Open Access Research Article
INDIAN LEGAL FRAMEWORK AND CORPORATE SOCIAL RESPONSIBILITY.
Published Paper
Article Details
INDIAN LEGAL FRAMEWORK
AND CORPORATE SOCIAL
RESPONSIBILITY.
AUTHORED BY
- AMNA ALI & DR GARGI BHADORIA
ABSTRACT:
Corporate social responsibility is based on the stakeholder model and emphasizes the needs of all stakeholders.
This article discusses the evolution of corporate social responsibility in
India. This article describes the
various steps taken by the "Corporate Department" before formalizing
the legal framework for CSR under the
Companies Act, 2013.According to the article, Indian corporate groups are
expected by their supporters to fulfill their CSR obligations, while American and British companies are legally required to do so in India.Additionally,
the research will examine how COVID-19 impacts corporate social responsibility (CSR) policies and programs undertaken by corporations.
INTRODUCTION:
Despite the lack of a universally accepted definition for corporate social
responsibility (CSR), all current definitions acknowledge the impact companies have on
society and its associated social obligations.
Originally rooted in philanthropic projects such as corporate donations,
philanthropy and relief efforts, CSR
has expanded globally to encompass a variety of related concepts. These include
the triple bottom line, corporate
citizenship, philanthropy, strategic philanthropy, shared value, corporate
sustainability and corporate responsibility.
The United Nations Industrial Development Organization defines
corporate social responsibility as: "Corporate social responsibility is a management principle whereby companies
incorporate social responsibility and environmental considerations into its business
practices and interactions with stakeholders.CSR is generally considered a means by which a company achieves
a harmonious combination of economic, environmental and
social priorities, known as the triple bottom line, while striving
to meet expectations. from both shareholders and stakeholders.
The Ministry of Corporate Affairs’ Second High-Level Committee Report,
2018, “The (CSR) law intends to
mainstream the practice of business involvement in CSR and make (businesses)
socially, economically and
environmentally responsible to address social and environmental concerns of the
local area and other needy areas in the country[1]
EVOLUTION OF CORPORATE SOCIAL
RESPONSIBILITY IN INDIA:
The company should
do all its activities by obtaining all the resources of the society in various
forms. That is why it is
important to know what benefits society can receive from such an entity that
uses its resources without
jeopardizing the socio-economic and environmental sustainability of society in
general. Since there is no universally
valid definition of CSR, any publicly available definition does nothing but support
the impact of companies on society in general and societal expectations of them.
CSR has traditionally been practiced in India in terms of philanthropy
since the 1850s. Its importance has grown in India since
the 1990s. The sixty-year-old Company
Law of 1956 did not include corporate
social responsibility;
Therefore, CSR activities were purely voluntary. There are many large entities
that have actively participated in CSR
activities, but unfortunately their number is relatively less. To encourage more stakeholders to participate in the
development process of society through CSR, the Government of India introduced the concept of Corporate Social
Responsibility in the new Companies
Act 2013.
Most companies do not meet the level of society's expectations. , which
became the root cause of India's uneven welfare
gap. . To overcome such welfare gaps, the Limited Liability Companies Act 2013 promotes
greater transparency and openness in its disclosure. Schedule VII of the Act puts communities at the heart of CSR initiatives. According to the Indian
Institute of Corporate Affairs, at least 6,000 Indian companies are required
to implement CSR initiatives to comply with the provisions of the Companies
Act, 2013, and many are undertaking these initiatives for the first
time. Thus, CSR must go beyond the concepts
of philanthropy and philanthropy. Hence, Corporate Social Responsibility under
the said Act seems to be a promising
positive step to ensure that such social welfare gap is bridged in the Indian context.
LEGAL FRAMEWORK OF CORPORATE SOCIAL
RESPONSIBILITY IN INDIA:
In 2009, the Ministry of Enterprise published voluntary company
governance guidelines. It provided the Indian corporate sector with a voluntary
governance framework for ethical and responsible business practices.Business sectors were to adopt
these guidelines voluntarily.[2]
The purpose of this manual was to increase
the value of the company and the trust of stakeholders, which contributed to
the success of the company.
