Section 177 — Audit Committee

(1) The Board of Directors of 1[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:
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;
(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:

1. Subs. by Act 1 of 2018, s. 57, for “every listed company” (w.e.f. 7-5-2018).

1[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;]
2[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 dire ctor 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 m ay 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: