Nomination and Remuneration Committee: S.178

The nomination and remuneration committee is one of the two committees section 178 of the Companies Act, 2013 requires, and it is the one that decides how a listed company chooses and pays its senior people. Section 178(1) fixes its composition, section 178(2) gives it the appointment and evaluation mandate, and sections 178(3) and 178(4) make it the author of the company's remuneration policy.

Who sits on the nomination and remuneration committee?

Section 178(1) requires the Board of Directors of every listed public company, and such other class or classes of companies as may be prescribed, to constitute the committee. It shall consist of three or more non-executive directors, out of which not less than one-half shall be independent directors. The words "every listed public company" were substituted for "every listed company" by Act 1 of 2018, section 58, with effect from 7 May 2018.

The proviso to section 178(1) handles the company chairperson specifically: he may be appointed as a member of the committee, whether he is executive or non-executive, but he shall not chair it.

Two composition points differ from the audit committee and are easy to conflate. Section 178(1) requires non-executive directors, which section 177(2) does not; and its independence floor is one-half, where section 177(2) requires independent directors to form a majority. Audit committee under section 177 covers that comparison from the other side.

The prescribed classes are the same as for the audit committee. Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014, as originally notified, requires both committees of public companies with paid-up capital of ten crore rupees or more, turnover of one hundred crore rupees or more, or aggregate outstanding loans, borrowings, debentures or deposits that the rule describes as "exceeding fifty crore rupees or more", measured as existing on the date of the last audited financial statements. Those two phrases disagree at exactly fifty crore, and the disagreement is in the notification rather than in this summary of it. Audit committee under section 177 sets the clause out in full.

On the rules cited here. The rule text on this page comes from the copy of the Companies (Meetings of Board and its Powers) Rules, 2014 that thc.nic.in serves, and it is a notification text rather than a consolidation. Its body is the principal notification, G.S.R. 240(E) dated 31 March 2014, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), and made under sections 173, 175, 177, 178, 179, 184 to 189 and 191 read with section 469 of the Act. Bundled after it is a separate, later notification, G.S.R. 811(E) dated 3 November 2025, the Companies (Meetings of Board and its Powers) Amendment Rules, 2025, which substitutes sub-rule (2) of rule 11 and nothing else. The footer note on that 2025 notification records the principal rules as last amended by G.S.R. 409(E) dated 15 June 2021. So the rule text in the body is the 2014 text as originally notified, the amendments made between 2014 and June 2021 are not incorporated in it, and a rule quoted from it is not by itself evidence of the rule in force today. Check the amending notifications before relying on any rule text here for a filing. The section text on this page is the Companies Act, 2013 as consolidated on India Code, with each amendment footnote resolved on its own page.

What does the committee do about appointments?

Section 178(2) gives it three jobs in one sentence. The committee shall:

1. identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down;
2. recommend to the Board their appointment and removal; and
3. specify the manner for effective evaluation of performance of the Board, its committees and individual directors.

The third of those is amended text. As enacted, the sub-section said the committee "shall carry out evaluation of every director's performance". Act 1 of 2018, section 58, with effect from 7 May 2018, substituted that with the wording above, which lets the evaluation be carried out either by the Board, by the committee, or by an independent external agency, with the committee reviewing its implementation and compliance. The committee therefore designs the evaluation rather than necessarily performing it.

The Explanation at the end of section 178 defines the second population the committee identifies. Senior management means personnel of the company who are members of its core management team excluding the Board of Directors, comprising all members of management one level below the executive directors, including the functional heads. That is a wider group than key managerial personnel under section 203, and the two terms are not interchangeable.

What must the remuneration policy contain?

Section 178(3) requires the committee to formulate the criteria for determining qualifications, positive attributes and independence of a director, and to recommend to the Board a policy relating to the remuneration for the directors, key managerial personnel and other employees.

Section 178(4) then constrains what that policy may say. In formulating it the committee shall ensure that:

The proviso to section 178(4), substituted by Act 1 of 2018, section 58, with effect from 7 May 2018, is the disclosure limb: the policy shall be placed on the website of the company, if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, shall be disclosed in the Board's report.

That drafting is why a reader looking for a company's remuneration policy should go to the website rather than the annual report. The report is required to carry the salient features and the link, not the policy itself.

Section 178(4)(c) reads across to a limit the committee cannot override. Section 149(9) prohibits stock options for independent directors altogether, subject to sections 197 and 198. Independent director under section 149 covers that prohibition and the fee, expenses and profit-related-commission route it leaves open.

What is the penalty for contravening section 178?

Section 178(8) covers a contravention of section 177 and this section together. As enacted it made the company punishable with a fine of not less than one lakh rupees extending to five lakh rupees, with a separate liability for every officer in default. That company-fine limb is still in the consolidated text as served, which matters for reading what follows.

Act 29 of 2020, section 36, with effect from 21 December 2020, substituted certain words in that sub-section, and the consolidated text as published on India Code now reads with a duplicated limb: the substituted words themselves open with "liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of one lakh rupees", inside a sentence that already carried an "every officer of the company who is in default shall be" clause. The duplication is in the consolidation as served, so this page reports what the text says rather than tidying it: the amended penalties are five lakh rupees and one lakh rupees, and the sentence they sit in reads awkwardly.

The proviso to section 178(8) carves out one thing. Inability to resolve or consider any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of the section. Those words were substituted for "non-consideration of resolution of any grievance" by Act 1 of 2018, section 58, with effect from 7 May 2018. Stakeholders relationship committee covers the committee that proviso protects.

Where this sits in the disclosure picture

• Audit committee under section 177 covers the other committee the same companies must constitute, with a different composition test.
• Stakeholders relationship committee covers the third committee section 178 creates, at section 178(5).
• Independent director under section 149 covers the category that must make up half the committee.
• Key managerial personnel under section 203 covers the defined group the remuneration policy names alongside senior management.
• How to read a corporate governance report covers where a listed company reports committee composition and attendance.
• The SEBI stewardship code covers how institutional holders are expected to engage with pay and board composition.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.