The government has encouraged corporate India to follow these guidelines
and develop corporate social responsibility
policies while safeguarding the interests of all stakeholders. Later, DPE
issued various guidelines in 2010
such as "Corporate Social Responsibility Guidelines for Public Sector
Enterprises" and revised in 2013;"National Voluntary
Guidelines on Corporate Social, Environmental and
Financial Responsibilities" in 2011.
Many environmental laws, rules and regulations carried
the spirit of CSR policy.When the government felt the need to change the Limited
Liability Companies Act, 1956, CSR found its way through legislation into the Limited Liability Act, 2013 and
the law came into force on 30 August 2013. The government relies
on the powers conferred by section 135 and sub-section (1) and sub-section (1). 2) Section
469 made the Corporate Social Responsibility Rules which are the "Companies (Corporate Social Responsibility Policy) Rules,
2014" which was later amended by the "Companies (Corporate Social Responsibility Policy) Amendment Rules,
2021" which came into effect in 2021. 22 January 2021. This was done to promote the spirit of corporate social responsibility by increasing transparency, accountability and sustainability.
"Section
135 of the Companies Act, 2013" is amended of the Companies (Amendment)
Act 2019 by amending sub-sec. (5) and
inserting subsection (6), 7 and 8.[3]
Applicability of "Section 135": This section applies to any public or private company
having net assets
of five hundred million or more; or the turnover is one thousand million or more;
or pre-tax profit of five million or more and this criterion must be met in each financial year.
This section also requires such companies to constitute a corporate
social responsibility committee. The committee
consists of three or more members, one of whom is independent. A private
company does not need to have an
independent director. An unlisted company may have two or more directors. According
to Company Rule 3 (CSR Policy) 2014,
holdings and subsidiaries are eligible. to social responsibility if they exceed the limit according to 135
subsection 1.[4]
The regulation of social responsibility also applies to foreign companies and companies based on § 8, if they meet the
required criteria. The composition of the social responsibility committee and the duties of the committee
and the board: subsection 2 subsection 135 of the law obliges the government to
report the composition of the social responsibility committee in its report.
There
is no need to form a CSR committee if two percent of the average net profit is
less than 50 million rupees and the government performs the functions
of such a committee. The Social Responsibility Committee designs and recommends the corporate social
responsibility policy to the board. The policy
consists of the actions defined in ScheduleVII[5],
which the company is prepared to take. The amount and form of expenditure are also mentioned.
The Committee regularly monitors CSR policies to update
activities/initiatives. If the board approves the policy, taking into account the recommendations, the content of
the policy must be publicized on the company's website
and it must be verified
that this action
is the company's.
CORPORATE SOCIAL RESPONSIBILITY AS A DUTY
Corporate social responsibility was made a compulsory duty by the
Companies Act of This regulation was
passed inThe Board is required to allocate a minimum of two percent of the
average net profit from the three previous financial
years to CSR initiatives, as
specified inSchedule VII and mentioned in subsection(5)
of SectionEven if a company has not completed three financial years since its
incorporation, it must now spend 2
percent of the average net profit from each year in the previous financial year
under the 2019 amendment. The second proviso to sub-section (5)
required, before amendment, the Board to give reason for
not complying with provisions of sub-section (5)[6].
An amendment to the Companies (Amendment)
Act, 2019 has been made to remove the second proviso from sub-section (5) and
mandate that the Board must provide a reason for non-compliance and transfer any remaining amount to SpecifiedFund in Schedule VII within six months of project completion.
