Corporate Governance and Social Responsibility and Sustainability: formula sheet

Key formulas

Core principles

Transparency + Accountability + Fairness + Responsibility (+ Independence)

Name the principle and link it to the facts in the question.

Agency problem

Ownership (shareholders) ≠ Control (managers)

This separation is the root of agency theory and the need for governance.

Nomination and Remuneration Committee (section 178(1))

At least 3 non-executive directors; not less than one-half independent

Applies to every listed public company and other prescribed classes. The chairperson of the company may be a member but cannot chair the committee.

Stakeholders Relationship Committee (section 178(5))

Required where security holders exceed 1,000 at any time in a financial year; chairperson must be a non-executive director

It considers and resolves grievances of security holders (section 178(6)).

Penalty for contravention of section 178 (section 178(8))

Company: fine of ₹1,00,000 to ₹5,00,000; each officer in default: penalty as stated in the section

Inability to resolve a grievance in good faith is not a contravention.

Who must constitute the Audit Committee (s.177(1))

Every listed public company + other prescribed classes

Board constitutes it. The Act's wording is 'every listed public company', not every listed company.

Audit Committee composition (s.177(2))

Minimum 3 directors; independent directors form a majority

The majority of members, including the Chairperson, must be able to read and understand financial statements.

Nomination and Remuneration Committee composition (s.178(1))

3 or more non-executive directors; not less than one-half independent

The company chairperson may be a member but cannot chair this committee.

Stakeholders Relationship Committee (s.178(5))

Required where security holders exceed 1,000 at any time in the financial year; chairperson must be a non-executive director

Security holders include shareholders, debenture-holders, deposit-holders and others. Other members are decided by the Board.

Chairperson at general meetings (s.178(7))

Committee chairperson (or authorised member) attends general meetings

Applies to the chairperson of each committee under section 178.

Penalty for contravention of ss.177 and 178 (s.178(8))

Company: fine ₹1,00,000 to ₹5,00,000; officer in default: penalty as stated in the section

Good-faith inability to resolve or consider a grievance is not a contravention.

Director candidature deposit (s.160)

Notice at least 14 days before the meeting + deposit ₹1,00,000 (or higher prescribed amount)

Refunded if elected or if more than 25% of total valid votes are secured. No deposit for an independent director, or one recommended by the NRC or Board.

Applicability test

Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore (in the immediately preceding financial year)

Any one condition is enough. These are alternatives, not cumulative.

Minimum CSR spend

CSR spend ≥ 2% × average net profit of the three immediately preceding financial years

If the company is under three financial years old, use the immediately preceding years it has. Net profit is computed under section 198.

CSR Committee composition

3 or more directors, including at least 1 independent director

Where no independent director is required under section 149(4), 2 or more directors are enough.

Committee exemption

If CSR amount ≤ ₹50 lakh, no committee is needed; the Board performs its functions

The CSR obligation itself still remains.

Thresholds for CSR applicability

Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore (immediately preceding financial year)

Any one condition is enough. Section 135(1).

Committee composition

At least 3 directors, including at least 1 independent director

If no independent director is required under Section 149(4): 2 or more directors.

Committee functions

Formulate and recommend Policy + recommend expenditure + monitor Policy

Section 135(3). The Committee recommends; it does not approve.

Board duties

Approve Policy + disclose it in the report and on the website + ensure activities are undertaken

Section 135(4).

Minimum CSR spend

CSR spend ≥ 2% × average net profit of the 3 immediately preceding financial years

Net profit is calculated under Section 198, excluding prescribed sums. For a company not yet three years old, use the immediately preceding years available.

Committee not required

Amount to be spent ≤ ₹50 lakh → Board performs the Committee's functions

Section 135(9).

Penalty for default (sub-sections 5 and 6)

Company: lower of 2 × amount to be transferred or ₹1 crore. Officer in default: lower of 1/10 of that amount or ₹2 lakh

Section 135(7).

Applicability test (Section 135(1))

Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore in the immediately preceding financial year

Any one condition is enough. It is tested on the immediately preceding financial year.

Minimum CSR spend (Section 135(5))

CSR spend ≥ 2% × (Net profit Year 1 + Year 2 + Year 3) ÷ 3

Use the three immediately preceding financial years. Net profit is computed under Section 198. If the company is under three years old, use the years since incorporation.

Unspent amount, non-ongoing project

Transfer to a Schedule VII Fund within 6 months of the end of the financial year

Board must also give reasons in its report under Section 134(3)(o).

Unspent amount, ongoing project (Section 135(6))

Transfer to Unspent CSR Account within 30 days of year end; spend within 3 financial years from transfer; else transfer to Schedule VII Fund within 30 days of completing the third year

The project must meet the prescribed conditions to qualify as ongoing.

Set-off of excess spend

Excess spend may be set off against requirement of succeeding financial years

The number of years and manner are as prescribed. Do not quote a number of years unless the question gives it.

Penalty (Section 135(7))

Company: lower of 2 × amount not transferred or ₹1 crore. Officer in default: lower of 1/10 of that amount or ₹2 lakh

Applies to default under sub-section (5) or (6).

CSR Committee relaxation (Section 135(9))

If amount to be spent ≤ ₹50 lakh, no CSR Committee is needed; the Board discharges its functions

Not a relaxation from spending, only from forming the Committee.

Impact assessment trigger (company level)

Average CSR obligation of the 3 immediately preceding financial years ≥ ₹10 crore

Test is on the obligation, not on actual spend. Use a simple average of three years.

