Part A — Corporate Social Responsibility (CSR)

1. Meaning and Philosophy

Corporate Social Responsibility (CSR) is the obligation of corporations to contribute to the sustainable development of society — going beyond commercial profit to address environmental, social, and governance (ESG) concerns. India is among the few countries in the world to mandate CSR spending by law.

2. Statutory Framework — Section 135

Applicability: every company that, in the immediately preceding financial year, has:

• net worth of ₹500 crore or more; or
• turnover of ₹1,000 crore or more; or
• net profit of ₹5 crore or more.

CSR obligation: qualifying companies must spend at least 2% of their average net profits of the immediately preceding 3 financial years on CSR activities. If unspent, the unspent amount must be transferred to specified funds (PM National Relief Fund, etc.) within 6 months of the financial year end; otherwise an explanation must be provided in the Annual Report.

CSR Committee:

• The Board must constitute a CSR Committee of at least 3 directors, including at least one Independent Director (if the company is required to have an Independent Director).
• The committee formulates the CSR Policy, recommends the amount to be spent, and monitors implementation.

Schedule VII — permissible CSR activities:

• Eradicating hunger, poverty, and malnutrition; promoting health care and sanitation.
• Promoting education, including special education and vocational skills.
• Promoting gender equality and empowering women.
• Ensuring environmental sustainability and ecological balance.
• Protection of national heritage, art, and culture.
• Measures to benefit armed forces veterans, war widows, and their dependants.
• Contributions to the PM National Relief Fund and other central government funds.
• Rural development projects and slum area development.

Implementation and penalties (post-2021 amendment):

• CSR activities can be carried out directly by the company, through registered NGOs/Section 8 companies (with at least 3 years' track record), or through government bodies.
• A company that fails to spend the required CSR amount must transfer it to a special Unspent CSR Account within 30 days of the year end; amount must be spent within 3 years, failing which it must be transferred to a Schedule VII fund.
• Non-compliance attracts a fine of ₹1 crore (company) and ₹2 lakh–₹1 crore (officers in default).

Part B — History and Evolution of Corporate Governance

1. Early Origins

• 17th–18th century: the emergence of joint-stock companies (East India Company, 1600) created the separation of ownership and management — shareholders provided capital but directors managed. Early governance failures (South Sea Bubble, 1720) exposed the risks of self-dealing by company directors.
• UK Companies Act 1844 and 1862: first statutory frameworks requiring incorporation, limited liability, and mandatory annual accounts — early steps toward systematic governance.

2. 20th Century Developments

• Berle & Means (1932) — The Modern Corporation and Private Property: academic analysis of the separation of ownership (shareholders) and control (managers), and the resulting agency problem — managers might act in their own interest, not shareholders'.
• Post-WWII India: the Companies Act, 1956 introduced basic governance norms — mandatory accounts, audit, and shareholder meetings. SEBI was established in 1988 (statutory powers from 1992) to regulate capital markets and protect investors.

3. Global Corporate Governance Scandals and Reforms

• BCCI collapse (1991), Maxwell (1991), Barings Bank (1995): systemic board failures prompted governance reforms in the UK — the Cadbury Report (1992) recommended independent non-executive directors, audit committees, and a separation of the roles of Chairman and CEO. Its principles became the foundation of the UK Corporate Governance Code.
• Enron (2001) and WorldCom (2002): massive accounting frauds in the US led to the Sarbanes-Oxley Act, 2002 (SOX) — mandatory internal control certification by CEOs/CFOs, independent audit committees, prohibition on auditors providing non-audit services, and criminal penalties for financial fraud.

4. India's Corporate Governance Journey

• Kumar Mangalam Birla Committee (1999): SEBI constituted this committee, which recommended the first comprehensive corporate governance code for listed companies — mandatory independent directors, audit committee, related-party disclosure. Resulted in Clause 49 of the SEBI Listing Agreement.
• Narayana Murthy Committee (2003): enhanced Clause 49 with stricter requirements on Independent Directors, CEO/CFO certification, and risk management disclosures.
• Satyam Fraud (2009): the ₹14,000 crore accounting fraud at Satyam Computer Services exposed governance failures — a compliant board with no real independence. Led to the overhaul culminating in the Companies Act, 2013.
• Companies Act, 2013: comprehensive overhaul — class action suits (Section 245), mandatory CSR (Section 135), Independent Directors (Section 149), NCLT replacing CLB, whistleblower policy, mandatory secretarial audit, rotation of auditors, and strict punishment for fraud (Section 447).
• SEBI (LODR) Regulations, 2015: replaced Clause 49; codified corporate governance norms for listed companies including board composition, related-party transactions, risk management, and disclosures.