UNSPENT AND UNREPORTED CORPORATE SOCIAL RESPONSIBILITY ACCOUNT
The unreported surplus in the CSR account must be transferred to an
account in the bank within30 days before
its next financial year if the excess is related to an ongoing project, as per
Section Moreover, the CSR amount
should be disbursed completely on the concerned project. If the company fails
to expand the amount within the
prescribed period, then it should transfer the remaining amount to a Fund given
under Schedule VII.[7]
Such an account opened by the company for this purpose is referred to as an
Unspent Corporate Social Responsibility Account
as per sub-section (6).
PROVISIONS AND PENALTY
FOR NON-COMPLIANCE OF CSR POLICY:
The act of non-compliance was originally punishable under Section 134(8) when ss (7) was not introduced to Section 135. Section 135(7)
as amended by “The Companies (Amendment) Act, 2020” states that if the company violates the provisions of Section
135(5) or fails to transfer the surplus amount
to a Fund as provided under sub-section (6), it will be liable to pay
twice the amount to be transferred to the
Fund or to Unspent Corporate Social Responsibility Account or rupees one crore,
whichever is less,32 as a penalty[8].
If any officer is in default, then he/ she will be imposed with a liability to
pay 1/10th of the amount which was to
be transferred to the Fund or the Account or rupees two lakh whichever is less,
as a penalty.
CSR AMIDST COVID-19:
On March 11, 2020, the Director General of the World Health Organization
declared a pandemic situation in the
world through a media briefing. Though an indication of global emergency with
respect to public health was already given by the international organization at the end of January,
2020. Since the announcement,
governments around the world have put measures and systems in place to reduce
the spread of the coronavirus. These
trends and spending on health services are of great concern to the Indian government. Among other sources of
funding, the central government has exposed CSR spending for health and COVID-19
projects.
The Ministry of Corporate Affairs issued General Circular No. 10/202034[9]
dated March 23, 202. It is established
that if companies and CSR institutions spend money on activities related to
COVID-19, it is considered an
expenditure on CSR activities. . Therefore, according to this circular,
activities related to COVID-19 are
listed in Schedule VII in points (i) and (xii), including activities related to
health and hygiene promotion and
disaster prevention, relief and management. The business sector has come
forward to donate resources to the efforts
being made to reduce the epidemic.
PM CARES UNDER THE SEVENTH
SCHEDULE TO THE COMPANIES ACT, 2013:
Following
the crisis of the COVID-19 pandemic, the Prime Minister's Citizens' Aid and
Relief Fund (PM CARES Fund) was created on an emergency basis. an office memorandum was issued. Mar 28, 2020. It
said that the PM CARES Fund will be included in "clause (viii) of Schedule
VII to the Companies Act, 2013".
It has also been clarified that donations to this fund will be treated as
expenditure on CSR funds. Prior to
this circular, the Company has already contributed to the Prime Minister's
National Relief Fund and other funds
specified in loan number (viii)[10].
The pandemic has slowed markets and hit the corporate sector hard. Prime
Minister CARES disputed
that the government said it was not a right to speak.
PUBLIC INTEREST RELATIONS CENTER VS.
UNION OF INDIA:
The
transfer of funds from PM CARES to the National Disaster Response Fund (NDRF)
through a writ petition filed in the
Supreme Court of India. The government has declared PM CARES a charitable fund and a public trust. It has also been
argued that public trust funds cannot be transferred to statutory funds like the NDRF. Contributions to the NDRF come
from central government and state funds. Senior advocates Dushyant Dave and Prashant
Bhushan[11] represented COIL. The petitioner alleges that PM-CARES is not under the scrutiny of the
CAG and thus avoids public scrutiny. The argument for the government finds some logic in every
illusory situation. It was submitted that the corporate sector should contribute to the COVID-19 Support Fund
(PM-CARES). Because in return these companies benefit from CSR (eg market value and stakeholder engagement), not for countries' budgets.
DECISION OF THE SUPREME COURT:
The
answer of the Supreme Court is negative in three questions. After hearing the
arguments of both parties, the court declared
that the petition
has no basis. Accordingly, the application was dismissed.
