrect Answer
    E Statutory provisions regarding committee composition are merely directory and can be waived by company bylaws. Correct Answer Incorrect Answer

    Solution

    In cases involving Audit Committee authority (including observations in Shriram Transport and related NCLT rulings), courts have established that the statutory provisions governing Audit Committee constitution (Section 177) are mandatory. Companies cannot deviate from requirements like majority independent director composition, minimum member strength, or mandatory functions. The Committee must strictly comply with statutory prescriptions; deviations are not permitted even for claimed operational convenience. This landmark principle emphasizes that corporate governance provisions like Audit Committee rules represent mandatory minimum standards, not optional guidelines, and companies must adhere strictly to these provisions.

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