ANSWER TO QUESTION NO 1:

“Corporate Governance may be defined as a set of systems, processes and principles which ensure
that a company is governed in the best interest of all stakeholders. It is the system by which
companies are directed and controlled. It is about promoting corporate fairness, transparency and
accountability. In other words, ‘good corporate governance’ is simply ‘good business’.

Report of SEBI committee 2000 (India) on Corporate Governance defines corporate governance as
“the acceptance by management of the inalienable rights of shareholders as the true owners of the
corporation and of their own role as trustees on behalf of the shareholders. It is about commitment
to values, about ethical business conduct and about making a distinction between personal &
corporate funds in the management of a company.”

Although corporate governance has been discussed a lot across the globe, there are considerable
variations in the conceptual definition. There is no single model of corporate governance best
applicable to all countries because of the differences in the business environmental factors, such the
legal system, characteristics of the corporate sector, political system and government, social norms
and cultural factors, etc.

In narrow sense, corporate governance involves a set of relationships amongst the company’s
management, its board of directors, its shareholders, its auditors and other stakeholders. These
relationships, which involve various rules and incentives, provide the structure through which the
objectives of the company are set, and the means of attaining these objectives as well as monitoring
performance are determined.

In a broader sense, however, good corporate governance- the extent to which companies is run in
an open and honest manner- is important for overall market confidence, the efficiency of capital
allocation, the growth and development of countries’ industrial bases, and ultimately the nations’
overall wealth and welfare.

In both the narrow as well as in the broad definitions, the concepts of disclosure and transparency
occupy centre-stage. In the first instance, they create trust at the firm level among the suppliers of
finance. In the second instance, they create overall confidence at the aggregate economy level. In
both cases, they result in efficient allocation of capital.

According to the minimal definition purported by the first CII Task Force (1998), corporate
governance deals with laws, procedures, practices and implicit rules that determine a company’s
ability to take managerial decisions vis-a-vis its claimants – in particular, its shareholders, creditors,
customers, the State and employees.

The well-known Cadbury Committee characterised “corporate governance” in its report (Financial
Aspects of Corporate Governance, distributed in 1992) as “the framework by which organisations
are coordinated and controlled”. In accordance with the Cadbury Council, the Kumar Mangalam
Birla Committee additionally issued a code of corporate administration for organisations in India.

A simple definition, but very broad in its implications, which is often quoted, is provided by the
Cadbury Report 1992 (UK) – “Corporate governance is the system by which businesses are directed
and controlled.”

The Cadbury Report has elaborated that “corporate governance is concerned with holding the
balance between economic and social goals and between individual and communal goals. The
governance framework is there to encourage the efficient use of resources and equally to require
accountability for the stewardship of those resources. The aim is to align as nearly as possible
the interests of individuals, of corporations and of society.”.”

The second CII Task Force on Corporate Governance, under the chairmanship of Naresh Chandra
(2009) observes – Good corporate governance involves a commitment of a company to run its
businesses in a legal, ethical and transparent manner – a dedication that must come from the very
top and permeate throughout the organisation..

According to the OECD Principles of Corporate Governance, corporate governance involves a set
of relationships between a company’s management, its board, its shareholders and other
stakeholders. Corporate governance also provides the structure through which the objectives of the
company are set, and the means of attaining those objectives and monitoring performance are
determined.

The N. R. Narayana Murthy Committee on Corporate Governance, appointed by SEBI, seems to

confer with the OECD view when it observes that corporate governance is the acceptance by
management of the inalienable rights of shareholders as the true owners of the corporation and of
their own role as trustees on behalf of the shareholders. It is about commitment to values, about
ethical business conduct and about making a distinction between personal and corporate funds in
the management of a company.

Corporate governance ensures:

1. Adequate disclosures and effective decision-making to achieve corporate objectives,

2. Transparency in business transactions,

3. Statutory and legal compliances,

4. Protection of shareholder interests,

5. Commitment to values and ethical conduct of business.”

THE NEED FOR CORPORATE GOVERNANCE IS HIGHLIGHTED BY THE FOLLOWING

FACTORS:

(i) Wide Spread of Shareholders:

(ii) Changing Ownership Structure.

