ABSTRACT: The concept of Corporate Social Responsibility (referred as CSR) has become a dominant concept which is mandatorily followed by business vide Section 135 of The Companies’ Act, 2013. Thus, every entity is required to furnish its CSR report explaining such activities otherwise one may suffer from serious consequences of it with a charge of heavy penalty. Moreover, India is one of the first countries who have incorporated CSR. CSR functions on the major principles of sustainability, accountability and transparency and now every big firm such as Reliance, Tata Motors, Dabur focus on such activities which provide aid and leads to upliftment of social welfare of people in the country. Thus, the aim of the research is to analyze the implications of such concepts under the Indian law and comprehend the strategies followed by the firms.
India is the first country which has mandated Corporate Social Responsibility to certain categories of companies vide Section 135 of The Companies Act, 2013. Indian business houses follow the richest tradition of philanthropic activities. CSR has always been viewed from a trusteeship notion and has evolved due to the introduction of concept of mixed economy and policies such as liberalization, globalization and privatization. Big companies such as BPCL, HUL, Tata, Birla, etc are involved in serving community development and work for providing medical and sanitation facilities, building schools, etc.
CSR is defined as economic, social, legal, ethical and discretionary expectation that society has from an organization at a given point of time. It is said that-
“Business organizations have moral, ethical and philanthropic responsibility in addition to their responsibility to earn a fair return for investors after complying with provisions of law.” 
Section 135 of the Companies Act, 2013 provides with the concept of CSR. According to it, CSR is applicable only to following companies-
“Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director”
For this, Section 135(2) provides with composition of the committee such formed must be disclosed under the statements under Section 134(3) of the Act. The role of the committee is to form and recommend the CSR policies to the Board complying with Schedule VII of the Act, which describes the activities to be embraced under CSR which have been updated in the year 2014. The committee, is required to monitor and ascertain the amount of expenses to be incurred.(Section 135(3) ). The company is required to publish the contents of CSR policy at appropriate places along with on its website. (Sec. 135 (4)). The company should incur at least 2% of its average net profits of the 3 preceding years on CSR by giving preference to local area.Those organizations contravening with CSR rules can be fined from Rupees Fifty Thousand to Rupees Twenty Five Lakhs and liable officers can be imprisoned for a period of three years under Sect. 134 (8) of the Act. But late in 2019, government has appointed a penal to decide the violation as civil offence and no jail may be considered. Though the social obligations under CSR have been introduced by the Central Government but such provisions mentioned under the act are subjected to judicial review.
Thus, CSR helps the firms to become a good corporate citizen and helps in giving rise to the welfare of the community and enhance the profitability by taking care of its stakeholders. Therefore, the author in the following chapters will deal with the meaning of CSR and its impact, the terms under the Act including the case laws.
The methodology implemented for the research is qualitative in nature and based on secondary type of data (information). The sources of secondary type of data encompass books, published articles, journals, newspapers, blogs, various websites, government records, etc. The author in its research shall count on various articles/ periodicals by International as well as Indian authors that deal with CSR under The Companies Act, 2013 and legal databases such as Manupatra.
From the above research, Corporate Social Responsibility can be classified into a positive hypothesis as CSR helps the firms to increase their profitability, increase the goodwill/reputation and brand image of the firms and also safeguarding the interest of the stakeholders. A good CSR implication helps in boosting the productivity of the employees. It allows the firms to have product differentiation by creating unique products and staying ahead of its competitors and various other benefits. Thus, CSR creates a positive impact on the firms through its terms and regulations.
REVIEW OF LITERATURE:
For the research to be more effective, the past researches done by various scholars on CSR have been cited below which are as follows-
Article authored by Gond and Jean Paul analyses the past researches made on the performance of the CSR. It explains different models of CSR which were followed in the past years and their recent developments. The research has depicted that the social performance of the various firms have helped in the development of the organizations.
The article by Shah Bhaskar analyses the relationship between the company and the society with the help of the CSR activities in Bharat Petroleum. It states that organizations takes inputs and resources from the society itself for its functioning, therefore, it is the duty of it to pay back to the society by helping the society to fight with the social issues.
The article on CSR under Companies Act, 2013 by Sharda Mani describes evolution of the social activities performed by the organization in ancient and the current period. The articles talks about that India has a richful culture which is based on the concept of charity and generosity and therefore, the concept of social development exists in the country. It has been followed by merchants in the past and now by the companies.
Hartman in his article after analyzing the CSR activities in the food industry highlighted the need of CSR for the high brand companies in the food industry. The research concluded that the small scale industries in such sector are less efficient to invest for CSR expenditure. It is also noted that consumers of various products buy only products of those companies which engage in the social development of the society.
