CMA Intermediate Law and Ethics Syllabus

Define 'Corporate Governance'.

The system of rules, practices, processes and structures by which a company is directed and controlled, balancing the interests of stakeholders such as shareholders, management, customers, suppliers, financiers, government and the community.

What are the four pillars/principles of good Corporate Governance?

Transparency, Accountability, Fairness (equity), and Responsibility (Independence is sometimes added).

Which SEBI regulations primarily govern corporate governance for listed companies in India?

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR), notably Regulation 17 to 27.

Who is an 'Independent Director' under the Companies Act, 2013?

A director other than a managing/whole-time/nominee director who has no material pecuniary relationship with the company and meets the criteria of independence under Section 149(6), bringing objectivity to the board.

What is the maximum tenure for an Independent Director under the Companies Act, 2013?

Up to two consecutive terms of 5 years each (maximum 10 years); thereafter eligible for re-appointment only after a cooling-off period of 3 years.

What is an 'Audit Committee' and what is its minimum composition under the Companies Act, 2013?

A board committee overseeing financial reporting and disclosure. It must have a minimum of 3 directors with independent directors forming a majority, and the majority of members including the chairperson must be able to read and understand financial statements.

What is the role of the Nomination and Remuneration Committee under Section 178?

It identifies persons qualified to become directors and senior management, recommends their appointment/removal, carries out evaluation of directors' performance, and formulates the policy on remuneration of directors, KMP and other employees.

Name the major committees of corporate governance recommended/required for listed companies.

Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee, and Risk Management Committee (and the CSR Committee where applicable).

Which committee report is regarded as the foundation of corporate governance practices in India?

The Kumar Mangalam Birla Committee Report (1999), constituted by SEBI, which led to Clause 49 of the Listing Agreement. (Globally, the Cadbury Committee Report, UK 1992.)

What is 'Clause 49' of the Listing Agreement?

The original corporate governance provision in the listing agreement (based on the Kumar Mangalam Birla Committee), now subsumed under the SEBI LODR Regulations, 2015, covering board composition, audit committee, disclosures, etc.

What is the function of a 'Stakeholders Relationship Committee'?

Required where the combined membership of shareholders, debenture-holders and other security holders exceeds 1,000; it resolves grievances of security holders (e.g., transfer of shares, non-receipt of dividends/annual reports).

Who is a 'Key Managerial Personnel (KMP)' under Section 2(51) of the Companies Act, 2013?

The Chief Executive Officer or Managing Director, the Company Secretary, the Whole-time Director, the Chief Financial Officer, and such other officer (not more than one level below directors) as may be prescribed.

What is the difference between the 'Shareholder Theory' and the 'Stakeholder Theory' of corporate governance?

Shareholder theory holds that a company's primary responsibility is to maximize shareholder wealth; stakeholder theory holds that the company is accountable to all stakeholders (employees, customers, society, etc.), not just shareholders.

Define 'Business Ethics'.

The application of ethical principles and moral or ethical standards to business behaviour, guiding what is right and wrong in commercial conduct and decision-making.

What is the difference between 'Ethics' and 'Morals'?

Morals refer to personal beliefs and individual principles of right and wrong; ethics refers to the rules or standards of conduct governing a particular group, profession, or society.

What are the four levels at which business ethics can be analysed?

Individual (personal) level, Organizational (corporate) level, Industry/Association level, and Societal/Systemic (international) level.

State the three main normative theories of business ethics.

Teleological/Consequentialist theory (e.g., Utilitarianism - judging by outcomes), Deontological theory (duty/rule-based, e.g., Kant), and Virtue Ethics (character-based).

What is 'Utilitarianism' as an ethical theory?

A consequentialist theory holding that an action is right if it produces the greatest good (happiness/utility) for the greatest number of people; the morality of an act is judged by its outcomes.

What is the 'Kantian / Deontological' approach to ethics?

An action is morally right if it conforms to a moral duty or universal rule (categorical imperative), irrespective of consequences; people must be treated as ends in themselves, never merely as means.

What are 'business ethics codes of conduct' and why are they important?

Formal written statements of the values and standards expected of employees and the organization; they promote consistent ethical behaviour, build trust, ensure legal compliance, and protect reputation.

What is a 'Whistle-blower' and what is the relevant policy under Indian corporate governance?

A person (usually an employee) who reports unethical, illegal, or fraudulent activity within an organization. Listed companies and certain companies must establish a Vigil Mechanism / Whistle-blower Policy under Section 177(9) of the Companies Act, 2013.

What is a 'Conflict of Interest' in business ethics?

A situation in which an individual's personal interests could improperly influence the performance of their professional duties or obligations to the organization.

Define 'Corporate Social Responsibility (CSR)'.

A company's commitment to operate in an economically, socially and environmentally sustainable manner while balancing the interests of diverse stakeholders and contributing to society beyond statutory obligations.

Under Section 135 of the Companies Act, 2013, which companies are required to comply with CSR provisions?

Every company having, in the immediately preceding financial year: net worth of Rs 500 crore or more, OR turnover of Rs 1,000 crore or more, OR net profit of Rs 5 crore or more.

What percentage of profit must a qualifying company spend on CSR under Section 135?

At least 2% of the average net profits made during the three immediately preceding financial years.

What is the composition of the CSR Committee under Section 135 of the Companies Act, 2013?

A committee of the Board consisting of three or more directors, out of which at least one shall be an independent director (relaxations apply for companies not required to appoint an independent director).

What happens to unspent CSR amount relating to an ongoing project under the Companies Act, 2013?

It must be transferred within 30 days from the end of the financial year to a special 'Unspent CSR Account', and must be spent within 3 financial years; otherwise transferred to a Schedule VII fund within 30 days thereafter.

Where are unspent CSR amounts (not relating to ongoing projects) required to be transferred?

To a Fund specified in Schedule VII (such as the PM National Relief Fund or PM CARES Fund) within 6 months from the end of the financial year.

Name any four activities permitted under Schedule VII for CSR spending.

Eradicating hunger and poverty; promoting education; promoting gender equality and women empowerment; ensuring environmental sustainability; promoting healthcare and sanitation; protection of national heritage; contribution to PM relief funds (any four).

What is the difference between CSR and Corporate Philanthropy?

CSR is a structured, strategic and (in India) statutory obligation integrated into business operations and stakeholder welfare; corporate philanthropy is voluntary charitable giving/donation, typically not tied to core business strategy.