Report on Corporate Governance

  2. Statutory Reports
  3. Report on Corporate Governance

AUDIT COMMITTEE

The Audit Committee functions according to its Charter that defines its composition, authority, responsibility and reporting functions in accordance with Sections 177 of the Act, Regulation 18(3) read with Part C of Schedule II of the SEBI Listing Regulations and US regulations applicable to the Company and is reviewed from time to time. Whilst, the full Charter is available on the Company's website, given below is a gist of the responsibilities of the Audit Committee:

  1. Reviewing with the management, the quarterly/annual financial statements before submission to the Board, focusing primarily on:
    • Overseeing the Company's financial reporting process and the disclosure of its financial information, including earnings, press release, to ensure that the financial statements are correct, sufficient and credible;
    • Review Reports on the Management Discussion and Analysis of financial condition, results of Operations and the Directors' Responsibility Statement;
    • Compliance with accounting standards and changes in accounting policies and practices as well as reasons thereof;
    • Major accounting entries involving estimates based on exercise of judgment by Management;
    • Draft Audit Report, modified opinion if any and significant adjustments arising out of audit;
    • Analysis of the effects of alternative GAAP methods on the financial statements;
    • Compliance with listing and other legal requirements concerning financial statements;
    • Statement of significant related party transactions (as difined by the Committee), submitted by the management;
    • Scrutinise inter corporate loans and investments; and
    • Disclosures made under the CEO and CFO certification and related party transactions to the Board and Shareholders.
  2. Reviewing with the management, external auditor and internal auditor, adequacy of internal control systems and recommending improvements to the management.
  3. Review Management letters/Letters of internal control weakness issued by the statutory auditors.
  4. Reviewing, with the management, the statement of uses/application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice and the report submitted by the monitoring agency, monitoring the utilisation of proceeds of a public or rights issue, statement of deviations both quarterly and annual, if any, and making appropriate recommendations to the Board to take up steps in this matter.
  5. Recommending the appointment/removal of the statutory auditor, cost auditor, fixing audit fees, name of Audit firm and approving non-audit/consulting services provided by the statutory auditors' firms to the Company and its subsidiaries; evaluating auditors' performance, qualifications, experience, independence and pending proceedings relating to professional misconduct, if any. It shall also ensure that the cost auditors are independent, having arm's length relationship and are also not otherwise disqualified at the time of their appointment or during their tenure.
  6. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the chief internal auditor, coverage and frequency of internal audit, appointment, removal, performance and terms of remuneration of the chief internal auditor.
  7. Discussing with the internal auditor and senior management significant internal audit findings and follow-up thereon.
  8. Reviewing the findings of any internal investigation by the internal auditor into matters involving suspected fraud or irregularity or a failure of internal control systems of a material nature and report the matter to the Board.
  9. Discussing with the statutory auditor before the audit commences, the nature and scope of audit, as well as conduct post-audit discussions to ascertain any area of concern.
  10. Reviewing the Company's financial controls and risk management systems.
  11. Establish and review the functioning of the Vigil Mechanism under the Whistle-Blower policy of the Company.
  12. Reviewing the financial statements and investments made by subsidiary companies and subsidiary oversight relating to areas such as adequacy of the internal audit structure and function of the subsidiaries, their status of audit plan and its execution, key internal audit observations, risk management and the control environment.
  13. Look into the reasons for any substantial defaults in payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividend) and creditors, if any.
  14. Reviewing the effectiveness of the system for monitoring compliance with laws and regulations.
  15. Approving the appointment of CFO after assessing the qualification, experience and background etc. of the candidate.
  16. Engage a registered valuer in case valuations are required and review of any valuation report of any property, stocks, shares, debentures, securities, goodwill, undertakings or assets, liabilities or net worth of the Company.
  17. Review and suitably reply to the report(s) forwarded by the auditors on the matters where auditors have sufficient reason to believe that an offence involving fraud, is being or has been committed against the Company by officers or employees of the Company.
  18. Review the system of storage, retrieval, display or printout of books of accounts maintained in electronic mode during the required period under law.
  19. Approve all or any subsequent modification of transactions with related parties.
  20. To approve policies in relation to the implementation of the Tata Code of Conduct for Prevention of Insider Trading and Code of Corporate Disclosure Practices ('Code') and to supervise implementation of the Code.
  21. To note and take on record the status reports, detailing the dealings by Designated Persons in Securities of the Company, as submitted by the Compliance Officer on a quarterly basis and to provide directions on any penal action to be initiated, in case of any violation of the Code, by any person.

During the year, the Committee reviewed key audit findings covering operational, financial and compliance areas. Management personnel presented their risk mitigation plan to the Committee. It also reviewed the internal control system in subsidiary companies, status on compliance of its obligations under the Charter and confirmed that it fulfilled its duties and responsibilities. The Committee, through self-assessment, annually evaluates its performance. The Chairman of the Audit Committee briefs the Board members about the significant discussions at the Audit Committee meetings.