The Economic Times published one of the speeches of Dr. APJ Abdul Kalam where he gave more weightage to the concept of social obligation of the companies to devote it to the public at large. The Kalam urged the companies to send the amount of their net profits for a good cause. He believed that incurring expenditure on CSR activities will improve the lives of the citizens.
The article, Emerging trends of CSR analyzes the performance on the basis of CSR of thirty companies listed in BSE. The paper examined the nature of the programmes launched by the companies for the benefit of the society. It is concluded from the research that the firms are now socially amiable. Therefore, the companies are heading towards a different direction by adopting CSR.
Thus, there is a variety of literature on Corporate Social Responsibility which has been stated above. Therefore, the author shall utilize the above cited literature in the present study.
1. MEANING, EVOLUTION AND PROVISIONS OF LAW FOR CSR IN INDIA
1.1 EVOLUTION OF CSR:
Among other countries of the world, Indian business houses are considered as a land of cultures where charity and munificence is paramount. India is considered to be one of the first countries in the world which has adopted CSR measures under law. Thus, the concept of Corporate Social Responsibly can be divided into four phases which are as follows-
At the very first instance, benevolence was main diverse of social responsibility in corporate field. Industrialists have a great influence on the activities of CSR. The wealthy merchants used to donate their earnings to the temples till 1850’s. During famine and epidemic, they provided food from their warehouses to poor people. During this period, companies like Tata, Birla, Godrej, Modi, etc spent money on CSR activities not only based on selflessness but their activities were also based on political considerations too.
Phase two included the concept of CSR activities which were viewed as a trusteeship notion. Business tycoons established schools, colleges, scientific institutions, hospitals, etc. Due to Gandhi’s influence, untouchability was abolished and work was done for the development of the rural areas and women empowerment.
The third face included the developments between the years 1960-1980 where the concept of mixed economy was prevalent. There were so may PSU’s and policies of industrial licenses, high tax mandates and restrictions on the private sector. This lead to the emergence of the P.S.U. and emphasis was led mainly to the transparency and social accountability with the stakeholders.
At last, the phase fourth in the year 1990 where liberalization, globalization and privatization (LPG) was promoted, licenses and controls were partly withdrawn which led to a boost in the country.
The current status of CSR includes the Companies like Tata, Birla which are involved in serving community development whereas the companies such as Maruti, HUL work for providing medical and sanitization facilities, building schools and colleges, improving villages and providing vocational training to the people. The CSR of other various firms focuses on providing set ups for health camps for tribal people and the non- governmental organization work for the rehabilitation of victims suffered from disasters and other uncertainties and risks as a CSR activity.
Therefore, CSR can be defined as a concept where the companies earn profit and contribute towards the development of the society to work for great social causes which are in the interests of the stakeholders and outsiders to such companies.
1.2 SEC. 135 OF COMPANIES ACT, 2013:
India is one the first country in the world to introduce a statutory CSR through Section 135 of the Companies Act. The operating provisions of the CSR provides-
1. Constitution of CSR Committee.
2. Preparation of CSR policy.
3. The CSR policy should specify the tasks that may be followed by specifying modalities of the execution in the area chosen.
4. It must prepare a mechanism to monitor the activities of the company for proper implementation.
Implementation of CSR can be done by creating a trust/ society and the companies may collaborate or pool resources with the other companies to undertake CSR activities. The schemes which do not benefit the employees and the families may be taken up as CSR but such activities shall only be considered within the boundaries of India.
Under the Companies Act, Section 135 deals with the provisions of the CSR which has been mandated to certain categories and the provisions are as follows:
1. Section 135 (1) states that every company shall constitute a CSR committee if the net worth of such company exceeds Rs. 500 crores or more or having its turnover of Rs.1000 crore or a net profit of Rs. 5 crores in a any financial year. Company shall a form a CSR committee of the Board consisting of 3 or more directors of the Board having at least one independent director.
2. Such Committee shall formulate the policy for CSR with respect to Schedule VII of the Act and suggest CSR expenditure to the Board under Section 135(3).
3. The Board of every company will review the CSR policy recommended by the committee and will approve the CSR policy of the company. The company is required to disclose the above policy on the company’s website too. The committee will ensure that company is following the approved policy in a proper manner.
4. The BOD of every company shall ensure that company spends at least two percent of the average NP of the company during the last three financial years for executing the CSR policy.
The company should give preference to the surrounding area for the social development.
5. If it is unable to incur specified amounts on CSR, the BOD shall specify the appropriate justification in its report under Section 134 (3) and the calculation of the NP of past three stated above should be with respect to Section 198 of the Act.
