Run two different tests: NRC composition and stakeholder headcount
For a company covered by section 178(1), the Companies Act baseline for the Nomination and Remuneration Committee (NRC) is at least three non-executive directors, with not less than half independent. Separately, section 178(5) uses more than 1,000 specified holders at any time in a financial year to trigger the Stakeholders Relationship Committee (SRC), whose chair must be non-executive. Neither a year-end snapshot nor a count of securities issued is a substitute for the relevant test.
Scope: Companies Act controls after applicability is established
Checked on 24 October 2026 against section 178 in ICSI’s Companies Act text. NRC applicability covers listed public companies and prescribed other classes. This article assumes that applicability has been established; it does not replace the prescribed-class and exemption analysis. Screen special-category notifications and their conditions, including where a section 8, government or specified IFSC company is involved.
For listed entities, separately examine applicable SEBI listing requirements, which can be stricter on composition and other matters. Passing the Companies Act baseline below is not a conclusion that a listed entity meets every SEBI requirement. Likewise, membership arithmetic does not decide quorum, validity of a meeting or a deadline for filling a vacancy.
Translate one-half into a whole-person control
For an ordinary NRC membership set comprising non-executive directors, calculate the minimum independent seats as the ceiling of half the membership. Do not round a fractional seat down. Adding an ordinary non-independent member can change the required independent count. Review the actual position after appointments, resignations and changes in director status.
The proviso specifically allows the company’s chairperson, whether executive or non-executive, to be an NRC member, but bars that person from chairing the NRC. Record this exception explicitly; a simplistic “no executive person can ever be present” rule misses it. The arithmetic examples assume ordinary non-executive memberships and do not use that exception to resolve an unusual composition.
Build SRC evidence across the financial year
Section 178(5) refers to shareholders, debenture-holders, deposit-holders and other security holders. Maintain a category reconciliation and a documented holder-count methodology, including joint holdings or overlapping categories where relevant. The mixed-category illustration below assumes distinct eligible persons; it does not resolve ambiguous identity-counting cases.
Capture changes when allotments, transfers or other holder events occur. A company that crosses the statutory threshold during the year cannot treat a lower closing count as evidence that the earlier crossing never happened. Preserve dated records supporting both the peak and the closing position. The number of shares or debentures each person owns is not itself the number of holders.
Composition should connect to actual committee work
NRC controls should support selection criteria, appointment and removal recommendations, performance-evaluation arrangements and remuneration policy. Assign an owner to policy website publication, where there is a website, and the Board-report disclosures required by the provision. A correct membership list alone does not evidence discharge of these functions.
SRC should maintain a grievance register with receipt, action, escalation and resolution evidence. Section 178 includes a good-faith protection for inability to resolve or consider a grievance; it is not a reason to stop keeping evidence of action. Plan general-meeting attendance by the committee chair or the member authorised by that chair in the specified absence case.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: An odd-number committee cannot round down
An ordinary NRC has three non-executive members, only one independent. One-third is 33.33%; the minimum whole-person count for at least half is ceiling(3 ÷ 2) = 2. Replace or add membership only after testing the resulting composition; merely describing one seat as “approximately half” fails.
Illustrative example 2: Adding a fifth member changes the minimum
An ordinary four-member NRC with two independent directors meets the Act’s half-independence baseline: 2 ÷ 4 = 50%. Adding one non-independent non-executive member gives five members and only 40% independence. The minimum becomes ceiling(5 ÷ 2) = 3 independent members.
Illustrative example 3: A resignation requires a fresh calculation
A five-member ordinary NRC has three independent members. One independent director resigns, leaving four members, two independent: 2 ÷ 4 = 50%, still meeting the stated numerical baseline. Review all other requirements and the vacancy response separately; do not infer either a complete compliance failure or complete compliance merely from the resignation.
Illustrative example 4: Exactly one thousand is different from more than one thousand
Assume no special exemption and a properly determined relevant count of exactly 1,000 holders throughout the year. That figure does not exceed 1,000. At 1,001, the section 178(5) numerical trigger is crossed. The additional one holder can therefore matter.