(iii) Corporate Scams or Scandals.

(iv) Greater Expectations of Society of the Corporate Sector.

(v) Hostile Take-Overs.

(vi) Huge Increase in Top Management Compensation.

(vii) Globalisation.

CORPORATE GOVERNANCE IN INDIA

Concept of corporate Governance in India is not very old. For the first time, the CII had set up a
task force under Rahul Bajaj in 1995. On the basis of this CII had released a voluntary code called
“Desirable Corporate Governance” in 1998. SEBI had also established few committees towards
corporate governance of which the notable are Kumarmanlagam Birla report (2000), Naresh
Chandra Committee (2002) and Narayana Murthy Committee (2002). While Kumarmangalam Birla
committee came up with mandatory and non-mandatory requirements, Naresh Chandra
committee extensively covered the statuary auditor-company relationship, rotation of statutory audit
firms/partners, procedure for appointment of auditors and determination of audit fees, true and fair
statement of financial affairs of companies. Further, Narayan Murthy Committee focused on
responsibilities of audit committee, quality of financial disclosure, requiring boards to assess and
disclose business risks in the company’s annual reports.

PRINCIPLES OF CORPORATE GOVERNANCE:

(i) Transparency:

Transparency means the quality of something which enables one to understand the truth easily. In
the context of corporate governance, it implies an accurate, adequate and timely disclosure of
relevant information about the operating results etc. of the corporate enterprise to the stakeholders.

In fact, transparency is the foundation of corporate governance; which helps to develop a high level
of public confidence in the corporate sector. For ensuring transparency in corporate administration,
a company should publish relevant information about corporate affairs in leading newspapers, e.g.,
on a quarterly or half yearly or annual basis.

(ii) Accountability:

Accountability is a liability to explain the results of one’s decisions taken in the interest of others. In
the context of corporate governance, accountability implies the responsibility of the Chairman, the
Board of Directors and the chief executive for the use of company’s resources (over which they
have authority) in the best interest of company and its stakeholders.

(iii) Independence:

Good corporate governance requires independence on the part of the top management of the
corporation i.e. the Board of Directors must be strong non-partisan body; so that it can take all
corporate decisions based on business prudence. Without the top management of the company being
independent; good corporate governance is only a mere dream.

LEGAL FRAMEWORK OF CORPORATE GOVERNANCE IN INDIA:

 Clause 49 of SEBI Listing Agreement

As a major step towards codifying the corporate governance norms, SEBI enshrined the Clause
49 in the Equity Listing Agreement (2000), which now serves as a standard of corporate governance
in India. With clause 49 was born the requirement that half the directors on a listed company’s
board must be Independent Directors. In the same clause, the SEBI had put forward the
responsibilities of the Audit Committee, which was to have a majority Independent Directors.
  Companies Act 2013

Despite of all the mandatory and non-mandatory requirements as per Clause 49, India was still not
in a position to project itself having highest standards of corporate governance. Taking forward, the
Companies Law 2013 also came up with a dedicated chapter on Corporate Governance. Under this
law, various provisions were made under at least 11 heads viz. Composition of the Board, Woman
Director, Independent Directors, Directors Training and Evaluation, Audit Committee, Nomination
and Remuneration Committee, Subsidiary Companies, Internal Audit, SFIO, Risk Management
Committee and Compliance to provide a rock-solid framework around Corporate Governance.

 ED,NED and ID

1. OPC Minimum One Director Maximum 15

2. PVT Co. Minimum Two Directors Max. 15
3. PUB. Co. Minimum Three Director Max. 15
4. Company can appoint any number of Directors with special resolution.

It is pertinent to mention here Director and Independent Director. According to Sec.2 (34) of the
Companies Act 2013 a Directors means a Director appointed to the Board of Company. Sec.149 (6)
refers to Independent Director is Director other than Managing Director, Whole time Director or
Nominee Director.