The Committee comprises of 4 Independent Directors, all of whom are financially literate and have relevant finance and/or audit exposure. Mr Munjee is the Financial Expert. The quorum of the Committee is two members or one-third of its members, whichever is greater. The Chairman of the Audit Committee also attended the last AGM of the Company. During the period under review, 8 Audit Committee meetings were held on May 25, 2015, July 9, 2015, August 5, 2015, October 20, 2015, November 4, 2015, January 8-9, 2016, February 9, 2016 and February 23, 2016. The maximum gap between any two meetings was less than 120 days. Each Audit Committee meeting which considers financial results is preceded by a meeting of the Audit Committee members along with the Auditors only.

The composition of the Audit Committee and attendance at its meetings is as follows:

The Committee meetings are held at the Company's Corporate Headquarters or at its plant locations and are attended by the CEO & Managing Director, Executive Directors, CFO, Company Secretary, Chief Internal Auditor, Statutory Auditors and Cost Auditors on a need based basis. The business and operation heads are invited to the meetings, as and when required. The Company Secretary acts as the Secretary of the Audit Committee, as well as all the other Committees of the Company. The Chief Internal Auditor reports directly to the Audit Committee to ensure independence of the Internal Audit function.

The Committee relies on the expertise and knowledge of the management, the internal auditors and the Statutory Auditor, in carrying out its oversight responsibilities. It also uses external expertise, if required. The management is responsible for the preparation, presentation and integrity of the Company's financial statements, including consolidated statements, accounting and financial reporting principles. The management is also responsible for internal control over financial reporting and all procedures are designed to ensure compliance with accounting standards, applicable laws and regulations as well as for objectively reviewing and evaluating the adequacy, effectiveness and quality of the Company's system of internal controls.

Deloitte Haskins & Sells LLP, Mumbai (ICAI Firm Registration No.117366W/W – 100018), the Company's Statutory Auditor, is responsible for performing an independent audit of the Financial Statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in India.

NOMINATION AND REMUNERATION COMMITTEE

The Nomination and Remuneration Committee (NRC) of the Company functions according to its Charter, that defines its objective, composition, meeting requirements, authority and power, responsibilities, reporting and evaluation functions in accordance with Section 178 of the Act and Regulation 19 read with Part D of Schedule II of the SEBI Listing Regulations, which are reviewed from time to time. The broad terms of reference of the NRC are as follows:

  • Recommend to the Board the set up and composition of the Board and its Committees including the "formulation of the criteria for determining qualifications, positive attributes and independence of a director". The Committee periodically reviews the composition of the Board with the objective of achieving an optimum balance of size, skills, independence, knowledge, age, gender and experience.
  • Devise a policy on Board diversity.
  • Recommend to the Board the appointment or reappointment of Directors, including Independent Directors, on the basis of Report on performance evaluation of Independent Directors.
  • Support the Board in matters related to set-up, review and refreshing the composition of the Committees.
  • Recommend to the Board on voting on resolutions for appointment and remuneration of the Directors on the Boards of its material subsidiary companies and provide guidelines for remuneration of Directors on material subsidiaries.
  • Identify and recommend to the Board, appointment of Key Managerial Personnel ("KMP") as defined by the Act and executive team members of the Company (as defined by this Committee). The Committee shall consult the Audit Committee before recommending the appointment of the CFO.
  • Carry out evaluation of every Director's performance and support the Board and Independent Directors in evaluation of the performance of the Board, its Committees and individual Directors, including "formulation of criteria for evaluation of Independent Directors and the Board".
  • Oversee the performance review process for the KMP and executive team of the Company with a view that there is an appropriate cascading of goals and targets across the Company and on an annual basis, recommend to the Board the remuneration payable to the Directors, KMP and executive team of the Company.
  • Recommend the Remuneration Policy for Directors, KMP, executive team and other employees.
  • Review matters related to voluntary retirement and early separation schemes for the Company.
  • Oversee familiarization programmes for Directors.
  • Oversee HR philosophy, HR and people strategy and efficacy of HR practices including those for leadership development, rewards and recognition, talent management and succession planning (specifically for the Board, KMP and executive team).
  • Performing such other duties and responsibilities as may be consistent with the provisions of the Committee Charter.

The Committee comprises of 3 Independent Directors and 1 Non-Executive Director. During the year under review, five meetings of the Committee were held on May 26, 2015, October 15, 2015, December 3, 2015, February 11, 2016 and March 30, 2016. The decisions are taken by the Committee, at meetings or by passing circular resolutions. The composition of the NRC and attendance at its meeting is as follows:

Remuneration Policy

The Company has in place a Remuneration Policy for Directors, KMP and other employees, in accordance with the provisions of the Act and the SEBI Listing Regulations. For details on Remuneration Policy, including the criteria for making payments to the Non-Executive Directors kindly refer to the Annexure to the Board's Report.