Illustrative example 5: Reconcile categories before applying the threshold
Assume 900 shareholders, 75 debenture-holders and 30 deposit-holders, all distinct eligible persons with no overlap. Aggregate = 900 + 75 + 30 = 1,005; the numerical trigger is crossed by five. Looking only at the 900 shareholders would miss it.
Illustrative example 6: A lower closing count does not erase the peak
A company’s properly determined relevant count reaches 1,020 during the financial year and falls to 980 at closing. The peak is 20 above the threshold; the closing count is 20 below. The “at any time” test requires recognising the crossing despite the closing reduction.
Illustrative example 7: Security units are not holder headcount
A company has 100 relevant holders, each owning 10,000 securities: total securities = 1,000,000. For this simplified fact pattern, the relevant holder count remains 100, not one million. Retain the holder register and check other relevant holder categories before concluding on SRC applicability.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Determine company category and current NRC applicability | Listed-public or prescribed-class analysis. |
| 2 | Test special notifications and exemption conditions | Applicable notification and eligibility memorandum. |
| 3 | Separate any applicable SEBI overlay | Dated listing-compliance review. |
| 4 | Record director status and committee membership | Board resolutions and independence/status evidence. |
| 5 | Calculate minimum independent seats using whole persons | Membership denominator and ceiling calculation. |
| 6 | Check the company-chairperson proviso and committee chair | Appointment terms and chair designation. |
| 7 | Reconcile relevant SRC holder categories | Category registers and documented counting method. |
| 8 | Monitor threshold crossings throughout the year | Dated holder-event and peak-count report. |
| 9 | Review committee responsibilities and disclosures | Policy, evaluation plan, grievance register and Board report. |
| 10 | Plan attendance and ongoing change controls | General-meeting authorisation and event-based review log. |
Sixteen practitioner FAQs
1. Does every company need an NRC under section 178(1)?
No. Establish the listed-public or prescribed-class coverage and any applicable exemption conditions.
2. Does an Act-compliant NRC automatically satisfy SEBI rules?
No. Complete a separate review of the applicable listing requirements.
3. How many independent members does a three-person ordinary NRC need?
At least two to satisfy the stated whole-person half-independence baseline.
4. Can one and a half independent seats be rounded down?
No. Membership is measured in whole persons, so the minimum is rounded upward.
5. Can adding a member create a shortfall?
Yes. The denominator changes and may increase the independent-seat minimum.
6. Can the company chairperson join the NRC?
The express proviso permits membership whether that person is executive or non-executive, but prohibits that person from chairing the NRC.
7. Is the company chair automatically the NRC chair?
No. That designation would conflict with the stated proviso.
8. Does the composition calculation decide meeting quorum?
No. Check the separate applicable meeting requirements.
9. Does a resignation always cause a numerical breach?
Not necessarily. Recalculate actual membership and independent seats, then check the remaining requirements.
10. Is the SRC numerical threshold at least 1,000?
The stated statutory wording is more than 1,000, making the boundary distinction material.
11. Is the test confined to the closing date?
No. Preserve the position at relevant points during the entire financial year.
12. Can debenture and deposit holders be ignored?
No. Reconcile the holder categories identified by the provision.
13. Can overlapping or joint holdings be counted casually?
No. Adopt a supported counting methodology and retain the identity reconciliation; the examples assume away overlap.
14. Does a million securities mean a million holders?
No. Reconcile people or holder records separately from security units.
15. Who chairs the SRC?
Section 178(5) requires a non-executive director as chairperson; the Board decides the other members under that provision.
16. What evidence should accompany the membership list?
Keep the applicability memo, status evidence, resolutions, policy and evaluation records, grievance actions and required disclosure and attendance controls.
Conclusion
Use event-based membership and holder-count reviews. Retain the applicability and exemption analysis alongside the arithmetic, and escalate listing-rule and special-category requirements independently.