1.3 CSR RULES AND SUBSEQUENT AMENDMENTS:
Section 469 of the Act grants power to MCA to make rules with respect to the Act. Therefore, The Ministry has framed CSR rules, 2014 (Rule 4) which provides that a company can form an NGO as per requirements of Section 8. It can also create a trust/ society with respect to Section either individually or with other companies or as per NGO established under Central / State Acts enacted by the parliament where as the amendment rules formed in the year 2016 which is relation to rule 4 states that company can only execute the formation of the NGO when such company/ society/ trust has a record of three years of performing homogenous kinds of activities and projects under a proper mechanism. In 2017, the amendment was with respect to net profit of the company which should be with respect to Section 198 and in a case where the company has no independent director and then two or more directors can form the part of CSR Committee.
There are recent pandemic situation of COVID -19 have forced government to bring further amendment to the CSR rules. Apart from Schedule VII which defines the areas for CSR expenditure to be invested such as for promoting women empowerment, gender equality, eradication of hunger, protection of heritage culture, etc, the government has now insisted the companies to spend on the developments for the equipments and medicines of the corona virus which will be treated as CSR. However, the amount spent by the companies in donating to the Chief Minister/ State fund shall not be considered as part of CSR expenditure and the details of such spending shall be mentioned separately in the Annual Report.
The latest amendment of the Act in 2020 provides that if a company is found at default of not following the provisions under Section 135(5) then it shall be liable to pay twice the amount incurred in the activities of Schedule VII or the unspent CSR expenditure or the amount of Rs. 1 crore whichever is less. And the officer in default shall pay one- tenth amount spent for schedule VII or for unspent CSR or amount of Rs. 2 Lakhs whichever is less.
Thus, the Indian legislation has created various laws to implement the CSR policies for the benefit of the society which provides mandatory regulations under the law/ rules which are to be followed by the companies to achieve the objective of such concept.
2.IMPLICATION AND REPURCUSSIONS OF CORPORATE SOCIAL RESPONSIBILTY (CSR)
The following chapter will deal with CSR model of various firms in India with respect to the laws under the Companies Act, 2013. On the other hand, it will also deal with repercussions of not following the CSR model with the help of the analysis of various cases.
2.1 CSR STRATEGIES FOLLOWED BY COMPANIES:
CSR has been followed over the past years. Companies like TATA, Birla, and Reliance have always followed it. Therefore, CSR definitely helps a firm to get advantage over its competitors, cost saving and high level of engagement among the employees. The provisions under Section 135 have encouraged firms to engage in new concept which aids to the development of the firms in a positive manner.
TATA Motors have always been a company possessing better brand equity and goodwill in the market. The net profit of the company for past four years is around 2 billion in Indian currency and it has spent its CSR expenditure efficiently. The company spends its CSR expenditure for the benefit for the underprivileged sections of the society in the field of their health, education and employment especially for the SC’s and ST’s. In the previous financial year, the company has almost helped over 8 lakh people by CSR.
On the other hand, the CSR strategy of the Mahindra and Mahindra Ltd. , the competitor of TATA Motors focuses on taking care of the planet earth and the people belonging inside and outside of the organization. The company has always believed in the concept of sustainable development, therefore, it aims to work efficiently to reduce carbon footprints and reuse and recycle the manufactured items. Not only this, it focuses on women empowerment and provides education to the girl child.
Whereas under software industry, Infosys Limited has followed mostly all the parameters mentioned under the Schedule VII. The policy focuses on areas for providing facilities to the rural area by providing them clean drinking water, healthcare and sanitation facilities, working for restoration for heritage sites in India, promoting women empowerment and setting homes/ shelters for senior citizen and differently abled.
The CSR police of Dabur focus on sustainable development by adopting plantation drives, protecting plants and animals, improving soil quality, etc It also focuses on providing vocational training programs for various age groups and the other activities include the promotion of sports in rural areas and to hire people for the implementation of such activities.
Thus, most of the companies which fulfill the eligibility criteria under Section 135 of the Act follow CSR strategy. It can be observed though it is the mandate on the companies but the companies are trying to bring innovative measures to the concept of CSR under the ambit of Schedule VII to improve its image and fight for a good cause for the society.
2.2 VIOLATION OF CSR- CASE LAWS:
The violation of the CSR policies often land the companies into the courts/ tribunals and suffer with heavy fines and costs ordered by the court. If the company is found in violation of CSR, then a fine ranging from Rs. 5, 00,000- Rs. 25, 00,000 shall be imposed and if an officer is found in default then he/ she may be subjected to an imprisonment o f3 years with/without fines between Rs. 50,000 to Rs, 5,00,000. Thus, the repercussions of violations of CSR have been stated below with the analysis of various case laws.
