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CRITICAL ANALYSIS OF THE CSR FRAMEWORK IN INDIA- CONTEXT OF THE PANDEMIC
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CRITICAL ANALYSIS OF THE CSR
FRAMEWORK IN INDIA- CONTEXT OF THE PANDEMIC
Authored By - Midhula Gattu
8179000001
Jindal Global Law School
INTRODUCTION
Corporate Social Responsibility is an
initiative whereby companies incorporate social, environmental, and ethical
concerns in their business strategies and operations[1]. Though the term CSR has emerged in the recent
decades, India has recognised such social obligations of firms towards
employees and society a long time ago. Sundar P. in his paper about the Indian
business philanthropy identified four phases of business philanthropy in India.
First phase of CSR was in the early stages of industrialization (1850–1914).
Here, wealthy business families established trusts and institutions including
schools, colleges, and hospitals. Second phase was the Indian freedom struggle
(1914-60). Businesses supported freedom movements and nationalist
movements as a sense of self interest in response to the hostility faced
by them through the British. An increase in mistrust towards corporations in
the socialist regime of India coupled with the drop in corporate philanthropy
marked the third phase. Post liberalisation marks the fourth and the final
phase. Liberalisation, privatisation, and globalisation (LPG), and the
subsequent pro-business environment helped companies to contribute more to the
society hence increased initiative in social work by corporations[2].
Moreover, the scope of CSR has been increasing in emerging economies both in
scale and in scope[3]. CSR in
India during pandemic is the examples of the very same. CSR during pandemic can
be seen as a fifth stage which allowed the narrow understanding of the
legislation to expand with innovative CSR contributions which made a
considerable impact on the effect the pandemic had on India. However, it is not
untrue that we expect too much of companies in such dire times when most of
companies do not a structured policy to begin with. This research paper aims to
critically analyse the well commended CSR structure in India in the context of
legal framework and the further notifications which broadened the scope of CSR
owing the exceptional circumstances.
LEGAL FRAMEWORK OF CSR IN INDIA
India is the first country in the
world to have mandated CSR. It has done so through Section 135 of the Companies
Act, 2013 (the Act) along with Schedule VII in the Act and Companies (Corporate
Social Responsibility Rules), 2014. With the mandate of CSR, it has
undisputedly been found that many companies approach CSR as box to tick off to
avoid penalties or loss of reputation among their stakeholders. Section 135
states that companies having a net worth of at least 500 crore, turnover of
1000 crores, or net profit of 5 crores or more during the preceding financial
year to spend a minimum of 2 percent of net profits during the immediately
three preceding financial years[4].
The CSR Rules, 2014 provides modalities for implementation of CSR activities.
It has prescribed to constitute a CSR committee which is responsible to make
CSR policies, recommend activities, and monitor the same[5].
The committee must consist of at least 2 directors for private companies and 3
for public companies[6].
When a company fails to comply with such mandate of 2%, it needs to submit a
report stating the reasons for the same. Failure of the same leads to a penalty
of 2,500,000 rupees[7].
Schedule VII provides valid CSR activities under twelve parts.
CSR DURING PANDEMIC
The impact of COVID-19 pandemic on
the pandemic has been unprecedented. The impact of the pandemic itself and the
necessary lockdown that followed it has immensely affected Indian economy.
Government has announced 20 lakh crores (10% of the Indian GDP) worth of COVID
relief package. However, like how companies had come to the aid by supporting
freedom movements and nationalist movements during the independence struggle
(1914-60)[8],
many companies have played a crucial role in aiding the society and humanity
through CSR during the pandemic. Many corporations have initiated innovative
measures and charitable measures. Some of these innovative charitable measures
do not necessarily fit into the narrow legislative definitions of CSR. Owing
the same, the government has declared, through general circular, that the funds
spent by the company relating to COVID can be classified as CSR activities[9].
It was added that in the wake of pandemic, the list of items under Schedule VII
needs to be liberally interpreted. Moreover, a second circular by the
government has answered through an FAQ what spendings falls under CSR spendings[10].
For ease of understanding, the table below shows what is considered to be a CSR
contribution according to second circular.