There are two kinds of directors in the companies’ viz. Executive Directors (ED) and Non-
executive Directors (NED). The Non-Executive Directors are divided into two categories viz.
Independent Directors (ID) and others. Thus, every listed company has Executive Directors, Non-
Executive Directors and Independent Directors on its board.

 Rationale behind Independent Directors

The Independent directors are primarily meant to oversee the functioning of the board and ensure
that the decisions it makes do not hurt the interests of minority shareholders. The current norms
demand that the two third members of the Audit Committee and the Chairman should also be
Independent.

An independent director can server in the same capacity in maximum seven companies. Further, if a
person is whole-time director, he cannot be an independent director in more than three listed firms.
An Independent Director who has already served on a company’s board for 5 years can serve only
one more term of 5 years. Companies are now required to disseminate Independent Director’s
resignation letter to Stock Exchanges & on company website.

 Women Directors

The Companies Act 2013 provides that every listed company has to appoint at least one woman
director. Appointment of women directors was hitherto voluntary but making it mandatory in
Companies Act would draw have more talented woman on the boards of their companies.

 Related Party Transactions (RPTs)

To enhance the transparency, there are rules regarding RPTs (Relative Party Transactions). These
rules make sure that in all material dealings by company promoters, business decisions are not
against the interests of small and minority shareholders.

 Top Level remuneration

To check the tendency of fixing unreasonably high compensations for promoters and top-level
executives, the new norms have mandatory constitution of a nomination and remuneration
committee with an independent chairman..

 Audit Committee and whistleblower mechanism

There are rules and norms which expand the role of audit committee in listed firms and direct them
to adopt a compulsory whistleblower mechanism to curb unfair business practices and protect the
interest of minority stakeholders.

 Social Responsibility for Companies:

It is stipulated in the new companies act that companies will have to spend 2% their average net
profit during three years on corporate social responsibility (CSR) activities in the local areas of their
operations.

 Employees Protection in Failed Companies:

If a company winds up its operations, it must pay two years’ salary to its employees. Rights of
employees will supersede even those of even secured creditors.

 Transparency in Managerial Remuneration:

Listed companies will have to disclose ratio of each director’s remuneration to median salary.
Besides, a director’s remuneration should not exceed five per cent of a company’s net profit.

LANDMARK CASES OF FAILURE OF CORPORATE GOVERNANCE

 Satyam Case

Satyam Computer Services scandal was a corporate scandal affecting India-based company Satyam
Computer Services in 2009, in which Chairman Ramalinga Raju admitted that the company’s
accounts had been manipulated. The Satyam scandal was a Rs 7000 crore corporate scandal in
which accounts had been manipulated. On 7-1-2009, Ramalinga Raju sent an e-mail to SEBI,
wherein he confessed to falsify the cash and bank balances of the company. Weeks before the scam
began to unravel with his popular statement that he was riding a tiger and did not know how to get
down without being killed. Raju had said in an interview that Satyam, the fourth largest IT
company, had a cash balance of Rs 4000 crore and could leverage it further to raise another Rs
15,000-20,000 crore.

Ramalinga Raju was convicted with 10 other members on 9-4-2015. Ramalinga Raju and three
others were given six months jail term by Serious Fraud Investigation Office (SFIO) on 8-12-
2014[6]. Even auditors Price Waterhouse Coopers (PWC) had to face a hard time.

 Ricoh Case

The saga at Ricoh India demonstrates that the radiance of good governance that is automatically
ascribed to MNCs is not ensured the result. In spite of administrative interference after the Satyam
scam and legislative amendments to tighten the governance framework [Companies Act, 2013,
SEBI (Listing Obligations and Disclosure Requirements) Regulations, etc.] the Ricoh scene was
almost a replica of the Satyam episode in terms of accounting fraud and resultant fraud of stock
prices interestingly without any promoter being in the saddle. Just a few corrupt managers were
sufficient to obliterate the system with the usual failure of the main regulating institutions such as
the auditors, credit rating agencies, independent directors of repute, committees of directors
including the powerful audit committees manned by independent directors, etc.

