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About Corporate Social Responsibility in India

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The term Corporate Social Responsibility can be defined as the responsibility of corporate towards society and environment. The new concept of CSR based on the ideology of give and take. Companies take resources from society and the environment in the form of raw materials or human resources etc. 

By performing the task of CSR activities, the companies are giving something back to the society and environment. This article is an attempt at understanding CSR applicability in India, and other applicable provisions under companies Act.

What Is Corporate Social Responsibility and Why Is It Important?

We live a modern life in a world that is growing more and more complex. Global scale environmental, economic, social and cultural issues have now become part of our everyday life. Making profits is no longer the sole business purpose for the corporate and they have to play the role of responsible corporate citizens as they perform a duty towards the society, where they operate and receive resources from it and as such, they are part of society.

Corporate Social Responsibility is underpinned by public policy; hence it has undeniable links with law.  The concept of CSR is not new for India and the concept of trusteeship advocated by Mahatma Gandhi, he was embraced by many companies, in various forms over the years.

The government realizes CSR importance as the business contribution to the nation’s sustainable development goals. Essentially, it is about how business takes into account the social, economic, and environmental impact of the way in which it operates. Perception of the government of India about CSR gained shape and form in the Companies Act, 2013, which mandates Companies to perform CSR, as one of the Board Agenda.

Benefits of corporate social responsibility is the way corporations manage their businesses to produce an overall positive impact on society through social, environmental and economic actions. CSR also known as corporate citizenship, social performance, corporate conscience, or sustainable responsible business. Business depends for its survival on long term prosperity or wealth of the society.

Corporate Social Responsibility is an important business strategy because, to some extent a consumer wants to buy goods from corporates he trusts, a supplier wants to form business partnership with corporates he can rely on, an employee wants to work for a corporate he respects, other concerns want to establish business contacts with corporates seeking feasible solutions and innovations in areas of common concern.

Corporate social responsibility is basically a new business strategy to minimize investment risks and maximise profits by taking all the key stakeholders of the company into confidence. The proponents of this perspective include CSR in their advertising and social marketing initiatives. It is a tool to increase the reputation or goodwill of the company in the eyes of society.

It is certainly a business approach that creates a long-term customer and employee value by not only creating a ‘green strategy’ on environment but also considering every dimension of how a business operates in cultural, social, and environment. The company should meet the needs of its all stakeholders (customer, shareholder, employees, supplier, clients and other related persons) without sacrificing the ability to satisfy the needs of the future stakeholders.

NEED OF CSR

Corporate social responsibility ideas help corporations generate a lot of goodwill or reputation to companies either directly or indirectly. These include

  • Making employees more loyal towards the company and helping companies retain them in the long run.
  • Make corporations more legitimate and help them in accessing a greater market share.
  • Since companies act ethically and legally, they face less legal hurdles.
  • Bolster the goodwill of companies amongst the public and help in strengthening their “brand value”.
  • Help in the stabilization of stock markets in the short run as well as long run
  • Since companies more self-regulate and act as most ethical and legal, limiting state’s involvement in corporate affairs as companies.
  • Corporate Social Responsibility helps companies and other stakeholders like their shareholders to help in the development of a country’s economy on a macro-level. They motivate corporations to cooperate and communicate with each other, their customers and the administrative machinery.

The CSR offers bundle of benefits to other stakeholders as explain below:

  • The Standard of living has been improved with the introduction of more amenities.
  • Management of waste has been improve
  • Companies involved in large-scale “capacity building” due to which the society becomes wealthier and more prosperous.
  • Makes a more balanced world and healthier environmental systems.
  • Ecosystems become healthier due to CSR activity.
  • a greener and cleaner environment is created.

Advantages To The Corporations are as follows:

Creates greater goodwill and respect.

Helps the corporation to grow fiscally and makes it more competitive.

Helps the corporation to communicate with types of corporate social responsibility stakeholders and helps them understand their needs

Employees feel proud to be associated with a balanced corporate organization

Applicability of CSR in India

Corporate social responsibility reports are compulsory for all companies whether it is government company or private company or otherwise, provided they meet any one or more of the following fiscal criterions

  • The net worth of the company should be Rs. 500 crores or more
  • The annual turnover of the company should be Rs 1000 crores or more
  • Annual net profits of the company should be at least Rs 5 crores.

If the company meets any one or more of the three fiscal conditions as prescribed above, they are required to create a CSR committee to enforce its CSR mandate, with at least 3 directors of the company, out of which at least one director shall be an independent director. If a company is not required to appoint an independent director as per the Act, then such committees have two or more Directors.  However, if any private company has only two directors in the board, then shall constitute its CSR Committee with two such directors.

The Corporate Social Responsibility Committee of a foreign company shall contain at least two persons wherein one or more persons need to be resident in India and the other person nominated by the foreign company.

Every company includes its holding company or its subsidiary company and also a foreign company having its branch office or project office in India.

If a company ceases to meet all the three fiscal conditions for three consecutive financial years, then shall not be required to comply with provision of section 135 of the Act till such time it meets any one or more of the three fiscal conditions.

Function Of Corporate Social Responsibility Committee:

  • Creation of an elaborate CSR activity policy to implement its legally mandated CSR activities. CSR activity should conform to Schedule VII of the Companies Act, 2013
  • Recommend the CSR expenditure to be incurred on the activities stated in Schedule VII of the Companies Act, 2013
  • Oversee the CSR Policy of the company from time to time.
  • The committee must ensure that local issues and regions are given first preference as part of CSR activities.
  • CSR policies should be hosted on the company’s website, in the form and format approved by the committee.
  • Corporate Social Responsibility committee must regularly assess the net profits earned by the company and ensure that at least 2 percent of the profit is spent on CSR related activities.
  • The board of directors of the company is bound to any CSR related suggestion put up by the such committee.   