The
government has also declared COVID to be a notified disaster and relied on
State Disaster Response Funds to accumulate aid. Moreover, PM CARES (Prime
Minister’s Citizen Assistance and Relief in Emergency Situation Fund) was set
up and Schedule VII was amended to include the same to CSR activities. The same
was done to encourage corporations to contribute to discharge from the CSR
statutory obligations.
CRITICAL ANALYSIS
COVID has undisputedly led to an
increase in the societal importance of CSR. During the rise of covid cases,
many companies have increased their CSR involvement beyond the set budget. For
example, Tata Motors has been one of the companies that has provided most
impact benefitting 1.5 lakh people including poorer sections of the society
such as migrants, daily wage workers and so on. It has provided material
assistance such as funds, food, masks, PPE kits and sanitizers as well as
spreading awareness. SAIL (Steal Authority of India) has provided 33,300 tons
of liquid medical oxygen for the treatment. On the other hand, Nippon Steal
India has provided around 200 tons of Liquid medical oxygen[11].
TCS through an initiative called TCS ion Digital classroom has aided students’
online learning which had real impact in the time where everyone has been
forced to resort to technology to carry on daily activities. This shows that
the scope of CSR has increased through COVID.
Though CSR has been legalised
recently, most of the CSR policies of companies are haphazard and not
underpinned with structured policies. Moreover, scholars and society sometimes
expect too much of it[12]. As mentioned before, through the legal
framework of CSR, CSR has been mandated CSR spending to companies having a net
worth of at least 500 crore, turnover of 1000 crores, or net profit of 5 crores
or more during the preceding financial year to spend a minimum of 2 percent of
net profits during the immediately three preceding financial years. Moreover,
according to section 135, the compulsion is ceased only if a company has ceased
to meet the criteria for 3 consecutive financial years. The criteria of three
consecutive years seems excessive, especially in the context of COVID where
many companies where many companies profits have leaped down within a span of a
few months. According to official data
presented in Parliament, CSR spending for the financial year
(further referred to as FY) 2020-21 dropped gravely to Rs. 8,828.11 crore in
comparison with CSR spending in FY
2018-19 (which was Rs. 20,150.27 crore) and FY 2019-20 in Rs. 24,688.66 crore. Moreover, only 1,619
companies have invested in CSR in the FY 2020-21 compared to 22,531 companies
in FY 2019-20. Pandemic has caused unprecedented effect on the Indian economy.
Many small-scale industries have ended up in shutting up or merging to merely
exist. Companies have also struggled to keep the employees safe, recover their
productive systems and deal with operational and financial challenges all while
in the economy of low consumer demand, supply variations, shut down
restrictions. Considering all these factors in, CSR should not be mandated to
at least certain companies who found themselves difficult to survive. A
countering argument is that if corporations are not held responsible, it could
lead to disasters like Bhopal Gas Tragedy or the Visakhapatnam Gas Leak. Moreover, legislation mandating has actually encouraged companies of various scales to
perform massive activism through CSR during the
pandemic including start-ups[13]. Second countering argument was
that the mandating legislation in pandemic has shown positive impact of CSR
where companies were able to supply essential commodities and has increased the
narrow view of CSR pre-pandemic[14]. However, it is illogical to say that
mandating CSR at the time of global pandemic which has not been in control of
the companies and has taken a huge toll on every company and economy is
important to prevent the disasters caused by the companies itself. Maintaining
a strict liability towards companies is important in cases such as Bhopal Gas
Tragedy. Such cases indeed help in keeping companies accountable to their
responsibility to the society and their actions that harm the society, but that
cannot be used as a justification to absolve at least some of the companies
(the most affected ones) from an overbearing 2% of CSR spendings at least
during such trying times. Secondly, such mandatory during trying times will
only encourage the companies to use the legal loopholes to misuse CSR funds or
get away from such imposition using ghost beneficiaries, money laundering to
avoid penalties or loss of reputation. Moreover, the increase in narrow view
was not due to the mandatory provision but due to the dire need and the
initiative nature of companies.