Remuneration to Directors:

Non-Executive Directors

  • A sitting fee of Rs. 60,000/- (Rs. 20,000/- prior to May 26, 2015) for attendance at each meeting of the Board, Audit Committee, Executive Committee of the Board, NRC and for annual Independent Directors Meeting; Rs. 20,000/- ( Rs. 5,000/- prior to May 26, 2015) for attendance at each meeting of Stakeholders Relationship Committee and Rs. 20,000/- (Rs. 10,000/- prior to May 26, 2015) for attendance at each meeting of Safety, Health & Environment Committee, the Corporate Social Responsibility Committee, Risk Management Committee, Fund Raising Committee and other special need based committees, is paid to its Members (excluding Managing Director and Executive Directors) and also to Directors attending the meeting. The sitting fees paid/payable to the non Whole-time directors is excluded whilst calculating the limits of remuneration in accordance with Section 197 of the Act. The Company also reimburses out-of-pocket expenses to Directors attending meetings held at a city other than the one in which the Directors resides.

    For details on sitting fees paid to Non-Executive Directors for FY 2015-16 and performance evaluation criteria for Independent Directors, kindly refer to the Board's Report.

  • The remuneration by way of commission to the Non-Executive Directors is decided by the Board of Directors and distributed to them based on their participation and contribution at the Board and certain Committee meetings as well as time spent on matters other than at meetings. The Members had, at the AGM held on August 21, 2013, approved the payment of remuneration by way of commission to the Non Whole-time Directors of the Company, of a sum not exceeding 1% per annum of the net profits of the Company, calculated in accordance with the provisions of the Act for a period of 5 years commencing from April 1, 2013.

    No Commission was paid to any Non-Executive Director for FY 2015-16 in view of inadequacy of profits

Managing and Executive Directors

The remuneration paid to the CEO & Managing Director and the Executive Directors is commensurate with industry standards and Board level positions held in similar sized companies, taking into consideration the individual responsibilities shouldered by them and is in consonance with the terms of appointment approved by the Members, at the time of their appointment.

The NRC, reviews and recommends to the Board the changes in the managerial remuneration of the Managing and Executive Directors on a yearly basis. This review is based on the Balance Score Card that includes the performance of the Company and the individual director on certain defined qualitative and quantitative parameters such as volumes, EBITDA, cashflows, cost reduction initiatives, safety, strategic initiatives and special projects as decided by the Board vis-a-vis targets set in the beginning of the year. This review also takes into consideration the benchmark study undertaken by reputed independent agencies on comparative industry remuneration and practices.

Incentive remuneration paid/payable is subject to the achievement of certain performance criteria and such other parameters as may be considered appropriate from time to time by the Board, not exceeding 200% of the basic salary. An indicative list of factors that the NRC and the Board takes into consideration for determining the extent of incentive remuneration are the Company's performance on certain defined qualitative and quantitative parameters, industry benchmarks of remuneration and performance of the individual.

For details pertaining to Managerial Remuneration paid to the Managing and Executive Directors, the terms of their appointment and the Remuneration paid to the CEO & Managing Director and the Non-Executive Directors during FY 2015-16, kindly refer to the Notice of the AGM and the Board's Report. The Company does not have an Employee Stock Option Scheme.

Members are requested to refer to the Notice of the AGM for revised terms of appointment and remuneration of the Executive Directors for FY 2016-17.

Retirement Policy for Directors

The Company has adopted the Tata Group Governance Guidelines on Board Effectiveness, wherein the Managing and Executive Directors retire at the age of 65 years. The Executive Director, who have been retained on the Company's Board beyond the age of 65 years as Non-Executive Directors for special reasons may continue as Directors at the discretion of the Board but in no case beyond the age of 70 years. The Company has also adopted a Policy for Managing and Executive Directors which has also been approved by the Members of the Company, Offering special retirement benefits including pension, ex-gratia and medical. In addition to the above, the retiring Managing Director (except where he is an expat) is entitled to residential accommodation or compensation in lieu of accommodation on retirement. The quantum and payment of the said benefits are subject to an eligibility criteria of the retiring director and is payable at the discretion of the Board in each individual case on the recommendation of the NRC.

Section 149 of the Act provides that an Independent Director shall hold office for a term of upto 5 consecutive years on the Board of a Company and would not be liable to retire by rotation pursuant to Section 152 of the Act. An Independent Director would be eligible to be re-appointed for another 5 years on passing of a Special Resolution by the Company. However, no Independent Director shall hold office for more than 2 consecutive terms but would be eligible for appointment after the expiration of 3 years of ceasing to become an Independent Director. Provided that, during the said period of 3 years, he/she is not appointed in or be associated with the Company in any other capacity, either directly or indirectly. The retirement age for Independent Directors is 75 years as per the Governance Guidelines on Board Effectiveness. Accordingly, all Independent Directors have a tenure of 5 years each or upon attaining the retirement age of 75 years, whichever is earlier, as approved by the Members at the AGM held on July 31, 2014.