CORPORATE SOCIAL RESPONSIBILITY IN RESPECT OF INDIAN COMPANIES


By Radhika Goyal

OVERVIEW

Corporate has a responsibility towards society and environment which they should perform timely and make genuine efforts to improve the quality of life of people which they were accustomed to serve. It is expected from corporate and businessmen that they will look after the benefits and interests of the society especially the weaker section of the society. Moreover, in a fast-changing world, CSR assists businesses in fulfilling their responsibilities as global citizens and local neighbors. In India, businesses have been very wise in embracing CSR efforts and incorporating them into their corporate processes. It has been increasingly projected in the Indian corporate arena as companies have realized that, in addition to building their operations, it is also critical to build responsible and supportive ties with the public.


INTRODUCTION

CSR is a word that is used to describe the business world's duties to society and the environment. While the term CSR is not new in the corporate world, its scope and meaning have evolved significantly from its original definition as a purely voluntary philanthropic action in comparison to the corporate's responsibility to the outside world.

India is the first country in the world that makes Corporate Social Responsibility mandatory. In other countries like France, Germany, etc. have voluntary guidelines. The Government of India has implemented CSR in the new Companies Act,2013. On February 27, 2014, notified the guidelines under Section- 135 of Companies Act, 2013 and schedule VII of Companies act and the rule of CSR,2014 came into effect from 1st April 2014[1].

So, let’s discuss the CSR in details and amendments


CSR PROVISIONS IN INDIA

CSR is a word that is used to describe the business world's duties to society and the environment. Government after realizing that to implement CSR at a larger scale a law is required because of this made provision for Corporate Social Responsibility in the Companies Act,2013 under Section 135 for the first time. So, in simple words, CSR is all the efforts work, and actions that corporate take for the benefit and in the interest of the weaker sections and society.

As per section 135 of the companies act, 2013 responsibility is mainly fixed on a large corporation, who have enough finance and liquidity to supplement the progress of society both economically and socially. Further, CSR applies to every company having a net worth

· Every company having a net worth of rupees 500 hundred crores or more.

· Or turnover of rupees 1000 crore or more

· Or a net profit of 5 crores or more during any financial year shall constitute a Corporate Social Responsibility.[2]

The Companies Act, 2013 states that those companies who met the criteria of CSR will have to spend at least 2% of their average net profit in the last three years towards CSR activities.


CSR COMMITTEE AND POLICY:

1. Provisions made under section- 135 of Companies Act,2013 for CSR are applicable to be specified companies that meet the criteria under section 135(1) as well to its holding, subsidiary, and Foreign Company having a branch office or project office in India

2. Every committee that qualifies the above-mentioned points will be required to constitute a committee of the board consisting of three or more directors, out of which at least one director shall be an independent director

3. According to rules of CSR 2014 An unlisted public company or a private company covered under section- 135 which is not required to appoint an independent director, shall have its CSR Committee without such director

4. A private company having only two directors on the board constitutes its CSR Committee with two such directors.

5. The board’s report shall disclose the composition of the CSR[3]


RESPONSIBILITY OF CORPORATE SOCIAL RESPONSIBILITY COMMITTEE

1. Formulate and recommend to the board a CSR policy that shall indicate the activities to be undertaken by the company as specified in Schedule VII.

2. Recommend the amount of expenditure to be incurred on the activities which are mentioned in Schedule VII.

3. The CSR committee shall institute a transparent monitoring mechanism for the implementation of the CSR projects or programs, or activities undertaken by the company.

4. An Annual Report on CSR shall be included in the Board’s report of a company about the concerned financial year.

5. The Surplus arising out of the CSR projects, programs, activities are taken by the company under section 135 of Companies Act, 2013 on its working website.

As per the report published under the Indian CSR outlook of faces 2015-16, more than 250 companies have spent an amount of one crore or more under the provision of Corporate Social Responsibility.

ACTIVITIES THAT FALL UNDER CSR

The activities which fall under, CSR are mentioned in Schedule VII under Section 135 of Companies Act, 2013 and some of them are: -

  • Promotion health care and also promote Swachh Bharat i.e., step up by the Central Government.

  • Promoting gender equality, women empowerment

  • Setting up homes for orphans and women, old age homes, and daycare centers for senior citizens.

  • Promoting education, and also including special educations for disabled children

  • Protection of national heritage, art, and culture, public libraries, development of traditional art and cultures

  • Help in training to promote rural sports, Paralympic and Olympic sports

  • Ensuring environmental sustainability, protection of flora and fauna, animal welfare, etc.

  • Contribution to the prime minister relief fund

  • Contributions to publicly funded universities

  • Contribution to research and development projects in the field of science, engineering, medicines, etc., or any such other matters prescribed by the government[4].

MOREOVER, THERE ARE MANY ACTIVITIES WHICH ARE ENUMERATED IN SCHEDULE VII, AND THEY ARE:

  • Activities carried out in the ordinary course of business by the company

  • Activities carried out outside India

  • Activities carried out only for the benefit of the company's employees and their families.

  • Events such as awards, marathons, advertisements, charitable gifts, TV show sponsorships, and so on would not be considered part of CSR spending.

  • Contribution that is made directly or indirectly to any political parties under section 182 of the Companies Act.[5]


EXECUTION OF CSR

  • Must be carried within India at the local areas or the areas where the company operates

  • Can be carried with registered trust or society, a charitable company which is established in India by the funding company and its parent, subsidiary, or associate company. And if the company is not established by funding, parent, subsidiary, or associate but they have a record of CSR activities for the last 3 years.