Based on the data collected among the
top 50 companies of India, it has been concluded that after inclusion of relief
funds into CSR through notification, the 50 companies have contributed about a
total of INR. 6,916 Crores towards relief which includes INR.3,570 towards the
PM Cares Fund and INR 3,346 crores towards other relief funds such as State
Disaster Relief Funds. Apart from the material assistance, TATA Motors has also
provided 500 crores rupees to PM Care Fund[15].
Another survey has suggested that out of 3,000 crores of collective public
sector units CSR budget, 2,507 crores has been donated to PM-Cares. On the
other hand, private companies have donated an average of 2,817 crores out of
12,000 crore of CSR budget for the FY 20-21[16].
Sourced from “In charts: How the PM-Cares fund is
hurting India’s NGOs”
The major issue with such major chuck
of CSR contribution to the government funds is the lack of transparency and
accountability. Recently, a law student has filed an RTI application for the
government to provide PM Care Fund’s deeds and orders regarding its creation
and operation. The Prime Minister’s Office replied that the fund is not a
Public Authority under the ambit of section 2 (h) of the RTI Act, 2005. Such an
answer from PMO is unagreeable as the name, control, usage, and the government
domain name all suggest that the government exercises substantive control over
the trust to make it a public authority under Section 2 (h)[17].
Moreover, there is also a lack of clarity and control over where the money is
being donated to and for what exactly it is used for. Such heavy investment in the government funds
has taken away from the large chuck of CSR funds that would have gone to
non-Governmental organization which would make groundwork. Most of the CSR
contributions to the governmental funds have been used to tick-the box approach
to escape the impositions who do not want to expend their energy on long term
sustainable development[18].
Even
considering the notifications and amendments made in the context of the
pandemic to further encourage the CSR contributions by the companies, the
façade of broadening the ambit of CSR activities is not completely true. The
second circular which answered FAQs stated that the wages given to employees
and workers even during the lockdown when they are not working could not be
considered to be CSR as it is the moral obligation of a company to provide them
the same[19].
Though unanswered, even the activities that contribute towards aiding the
pandemic situation but are not technically spending of funds are not being
treated are CSR. For example, Mahindra Group has made its resorts available as
COVID facilities. The same was not considered to be CSR under schedule VII. The
voluntary philanthropic effort of incurring cost to run the resorts for
facilities are not considered to be CSR unlike spending revenue under schedule
VII. This shows how only spending revenue is the parameter and not the moral
and social motivations which only narrows down the ambit of CSR[20].
CONCLUSION
Though
CSR during covid has been commended as it was considered to be increasing the
ambit of CSR activities and increase voluntary CSR expenditure of various
Indian companies, the picture is not all rosy. CSR activities towards pandemic
has completely diverted from the long-term gender, economic, and environmental
problems plaguing India. The mandatory imposition during such dire time on the
companies is extremely harsh on the companies. Moreover, non-transparency of PM
funds which constitutes a major chuck of CSR raises concern. This raises a
question- what is the way forward? To answer the still narrow view on what
constitutes CSR expenditure, a reasonable way forward is to determine the same
case to case basis. There is a dire need to set up a regulatory authority
specifically made to with CSR activities and the same would deal with
determining if an activity done by a company is CSR or not. Moreover, companies
should be encouraged to not only spend on CSR activities just to tick the box,
protect reputation or avoid penalty but to encourage companies to spend on the
resources its depleting. Companies should be made obliged to disclose the CSR
spending, for it is the funds contributed to the society or community unlike a
recent judgement which has held that the companies are not required to disclose
the CSR amounts spent upon an RTI application[21]. Such complete transparency, not
only on the government, but also on the company will ensure accountability on a
deeper level.
[1] Dr. Reena Mehta, Jyotika Jain, Social
Entrepreneurship: A Form of Social
Responsibility in India, dhriiti.com,
https://dhriiti.com/wp-content/uploads/2017/11/SE-A-form-of-Social-Responsibility-in-India.pdf
[2]Pushpa Sundar, Beyond
business: From merchant charity to corporate citizenship: Indian business
philanthropy through the ages 143 (Tata McGrawHill 2000).
[3] Cosmina Lelia Voinea and Cosmin Fratostiteanu, Corporate Social
Responsibility in Emerging Economies: Reality and Illusion Book (Open Universiteit Nederland, July 2018)
[4] Companies Act, 2013, § 135, No.