CSR Spending

Every company shall spend at least 2 % of the average net profits made during the three immediately preceding financial years in every financial year.

If a newly incorporated company has not completed three financial years since its incorporation, then spend at least 2 % of the average net profits made during such immediately preceding financial years.

The board of the company shall ensure that the administrative overheads need not exceed 5% of total CSR expenditure for the financial year.

Any surplus or profit arising out of the CSR activities shall not form part of the business profit of the company and shall be utilized for the same project or transferred to the Unspent CSR Account and transfer such profit into Fund specified in Schedule VII within a period of six months from the expiry of the financial year.

Companies shall give preference to the local area for spending the amount towards the Corporate Social Responsibility activities.

If the company fails to spend such an amount, the Board of director of the company shall state the reasons for not spending the amount in its report.

Corporate Social Responsibility Policy

CSR Policy relates to the activities to be performed by the company as mentioned in Schedule VII to the Companies Act and the expenditure thereon, excluding activities performed by the company in pursuance of normal course of business of a company.

The CSR Rules specifies that the Corporate Social Responsibility Policy of a company need to include the following

  • A list of CSR programs or projects which a company plans to perform falling within the purview of the Schedule VII of the Companies Act, providing modalities of execution of such programs or projects and implementation schedule for the same; and
  • Monitoring process of such programs or projects.

But the activity should not be performed in pursuance of the normal course of business of a company. The Board of director of the company shall ensure that the activities included by the company in its CSR Policy are related to the activities prescribed in Schedule VII of the Act.

CSR Implementation

Company shall undertake Corporate Social Responsibility activities in the following manners:

  • CSR activities are undertaken by the company itself
  • Through Section 8 company or registered public trust or registered society, incorporate by the company, either singly or along with any other company
  • Through Section 8 company or registered public trust or registered society, incorporate by the Central Government or State Government
  • Through entity incorporated under a state legislature or an Act of Parliament
  • Through Section 8 company or registered public trust or registered society having track record in undertaking similar activities for three years.

Every entity shall register with the Central Government for undertaking any CSR activity by filing the form CSR-1 with the registrar.

Form CSR-1 shall be signed by the entity and verified by a Chartered Accountant/ Company Secretary/Cost Accountant in practice.

On the successful submission of the Form CSR-1, a unique CSR Registration Number shall be allocated to the entity.

Disclosure requirement

The Board's Report of a company shall contain an annual Corporate Social Responsibility report as per Annexure I or Annexure II of the.

If the company fails to spend CSR amount, the Board shall specify the reasons for not spending the amount in its report.

Company shall disclose the composition of the CSR Committee and Corporate Social Responsibility Policy and Projects on its website.

List of CSR Activities

The activities enlisted in the amended Schedule VII of the Companies Act, are broad-based and are intended to include a wide range of activities as illustrated. These are activities related to

  • Eradicating hunger, malnutrition and poverty and sanitation and making available safe drinking water.
  • Promoting education including vocation skills programme.
  • Promoting gender equality, setting up homes and hostels for women and orphans; empowering women, setting up old age homes, day care centres.
  • Environmental sustainability, protection of flora and fauna, animal welfare, conservation of natural resources and maintaining quality of soil, air and water 
  • Protection of national heritage, culture and art
  •  Measures for the benefit of armed forces veterans, and their dependents
  • Training to promote rural sports, Paralympic sports and Olympic sports, nationally recognised sports
  • Donation to the prime minister’s national relief fund 
  • Contribution to incubators or research and development projects in the funded by the Central Government or State Government or Public Sector Undertaking 
  • Contributions to public funded Universities
  • Rural development projects
  • Slum area development.

List Of Activity Which Is Not Consider As CSR

  • Activities undertaken by the company in the normal course of business.
  • Donation to any political party under section 182 of the Act;
  • Any activities benefiting employees of the company
  • Any activities undertaken by the companies for deriving marketing benefits for its products or services
  • Any activities undertaken by the companies for the purpose of fulfilment of any statutory obligations under any law.
  • The Corporate Social Responsibility projects or programs or activities or action plan undertaken in India only shall consider CSR Expenditure.

Penal provision

  • If Company makes default relating to CSR spending, transferring and utilising the unspent amount, then the company shall be liable to a penalty lower of following
  • Twice the CSR amount required to be transferred by the company to the Fun                                                                    OR
  • Rs. One crore
  • Every officer in default shall be liable to a penalty lower of following
  • 1/10th of the CSR amount required to be transferred by the company to such Fun                                                                        OR
  • Rs. 2 lakhs

Conclusion

Corporate Social Responsibility in India was introduced with the hope that it would bring about a change in the attitude of companies, who would give back to the society as it was the society whose needs helped them prosper in the first place. Similarly, it was also felt that the society would also get help as the government has been found to be seeking in its efforts to help local populace in several instances.

The CSR act, despite all its good intentions, has failed to cover a lot of ground. It has given an impetus to corporates to give back to the society, however, due to some procedural and policy inadequacies, it has failed to set up a fool-proof method of undertaking Corporate Social Responsibility. Faulty criterions to determine the extent of money spent, selective and self-serving CSR tasks, fudging of data or short-term money spending are some of the main problems that CSR laws in India and policy suffer from. Therefore, the need to change the CSR laws and amend it to become long-term, uncomplicated and easier to monitor. CSR laws, with some modification, will greatly help society in the near future.