 ICICI Bank Scam Case

It was the role of the Board in hurriedly giving a clean chit to its CEO without the results of an
independent investigation released in the public domain in an apparent case of alleged nepotism,
and its refusal to take any questions on the matter.

 Kingfisher Airlines and United Spirits Case

Mainly regarding illegal internal corporate funding to parties, falsifying accounts. It was entirely
evident that assets had been transferred from United Spirits Ltd. (USL) to subsidise Kingfisher, that
United Breweries (UB) Holdings was utilised as a channel for raising loans and giving them to his
group, that intercorporate credits were given to related groups without the Board’s approval,
accounts were inappropriately expressed, reviews were stage overseen, etc. during the period Mr
Vijay Mallya was responsible for USL.

Conclusion:

The Companies Act, 2013 empowers independent directors with proper checks and balances so that
such extensive powers are not exercised in an unauthorized manner but in a rational and
accountable way. The changes are a step forward in the right direction to smoothly run the
management and affairs of the companies in the interest of stakeholders. These are all welcome
changes in the globalised corporate world of today and they will strengthen the core corporate
machinery by instilling strong corporate governance norms in a company leading to economic
efficiency and higher ethical standards which will always inspire the company’s management to
work in the direction to uphold its goals of maximization of wealth of stakeholders backed with
good corporate repute.
ANSWER NO 2:

Corporate social responsibility (CSR) refers to strategies that companies put into action as part of
corporate governance that are designed to ensure the company’s operations are ethical and
beneficial for society. It is the commitment of business to contribute to sustainable economic
development, working with employees, their families, the local community and society at large to
improve their quality of life. Corporate Social Responsibility (CSR) is a concept that organizations,
especially (but not only) corporations, have an obligation to consider the interests of customers,
employees, shareholders, communities, and ecological considerations in all aspects of their
operations. It characterizes the need for organisations to consider the good of the wider
communities, local and global, within which they exist in terms of the economic, legal, ethical and
philanthropic impact of their way of conducting business and the activities they undertake. 

Corporate Social Responsibility (CSR) can be defined as a Company’s sense of responsibility

towards the community and environment (both ecological and social) in which it operates.
Companies can fulfill this responsibility through waste and pollution reduction processes, by
contributing educational and social programs, by being environmentally friendly and by
undertaking activities of similar nature. Generally it is is the commitment of business to contribute
to sustainable economic development, working with employees, their families, the local community
and society at large to improve their quality of life CSR for an organization means achieving long
term growth and profitability while reducing their environmental footprint and meeting the needs of
employees and the communities in which the organization operate.

CSR is not charity or mere donations. CSR is a way of conducting business, by which corporate
entities visibly contribute to the social good. Socially responsible companies do not limit
themselves to using resources to engage in activities that increase only their profits. They use CSR
to integrate economic, environmental and social objectives with the company’s operations and
growth. CSR is said to increase reputation of a company’s brand among its customers and society.

HISTORICAL PERSPECTIVE OF CSR:

The concept of CSR dates back to Mauryan history, where philosophers like Kautilya emphasized
on ethical practices and principles while conducting business. Phases of CRS in India:

The first phase:- Charity and philanthropy, 19th century such as Tata, Birla, Godrej, etc.

The second phase:- During the independence movement, Mahatma Gandhi introduced th nation of
“trusteeship” socio-economic development.

The third phase: - Elements of “mixed economy “emergence of public sector undertakings (PSUs)
Labour and Environment standards.

The fourth phase: - In the 1990’s the first initiation towards globalization and economic
liberalization were undertaken. Emerging concept of CSR goes beyond charity and requires the
company to act beyond its legal obligations and to integrated social, environmental and ethical
concerns in to company’s business process. The Modern CSR is a shift from ‘Profit maximization
to profit optimization and from shareholders perspective to stakeholders perspective. The concept of
CSR rests on the ideology of give and take. The companies take resources in the form of Raw
material and Human resources from the society, by performing the task of CSR activities, the
companies are giving something back to the society.