Impact assessment trigger (project level)

Project outlay ≥ ₹1 crore AND completed at least 1 year before

Both conditions must hold. A project still running or under a year old is not covered.

Cost of impact assessment that can be booked as CSR

Cap rule: up to the lower of 5% of total CSR expenditure for the year or ₹50 lakh

Take 5% of the year's total CSR spend, compare with ₹50 lakh, and use the lower figure as the cap.

Administrative overheads

Administrative overheads ≤ 5% of total CSR expenditure for the financial year

Applies to the company's own overheads on CSR.

Agency registration

Form CSR-1 filed electronically with the Registrar → unique CSR Registration Number

Filed by the implementing entity, not by the company.

Unspent amount, ongoing projects

Transfer to Unspent CSR Account within 30 days of financial year end; spend within 3 financial years

If still unspent after that, transfer to a Fund under Schedule VII. Other unspent amounts go to such a Fund within six months of year end.

Triple bottom line

TBL = People + Planet + Profit

A reporting idea, not a numerical formula. Each pillar is measured and reported separately.

ESG pillars

ESG = Environmental + Social + Governance

Used by investors to assess long-term risk and quality of management.

BRSR structure

Section A (General) + Section B (Management and process) + Section C (Principle-wise performance)

Section C is based on the nine principles of the NGRBC. Indicators are essential or leadership.

CSR vs sustainability

CSR = a legal spending duty under the Companies Act, 2013; Sustainability = the whole-business approach

CSR applies only to companies meeting the prescribed thresholds. Sustainability reporting is broader.

NFRA power on misconduct (Section 132(4)(c)(A)(I))

Penalty on individuals: not less than ₹1,00,000, up to five times the fees received

For firms the minimum is ₹5,00,000 and the maximum ten times the fees received. Debarment is for at least six months and up to ten years.

Quick revision

• Section 135(1) applies if net worth is ₹500 crore or more, turnover is ₹1,000 crore or more, or net profit is ₹5 crore or more in the immediately preceding financial year.
• The CSR Committee has three or more directors, with at least one independent director.
• If a company need not appoint an independent director under Section 149(4), its CSR Committee needs two or more directors.
• The Board's report must disclose the composition of the CSR Committee.
• The Committee recommends the CSR Policy and the spend amount, and monitors the policy; the Board approves the policy and ensures activities are undertaken.
• Minimum spend is 2% of the average net profits of the three immediately preceding financial years, with net profit worked out under Section 198.
• Preference goes to the local area and areas around where the company operates.
• Excess spend can be set off against the requirement of succeeding years, in the manner prescribed.
• Unspent amount for an ongoing project goes to the Unspent CSR Account within 30 days of the financial year end, and must be spent within three financial years.
• Other unspent amount goes to a Schedule VII Fund within six months of the financial year end, and the Board's report must give reasons.
• If the CSR amount does not exceed ₹50 lakh, no Committee is needed and the Board performs its functions.
• Section 135(7) penalty on the company is twice the amount to be transferred or ₹1 crore, whichever is less; on each defaulting officer it is one-tenth of that amount or ₹2 lakh, whichever is less.

Common mistakes

• Treating corporate governance and corporate management as the same thing. Fix: Say governance is oversight, direction and accountability; management is day-to-day execution of the board's strategy.
• Confusing agency theory with stewardship theory. Fix: Agency assumes managers may act in self-interest and need monitoring. Stewardship assumes managers act in the company's interest and need empowerment.
• Saying the Audit Committee needs a majority of independent directors and the NRC also needs a majority. Fix: Audit: majority independent. NRC: at least one-half independent, and all members non-executive.
• Stating that the company chairperson can never be on the NRC. Fix: The chairperson may be a member but shall not chair the NRC.
• Requiring all three thresholds to be met. Fix: Remember the text uses 'or'. Meeting any one of net worth, turnover or net profit triggers Section 135.
• Using current year figures to test applicability. Fix: The law refers to the immediately preceding financial year. Use that year for the threshold test.
• Saying all three thresholds must be met before CSR applies. Fix: The text uses 'or'. Meeting any one of net worth, turnover or net profit is enough.
• Saying the CSR Committee approves the CSR Policy. Fix: The Committee formulates and recommends. The Board approves the Policy after considering the recommendations.
• Taking 2% of the current year's profit Fix: Use the average net profit of the three immediately preceding financial years, not the current year.
• Using accounting profit instead of Section 198 net profit Fix: Section 135 says net profit is calculated under Section 198. Adjust for items that get no credit, such as capital profits and unrealised gains, and for allowed deductions, whenever the question asks for it.

Exam tips

• Define governance in your own words first, then add principles. A clear definition earns the opening marks in descriptive answers.
• For theory questions, write one line each on agency, stewardship and stakeholder theory, then apply to the facts given.
• In case-based MCQs, spot the key action in the scenario and match it to a principle before reading the options.
• Learn the section 178 numbers exactly: three members, one-half independent, 1,000 security holders, and the fine range of ₹1,00,000 to ₹5,00,000.
• Always end with how the practice protects stakeholders, which is the purpose of governance.
• Memorise the three composition rules as a single comparison and revise it before the paper; MCQs usually test one detail.
• In case-based MCQs, count heads first: total members, non-executive, independent. Then apply the fraction.
• Use section numbers (177, 178, 160) in written answers only where you are sure. The ones in this page are from the Act text.