18, Acts of Parliament, 1949 (India).
[5] The Companies
(Corporate Social Responsibility Policy) Rules § 5 (iii), 6 (ii) (2014).
[6] Companies Act, 2013, § 134(8), No.
18, Acts of Parliament, 1949 (India).
[7] Companies Act, 2013, § 134(8), No.
18, Acts of Parliament, 1949 (India).
[8] Pushpa Sundar, Beyond
business: From merchant charity to corporate citizenship: Indian business
philanthropy through the ages 143 (Tata McGrawHill 2000)
[9] General Circular No. 10/2020:
Clarification on spending of CSR funds for COVID-19.
[10] General Circular No. 15 /2020:
COVID-19 related Frequently Asked Questions (FAQs) on Corporate Social
Responsibility (CSR).
[11] Niteesh Kumar Upadhyay and Mahak Rathee, AN ANALYSIS
OF CORPORATE SOCIAL RESPONSIBILITY IN INDIA WITH SPECIAL REFERENCE TO COVID-19
SITUATION, ResearchGate (June
2021), https://www.researchgate.net/publication/352355807_AN_ANALYSIS_OF_CORPORATE_SOCIAL_RESPONSIBILITY_IN_INDIA_WITH_SPECIAL_REFERENCE_TO_COVID-19_SITUATION
[12] Cosmina Lelia
Voinea and Cosmin Fratostiteanu, Corporate Social Responsibility in Emerging
Economies: Reality and Illusion Book (Open Universiteit Nederland, July 2018)
[13] Sujay Ghosh and Naveen Das, COVID-19, the Global South and the Pandemic’s
Development Impact 77-92 (Bristol University Press, 2022)
[14] Arnav Ashtikar and Dr. Sukhvinder
Singh Dari, Corporate Social Responsibility (CSR) In India: Origin,
Evolution and Relevance in the Post-Pandemic Era, BiLD Law Journal, 7(4s), 403–409 (2023).
[15] Niteesh Kumar Upadhyay and Mahak Rathee, AN
ANALYSIS OF CORPORATE SOCIAL RESPONSIBILITY IN INDIA WITH SPECIAL REFERENCE TO
COVID-19 SITUATION, ResearchGate
(June 2021), https://www.researchgate.net/publication/352355807_AN_ANALYSIS_OF_CORPORATE_SOCIAL_RESPONSIBILITY_IN_INDIA_WITH_SPECIAL_REFERENCE_TO_COVID-19_SITUATION
[16]Ayesha Marfatia, In charts: How
the PM-Cares fund is hurting India’s NGOs, Scroll.in
(Jul. 08, 2020), https://scroll.in/article/966746/in-charts-how-pm-cares-fund-is-hurting-non-profits-in-india.
[17] PM CARES not a public authority under RTI Act':
PMO rejects application seeking fund details; will appeal, says law student,
Firstpost, (May 31, 2020 14:23:01 IST), https://www.firstpost.com/india/pm-cares-not-a-public-authority-under-rti-act-pmo-rejects-application-seeking-fund-details-will-appeal-says-law-student-8430551.html
[18] Rudresh Mandal and Ashwin Murthy, CSR in the post
pandemic era: the dual promise of ESG investment and investor stewardship,
SSRN [April 20, 20223, 8.04AM), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3799994.
[19] General Circular No. 15 /2020:
COVID-19 related Frequently Asked Questions (FAQs) on Corporate Social
Responsibility (CSR)
[20] Akshaya Kamalnath, A Post-Pandemic Analysis of CSR
in India, IndiaCorpLaw (April
17, 2021), https://indiacorplaw.in/2021/04/a-post-pandemic-analysis-of-csr-in-india.html.
[21] Shiv Prakash Rai v. Cpio: Satluj Jal Vidyut Nigam
Limited, Buxar Thermal Power Project, Hrd, Cential Information Commission, Jan
25, 2019.
Article Information
CRITICAL ANALYSIS OF THE CSR FRAMEWORK IN INDIA- CONTEXT OF THE PANDEMIC
Authors: Midhula Gattu
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/07/13
- Issue 7
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International Journal for Legal Research and Analysis
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