An audit committee is a committee of the board that oversees financial reporting, the auditors and internal controls on behalf of the board. In India, the Companies Act, 2013 and, for listed companies, the SEBI Listing Regulations set a minimum of three directors, with independent directors holding the majority under the Act and two-thirds under SEBI.
Last reviewed: 17 October 2026. Facts checked. We searched for section 177 of the Companies Act and Regulation 18 of the SEBI LODR. We could not open the indiacode.nic.in or Income Tax Department copy of section 177 (both returned an access error), and a fetch of the SEBI master circular on sebi.gov.in timed out. What follows comes from search summaries of secondary compliance sources and SEBI documents quoted in search results, plus one compliance site that reproduced Regulation 18, which we did open. Confirm figures against the current text, especially which unlisted companies are covered.
Where the rules come from
Two sources apply.
- Section 177 of the Companies Act, 2013. It applies to listed public companies, and the Rules extend it to certain other classes of public company. The classes and thresholds are in the Rules, and we have not stated them because we did not open the Rules. Check them for your company.
- Regulation 18 of the SEBI LODR Regulations, 2015. It applies to listed entities and is stricter in some respects.
A listed company must meet both, which in practice means following the stricter requirement on each point.
Composition
| Point | Companies Act, s.177 | SEBI LODR, Reg. 18 |
|---|---|---|
| Minimum members | Three directors | Three directors |
| Independent directors | A majority | Two-thirds of members |
| Financial skills | Majority of members, including the chair, should be able to read and understand financial statements (as reported) | All members financially literate; at least one with accounting or related financial management expertise |
| Chair | Not specified in what we found | An independent director, who attends the AGM to answer shareholder queries |
| Secretary | Not specified in what we found | The company secretary |
Section 8 companies were reported to be exempt from the majority-independent requirement under a 2015 notification. We did not verify this in the notification itself.
How it meets
Regulation 18 requires at least four meetings a year, with no more than 120 days between two meetings. The quorum is the greater of two members or one-third of members, with at least two independent directors present. SEBI has issued relaxations in the past on the gap between meetings, and we have not checked whether any apply now.
The committee may invite the finance head, the head of internal audit and a statutory auditor representative to meetings, and may meet without management present. That last point matters: some of the best conversations happen when only the committee and the auditor are in the room.
What the committee does
The list is long. These are the main areas, from section 177 and Part C of Schedule II of the LODR as described in sources we saw.
- Auditors. Recommends the appointment, remuneration and terms of the statutory auditors, and reviews their independence and performance and the effectiveness of the audit process.
- Financial statements. Reviews the annual and quarterly financial statements and the auditor's report before they go to the board.
- Related-party transactions. Reviews the statement of significant related-party transactions submitted by management. Under the LODR, related-party transactions need prior committee approval, with limits and omnibus approvals set by the rules.
- Use of funds. Reviews with management how money raised through an issue has been used.
- Internal controls and risk. Looks at the adequacy of internal financial controls and risk management systems.
- Internal audit. Reviews the internal audit function, its plan and its findings.
- Whistleblowing. Oversees the vigil mechanism. Employees and directors must have direct access to the committee chair.
- Senior finance appointments. Under Part C, approves the appointment of the chief financial officer.
How it works with internal audit
The committee is the main client of internal audit. Internal audit should present its annual plan for approval, report findings and the status of past recommendations, and be free to speak to the committee without management present. Our article on audit committee questions for internal audit lists what members should ask. For reporting format, see internal audit report format with observations and action taken reports. If you are choosing an internal auditor, read internal auditor appointment under section 138.
What good looks like
- Agenda and papers reach members several days before the meeting.
- Members read the papers and ask questions the minutes record.
- The auditors and head of internal audit meet the committee in private at least sometimes.
- Open findings are tracked until closed, with dates.
- The committee asks about risks, not only about numbers. A risk register helps here.
Common weaknesses
- Meetings that review papers only on the day.
- Independent directors who lack time or financial background.
- Related-party reviews limited to what management chooses to show.
- Internal audit reporting to the CFO instead of the committee, which weakens independence.
- Minutes that record attendance but not the discussion.
Frequently Asked Questions
How many members must an audit committee have?
At least three directors under both the Companies Act and the SEBI LODR. The mix differs: independent directors are a majority under the Act, and two-thirds under SEBI.
Is an audit committee mandatory for every company?
No. Based on what we found, section 177 applies to listed public companies and certain prescribed classes of public company. We did not confirm how it applies to private companies, so check the Rules for your class.
Who chairs the audit committee?
For listed entities, the chair must be an independent director under Regulation 18. The chair attends the AGM to answer shareholder questions.
How often must it meet?
At least four times a year, with no more than 120 days between meetings, under the LODR. Confirm the current position, since SEBI has granted temporary relaxations before.
Does the audit committee appoint the auditors?
It recommends the appointment, remuneration and terms. The appointment itself follows the Companies Act process involving the board and shareholders.
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Statutory facts on this page are checked against their sources, and the page says where it relied on secondary reporting. How we verify · Report an error