CASE ANALYSIS:
Non-governmental organizations that receive income from CSR spending have
been severely affected by the crisis
mode and the CSR response to the pandemic. Since most funds have been diverted
to activities related to COVID-19,
the government has lost the need for these NGOs to carry out programs other
than COVID-19 relief efforts.[12]
NDRF was neglected during the pandemic as it received only Rs 81,115 in CSR expenditure.
CRITICISMS AND FUTURE
PROSPECTS OF CSR IN INDIA:
Despite its benefits, CSR in India faces
several challenges and criticisms. One of the main challenges is the lack of clarity and consistency in the
implementation of CSR activities. Companies often struggle to identify
relevant projects and measure the impact of their initiatives.
Another challenge is the issue of compliance,
with some companies failing to meet the mandatory CSR spending requirements. There are also concerns about the
effectiveness of CSR activities, with critics
arguing that some initiatives are merely superficial and do not address underlying issues.
Despite the challenges, the future of CSR in India looks promising. Companies
are increasingly recognizing the importance of CSR in
achieving sustainable development goals and are integrating CSR into their core business strategies. The
government is also taking steps to promote CSR, such as through the introduction of the National
Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of Business in 2011.
Going forward, it will be important for
companies to focus on impactful and sustainable CSR initiatives that address the needs of stakeholders and
contribute to the overall development of society. Collaboration between government, businesses, and civil
society will also be crucial in realizing the full potential of CSR in India.
CONCLUSION:
CSR has emerged as a key component of
corporate governance in India, driven by legal mandates and societal expectations. The Companies Act,
2013, has played a crucial role in institutionalizing CSR in India, making it mandatory
for certain companies to allocate resources for social development. While CSR in India faces challenges and criticisms, its impact on communities and businesses
cannot be ignored. With the right approach and collaboration, CSR has the potential to drive sustainable development and create
a positive impact
on society.
[1] Ministry of Corporate Affairs Report of the
High-Level Committee on Corporate Social Responsibility 2018 (Ministry of
Corporate Affairs 2019) ch. 2, Pg. 21.
[2] Ministry of Corporate Affairs, GOI, Corporate
Governance Voluntary Guidelines
[4] Sub-Section (1) of Section 135,
Companies Act, 2013
[6] Sub-sections (3) and (4) of Section 135, Companies
Act, 2013; Rule 5(2) of the Companies (CSR Policy) Rules, 2014
[7] Sub-Section (6) of section 135,
The Companies Act, 2013; Section 21 (b) of Companies (Amendment) Act, 2019
[8] (n3), The Companies Act, 2013; Section 27(b) of the
Companies (Amendment) Act, 2020 https://www.mca.gov.in/Ministry/pdf/AmendmentAct_29092020.pdf accessed on 30th November 2021
[9] General Circular No. 10/2020, No. 05/01/2019,
Ministry of Corporate Affairs, GOI, https://www.mca.gov.in/Ministry/pdf/Covid_23032020.pdf accessed on 30th November 2021
[10] Legal Correspondent, ‘Supreme
Court to pronounce judgment on PM Cares today’, The Hindu, Published on August
18, 2020, https://indiankanoon.org/doc/175813671/ accessed on 30th November
2021
[11] Legal Correspondent, ‘Supreme
Court to pronounce judgment on PM Cares today’, The Hindu, Published on August
18, 2020, https://indiankanoon.org/doc/175813671/ accessed on 30th November
2021
[12] Writ Petition (s) (Civil), No. 546/2020,
https://indiankanoon.org/doc/175813671/ accessed on 30th November 2021
Article Information
INDIAN LEGAL FRAMEWORK AND CORPORATE SOCIAL RESPONSIBILITY.
Authors: AMNA ALI, DR GARGI BHADORIA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/03/27
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
All research articles published in International Journal for Legal Research and Analysis are open access and available to read, download and share, subject to proper citation of the original work.
Disclaimer: The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of International Journal for Legal Research and Analysis.