  • Can also be conducted in association with other companies but provided that each company can report CSR activities

  • It may also utilize up to 5% of its CSR spending in a given fiscal year to train its employees to carry out CSR operations or to build the necessary facilities/capacity of its staff or implementing agencies.[6]

So, these are the provisions that are provided under Section-135 of Companies Act, 2013 in Schedule VII.

But if any company contravenes the provision of Section- 135 then the government has the power that they impose a penalty.

The penalty provided under Section-134(8) states that if a company contravenes the provision of this section, the company shall be punishable with a fine which shall be not less than fifty thousand rupees, but which may extend to twenty0five lakh rupees. And every officer of the company which is in default shall be punishable with imprisonment for a term which may extend to three years or fine which not be less than fifty thousand rupees, but which may extend to five lakh rupees or both[7].

Further, section 450 of the Companies Act states that “If a company or any officer of a company or any person contravenes any of the provisions of this act or rule then shall be punishable with a fine which may extend to ten thousand rupees and if the contravention is continuing one then it may extend to one thousand rupees for every day”.

AMENDMENTS IN CSR

In January 2021 the Government of India has notified amendments that the rule of Corporate Social Responsibility rules, 2014 in the Companies Act, and now they come into existence. So, if any officer or person of the Company contravenes then the act imposes a penalty and punishments.

So, here are some amendments:

1. Government mentioned some activities on which CSR not eligible to spend and they are: -

· Sponsorship activities

· Contribution in politics

· Activities which are done in the normal course of business which is benefited to the company, and those benefits for the employees only.

· Activities that are taken outside India except sports i.e., represent the country at the national and international level.


2. Unspent amount of funds: - Any unspent funds from an ongoing initiative should be transferred to the company's specially designated "Unspent Corporate Social Responsibility Account" within 30 days of the financial year's conclusion. According to the company's CSR policy, these funds must be spent within the next three financial years. If these funds remain unspent after the three-year term, they should be transferred to any fund listed in Schedule VII of the legislation (such as the PM National Relief Fund, PM CARES Fund, Disaster Management Fund, Clean Ganga) within six months of the end of the fiscal year.


3. Some of the activities that can be now included in CSR and are:

4. For the Covid-19: - research development of medical devices, drugs, vaccines related to covid-19.

5. If any person or officer of the Company fails to comply with the provisions which are mentioned in the Companies Act, 2013 then the penalty was imposed for the non-compliance.[8]

Rule-Making Authority: -The Amendment says that the central government has been given the authority to adopt rules, regulations, and directives about compliance.


EXAMPLE OF CSR IN INDIA[9]: -

Many companies take part in CSR activities. Some of them are: -

1.Infosys Ltd:

Sudha Murthy, chairperson of Infosys Foundation has said that “CSR can be merely a job, it’s a passion”. The company spent nearly Rs.360 crore on various schemes of CSR like- Covid-19 relief work, education, health-related programs.

2.Mahindra & Mahindra Ltd.

The company spent the amount of 93.50 crores on CSR initiatives during the financial year 2018-19.

3. Tata Chemicals Ltd.

For improving the quality of life and fostering sustainable and integrated development in also health care sector, the development of infrastructure the company contributes 25.68 crores in 2018-19. Moreover, they also contribute the amount of 1500 in PM cares fund for the relief of Covid-19.

4. Maruti Suzuki India Ltd.

The group has made contributions to the Central government's fund, as well as education, health care, and other areas. In the fiscal year 2018-19, it donated INR 154.07 crores.

5. Hindustan Unilever Ltd.

The company has spent Rupee 100 crores to help the Indian Government to fight Covid-19.

6. Indian Oil

In the fiscal year 2018-19, it donated INR 490.60 crores. Investing in the eradication of malnutrition, encouraging rural sports, and women empowerment are some of the thematic areas of its commitment[10].

And there are many companies which are contributed to Covid-19 relief and others in development also. The government has established the PM-CARES Fund in response to the current COVID-19 epidemic. According to the Ministry of Corporate Affairs, the money that corporations contribute to this fund will be included in their CSR responsibilities.


CONCLUSION

So, CSR has laid down the many responsibilities of companies so that they can help the country and its citizens. It’s a noble initiative in which corporate entities that benefit from society's resources contribute to bridge the socio-economic divide that exists in the country and address the difficulties that society as a whole face. However, there are certain disadvantages or lacunas too like- no tax clarity, clash in business activities, it leads to more competition but if government and companies simultaneously work together then lacunas cannot be there, but it’s a social responsibility so both should be work together and neither of them faces any hurdles.

[1] Samisti, FAQs on new CSR Rules, (March 31, 2021) https://www.samistilegal.in/faqs-on-new-csr-rules/ [2] Universal Law Publishing, The Companies Act,2013, Section-135 [3] Universal Law Publishing, The Companies Act,2013, Section-135 [4] Universal Law Publishing, The Companies Act,2013, Schedule VII [5] Ipleaders, Corporate Social Responsibility in India, May30,2017 https://blog.ipleaders.in/corporate-social-responsibility-india/#_ftn22 [6] Ipleaders, Corporate Social Responsibility in India, May30,2017 https://blog.ipleaders.in/corporate-social-responsibility-india/#_ftn22 [7] Universal Law Publishing, The Companies Act,2013, Section-135 [8] Idr, New Amendments to the CSR Act All you need to know (February 9,2021) https://idronline.org/new-csr-act-amendments-updates-and-all-you-need-to-know/ [9] The CSR Journal, Top 100 companies in India for CSR in 2020 (November3, 2020) https://thecsrjournal.in/top-indian-companies-for-csr-in-2020/ [10] The CSR Journal, Top 100 companies in India for CSR in 2020 (November3, 2020) https://thecsrjournal.in/top-indian-companies-for-csr-in-2020/



Author- Radhika Goyal

LL.M.-II

New Law College, Pune

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