Corporate Governance & Business Ethics — Practice

Question 1

What percentage of average net profit must a qualifying company spend on CSR?

Accepted Answer

At least 2%, of average net profit over the preceding three financial years.

Question 2

Who chaired the SEBI Committee on Corporate Governance (2017)?

Accepted Answer

Uday Kotak.

Question 3

Under Section 135, must a company meet all three financial thresholds to be subject to CSR, or just one?

Accepted Answer

Just one — meeting any one of the three thresholds (net worth, turnover, net profit) triggers applicability.

Question 4

State all three financial thresholds under Section 135 that trigger CSR applicability.

Accepted Answer

Net worth exceeding ₹500 crore, turnover exceeding ₹1,000 crore, or net profit exceeding ₹5 crore, in the immediately preceding financial year.

Question 5

What is the minimum composition requirement for a CSR Committee?

Accepted Answer

At least three directors, of whom at least one must be an independent director.

Question 6

Why do independent directors matter for governance, distinct from other board members?

Accepted Answer

They provide a check on management and controlling-shareholder influence that a purely management-appointed board cannot, since their independence is defined by the absence of material pecuniary or business relationships that could compromise objective judgment.

Question 7

Explain why related-party transactions are considered a recurring governance-risk pattern, and name two Kotak Committee reforms addressing this.

Accepted Answer

A related-party transaction can be priced to transfer value from the listed company (and its minority shareholders) to an entity connected to its own promoters or directors. The Kotak Committee's reforms addressed this through tighter related-party-transaction disclosure requirements and by strengthening independent directors' role in approving such transactions (among its 80 total recommendations, which also covered board evaluation, directorship limits, and secretarial audits).

Question 8

A company mandated to spend ₹10 crore on CSR in a year for an ongoing project spends only ₹6 crore. What must happen to the unspent ₹4 crore?

Accepted Answer

It must be transferred to a separate 'Unspent CSR Account' (since it relates to an ongoing project) and utilised within a prescribed timeframe — it cannot simply be forfeited, retained as general profit, or left to the company's future discretion.

Practice — Corporate Governance & Business Ethics

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