In Pan Asia Logistics India Pvt. Ltd. case, the company failed to frame CSR for the years of 2014 and 2015 but the company complied with disclosing the report only for the year 2016. The company along with its director filed a suo motto which was voluntarily filed by them for violation section 135 read with section 450 of the Act. The law says that any director who does not take the charge of the operation of the company shall be fined with Rs. 10,000 or may be fined Rs, 1,000 per day till the contravention functions. Therefore, the court remitted the fees but it ordered the directors to pay from the resources of their own and to comply with such order within a period of three weeks. The determination of CSR can only be done after the finalization of all the accounts of the company. In another case, the company contended that the threshold limit for CSR is calculated after tax, it also stated that the CSR is a new provision and it is not understood by the company and therefore, they didn’t disclose and formed the CSR Committee. Therefore, the NCLAT held the company liable and disposed the petition and ordered the company to constitute a CSR committee.
In another case, where the assessee company incurred CSR expenditure on a trust but it could not disclose the necessary details to furnish it and was unable to prove the nexus of the company with respect to the expenditure, the court held such expenditure to be as invalid.
Thus, the courts and the tribunals take strict action if the companies and the officers are found in default and if they do not comply with the provisions of the CSR mentioned in the law.
CONCLUSION AND RECOMMENDATIONS
From the above findings, it can be concluded that the concept of Corporate Social Responsibility (CSR) is applied in a righteous manner by making the provisions mandatory for the companies under the Indian Law.
The activities forming CSR are now being adopted by various companies. The report by Confederation of Indian Industries (CII) states that 1,270 companies in 2016 spent an amount of Rs. 8,185 crores as CSR expenditure which is 27 percent more as compared in the financial year of 2015 and there were more improvements found in the year 2016 with respect to the disclosure. Whereas, the report by FICCI also concluded that 83% of the companies who took part in the survey have increased the activities for CSR in 2016 – 17 which is 6 % more than the previous year.
Corporate Social Responsibility impacts the overall development of various parts of the society. Companies have slowly realized the value of CSR and have started following the provisions stated under law very seriously. However, it is discovered that there is a need for awareness related to CSR in the minds of the general public to make this concept more efficient and effective. Thus, it shall also motivate the big corporate houses to invest profits for the betterment of the society. The partnerships between various companies and NGO will lead to faster implementation of such policy.
The concept of corporate governance does not guarantee towards the safeguard of protecting the economic environment and development of the society .The necessity of CSR has increased due to the increase in the number of incidents occurred in MNC’s such as the Bhopal Gas Disaster, Uniliver instance at Kodaikanal and various other threatening instances which provides the legislature to enforce CSR in law.
Thus, rigid guidelines with a comprehensive plan shall be issued so, as to bring the reforms to improve the situation. CSR is helping to grow the development rate in the country. It will just be an aid to the government to implement its welfare schemes for better progress.
The mandatory provision of CSR is a rigid step undertaken by the legislature to enforce the social activities by the companies. This concept has hindered the externalities for the smooth functioning of the government. However, people believe that such concept is just introduced to gather the attractions of the people to earn more vote banks to reduce their political insecurities.
Therefore, the government shall look into the drawbacks of such provision and frame new provisions which provide an ease to such concept. The main critique of the provision is that it results in lesser profits in a longer aspect which may damage the present economic activities of a firm. The inserted provision creates challenge to implement economic freedom, mandating the part of some of the net profit by a means of legal pressure which hinders the decision- making process of the companies.
The other challenges which can be found in CSR provisions include that this legislation does not focus on the important social matters, the clause is silent about the implications of spending on CSR activities. If the legislature frames a plan regarding the same issue, the feasibility for such cannot be questioned. Many scholars opine that the compliance of CSR is just mere guideline; most of the companies depict advanced balance sheets by finding ways to discount information through accounting techniques.
Thus; it is the duty of government to make a comprehensive provision as the activities stated under Schedule VII cannot be restricted. An independent body shall be incorporated which ascertains that there is no inconsistencies left in the act. Such body shall also analyze the impact of the condition of 2% spending by the companies on and to save them from government inquiry.
Therefore, in the present scenario where globalization is more prevalent in the world, the concept of CSR can be seen a new wave in the field of company law which shall break the ancient norm of having it as an elective activity and it will lead India to reach at a platform to become a developed county among various nations.  Keeping in view of the success of CSR activities, the author suggests that the companies act shall also include all companies having net worth of. 250 crore to 500 crore rupees or sales of Rs. 500 – Rs. 1,000 crores or company’s earning profit of 2.5 crore to less than 5 crore rupees should also spend 1 % of three years average profit on CSR activities. This recommendation if implemented will provide money for the environment and social development of the country.
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