Companies Act 2013 Section 177: Audit Committee (2026)

Explainer · Company Law · Companies Act 2013

Updated for 2026 · Claw Editorial

Section 177 of the Companies Act, 2013 is the law that makes certain companies set up an Audit Committee, a small group of directors that keeps watch over the accounts, the auditor and the internal checks. The same section also requires a vigil mechanism, a safe channel for directors and employees to report wrongdoing without fear. Together they are the backbone of financial governance inside a company board. This explainer sets out which companies must comply, how the committee is built, what it does, and how the vigil mechanism works. Last verified October 2026.

01The short answer

Section 177 of the Companies Act, 2013 is titled "Audit Committee". It requires the Board of every listed public company, and of certain other prescribed companies, to form an Audit Committee of directors. The committee oversees the financial reporting, recommends the appointment and pay of auditors, reviews related party transactions, and keeps an eye on internal controls.

The same section, in sub sections (9) and (10), requires these companies to set up a vigil mechanism so that directors and employees can report genuine concerns, with protection against victimisation. Section 177 is a governance provision, not an offence.

02Who must have an Audit Committee

The Audit Committee requirement applies to:

• every listed public company; and
• other public companies that cross thresholds set by the rules, broadly those with paid up share capital of Rs. 10 crore or more, turnover of Rs. 100 crore or more, or aggregate outstanding loans, debentures and deposits of more than Rs. 50 crore.

Listed companies are also governed by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regulation 18, which runs alongside Section 177 and in places is stricter.

03How the committee is made up

Section 177(2) sets the make up of the committee.

The idea is that the people reviewing the accounts should be independent of the management they are reviewing, and should understand the numbers in front of them. To understand who counts as an independent director, see Section 149 on board composition and independent directors.

04What the Audit Committee does

The committee has a defined set of jobs under Section 177(4). In plain terms it:

• recommends who should be appointed as auditor and what the auditor is paid;
• reviews and examines the financial statements and the auditor's report;
• approves or modifies related party transactions, which links to Section 188 on related party transactions;
• scrutinises inter corporate loans and investments, which links to Section 186;
• evaluates internal financial controls and the risk management system; and
• monitors the use of funds raised through public offers.

If the Board does not accept a recommendation of the committee, Section 177(8) says the Board must record the reasons in its report. This keeps the committee's views on record.

05The vigil mechanism

Section 177(9) requires listed companies, and other prescribed classes such as companies that accept deposits from the public or have borrowed more than Rs. 50 crore from banks or financial institutions, to set up a vigil mechanism. This is a whistle blower channel for directors and employees to report genuine concerns about fraud, mismanagement or unethical behaviour.

Where a company has no Audit Committee, the Board itself must set up the vigil mechanism and name a director to oversee it.

06Why it matters

Section 177 is central to corporate governance. A weak or captured Audit Committee is a common thread in corporate frauds and failures, which is why regulators, investors and courts look closely at whether the committee was properly formed and whether it did its job. A breach can lead to action by the Registrar, the SEBI for listed firms, or the NCLT, and it often features in oppression and mismanagement disputes under Sections 241 and 242.

For a company secretary, Section 177 is a recurring compliance duty: the right composition, minutes of meetings, and disclosure in the Board's report. For an investor or investigator, the committee's composition and conduct are part of company due diligence.

07Where Claw fits

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

Audit Committee and vigil mechanism failures surface in regulatory orders, SEBI proceedings, NCLT petitions and court judgments, often alongside claims of fraud or mismanagement. Claw lets you search more than 30 crore judgments, with Supreme Court decisions from 1950 and High Court decisions from 1990, to see how courts and tribunals have read the duties under Section 177, with results in under 5 seconds. You can also track a live matter, with its orders and hearings, by company or party name across 9,102 courts, benches and forums. Claw does not use the documents you upload to train its AI models.

Create a FREE Claw account to track any Section 177 or governance matter by party name and follow every hearing, and use case search across Indian courts to find how courts have applied the audit committee rules.

08Sources and further reading

• India Code (Companies Act, 2013, bare text): indiacode.nic.in
• Ministry of Corporate Affairs (Board and its Powers Rules): mca.gov.in
• PRS Legislative Research (Companies Act background): prsindia.org
• Claw: clawlaw.in

This explainer is general information, not legal advice. Thresholds and procedure under Section 177 and the Rules, and the SEBI listing rules, can change, so check the current text and take advice from a company secretary or counsel before you act.

09Frequently asked questions