CSR RESPONSIBILITIES

It fall into four groups: (i) Economic Responsibility (ii) Legal Responsibility (iii) Ethical
Responsibility (iv)Philanthropic Responsibility

 Ethical Responsibility

Ethical responsibility is about looking after the welfare of the employees by ensuring fair labor
practices for the employees and also the employees of their suppliers. Ensuring fair labor practices
for employees means that there will be no gender, race, or religious discrimination among the
employees and each employee will be given equal pay for equal work and better living wage
compensation.

Here, a good example can be Google. Google employees have high levels of job satisfaction
because they are well compensated and well paid at work. The work environment at Google is
supportive and the company looks after the well being of its employees. Google offers free meals at
work which saves a lot of money from their wages. Google gives its employees free access to
campus cafes, micro kitchens, and other options for breakfast, lunch, and dinner.

 Philanthropic Responsibility:
Philanthropic responsibility means to serve humanity. This criterion pays attention to the well being
of the unprivileged or needy people who badly require our support to sustain on this planet.
Companies fulfill their philanthropic responsibility by donating their time, money, or resources to
charities and organizations at national or international levelsNo other business tycoon has fulfilled
the philanthropic responsibilities better than Bill Gates.  Bill Gates has donated billions of dollars to
the Bill and Melinda Gates Foundation, which supports numerous causes including education, the
eradication of malaria and agricultural developments, etc.

 Environmental Responsibility:

Currently, we need to focus on two main areas of our environment: limiting pollution and reducing
greenhouse gases. Companies are bound to fulfill their economic responsibility because awareness
of environmental issues is growing largely among the consumers and today they want businesses to
take necessary steps to save our planet and preserve all the lives in it..

An example of environmental responsibility is Tesla Motors that designs cars combining style,
acceleration and handling with advanced technologies in order to make it more environmentally
friendly and reduce pollutions. Tesla cars do not need gasoline refueling and it can be charged at
home.

 Economic Responsibility:

Economic responsibility is an interconnected field that focuses to strike a balance between business,
environmental, and philanthropic practices. Economic responsibility abides by, the set standards of
ethical and moral regulations. The economic decisions are made by considering their overall effects
on society and businesses at the same time. Hence, economic responsibility can improve business
operations while engaging in sustainable practices.

CSR UNDER COMPANY LAW PROVISIONS:

The Companies Act, 2013 has formulated Section 135, Companies (Corporate Social

Responsibility) Rules, 2014 and Schedule VII which prescribes mandatory provisions for
Companies to fulfil their CSR. 

According to Section 135 (1):

On every Company including its holding or subsidiary having:

 Net worth of Rs. 500 Crore or more, or

 Turnover of Rs. 1000 crore or more, or
  Net Profit of Rs. 5 crore or more during the immediately preceding financial year

A foreign company having its branch office or project office in India, which fulfills the criteria
specified above. However, if a company ceases to meet the above criteria for 3 consecutive
financial years then it is not required to comply with CSR Provisions till such time it meets
the specified criteria. Section 135 (2) The Board's report under sub-section (3) of section 134 shall
disclose the composition of the Corporate Social Responsibility Committee.

The Ministry of Corporate Affairs notified sec.135 and Schedule VII of the Act as well as the
provisions of Companies (CSR Policy) Rules, 2014 which came in to effect from 1st April, 2014.
The provisions of CSR are not only applicable to Indian Companies but also applicable to branch
and project offices of a foreign company in India.

Definition of the term CSR has been defined under the CSR Rules which included but not limited
to:-

 Projects or programs relating to activities specified in the schedule or

 Projects or programs relating to activities undertaken by the board in pursuance of
recommendations of the CSR committee as per the declared CSR Policy subjects
enumerated in the Schedule.
 Flexibility is also permitted to the companies by allowing than to choose their preferred
CSR engagements that are in conformity with the CSR Policy.

CSR COMMITTEE: 

Every Company on which CSR is applicable is required to constitute a CSR Committee of the
Board. Consisting of 3 or more directors, out of which at least one director shall be an independent
director. However, if a company is not required to appoint an independent director, then it shall
have in 2 or more directors in the Committee. Consisting of 2 directors in case of a private company
having only two directors on its Board.Consisting of at least 2 persons in case of a foreign Company
of which one person shall be its authorised person resident in India and another nominated by the
foreign company

FUNCTIONS OF CSR COMMITTEE:

The CSR Committee shall—

  Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to
be undertaken by the Company
 Recommend the amount of expenditure to be incurred on the activities.
 Monitor the CSR Policy of the company from time to time
 Institute a transparent monitoring mechanism for implementation of the CSR projects or
programs or activities undertaken by the company.

Responsibility of Board of Directors (BoD):  

The BoD of every company on which CSR is applicable shall:

 after considering the recommendations made by the CSR Committee, approve the CSR
Policy for the Company and disclose contents of such Policy in Board report.
 ensure that the activities as are included in CSR Policy of the company are undertaken by
the Company.
 shall disclose the composition of the CSR Committee in Board Report
 ensure that the company spends, in every financial year, at least 2% of the average net
profits of the company made during the 3 immediately preceding financial years, in
pursuance of its CSR Policy. The CSR projects/programs/activities undertaken in India only
shall amount to CSR Expenditure.

CSR ACTIVITIES 

The CSR activities shall be undertaken by the company, as per its CSR Policy, excluding activities
undertaken in pursuance of its normal course of business.

CSR activities covered under Schedule VII of Companies Act 2013. MCA notification dated
27th February, 2014 has come up with the Schedule VII for CSR activities to be included in CSR
Policy.

 Eradicating hunger, poverty etc.

 Promoting education

 Promoting gender equality

 Ensuring environment sustainability

 Protection of National heritage, art and culture

 Measures for the benefit of armed forces

 Training to promote rural, nation and international sports

 Contribution to the Prime Minister National Relief Fund

 Contributions or funds provided to technology incubators located within academic institutions

which are approved by the Central Government

 Rural Development Projects

 Slum area development

 Contributions/Donations from Companies towards “Swachh Bharat Abhiyan” and

 Clean Ganga Mission.

Apart from above activities, the Government of India can include any activity, the companies
can take the above activities as guidelines, but they can modify the activities for the benefit of
the society at large.

Section 135(5) The Board of every company referred to in sub-section (1), shall ensure that the
company spends, in every financial year, at least two per cent. of the average net profits of the
company made during the three immediately preceding financial years, in pursuance of its
Corporate Social Responsibility Policy: Provided that the company shall give preference to the local
area and areas around it where it operates, for spending the amount earmarked for Corporate Social
Responsibility activities: Provided further that if the company fails to spend such amount, the Board
shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for
not spending the amount.

In the recent case of Technicolor India (P.) Ltd. v. Registrar Of Companies the Company met the
net profit criteria, U/ s 135 of the Companies Act, 2013, and had a CSR committee but it spent some
amount as per the CSR Policy of the Company during the fiscal year 2017-18, which remain below
the threshold mentioned in Section 135 (5) of the Act for which a reason was duly provided by the
company in its Director’s Report. However it was found that the amount spent on the CSR and
associated detail is incorrectly captured in the Director’s report hence the company forwarded an
application to NCLT Bangalore. The tribunal allowed the application of the company to revise its
report giving liberty to the company to file for compounding under section 441 of the Act.
Some recent instances of CSR schemes launched by Giant Companies in India during period of
Covid-19: -

ITC Ltd- ITC Ltd sets up a covid-19 Contingency fund of Rs 150 crore to provide financial
assistance to the district and rural health cares for the poor Indian citizens.
State Bank of India- SBI employees provide Rs 100 crore to PM CARES Fund. SBI also announced
to provide 0.25% of its net profit of financial year 2019-20 to combat against covid-19.

TCS- It prioritizes itself in providing covid-19 patient trackers, health kits, ventilators for the poor
persons. TCS iON Digital Class room software empowers students for online learning facilities.
Reliance Industries Ltd- RIL provides the first 100 bed covid-19 hospital, 50 lakh free meals, one
lakh masks, free fuel for emergency vehicles, daily wise 1000 PPE for health care workers. It also
provides Rs 500 crores to PM CARES fund.