Introduction
Corporate Social Responsibility (CSR) deals with the Company’s moral commitment to contribute positively to society and the environment, beyond solely maximizing profits or obeying with the law. If we analyse CSR in global context then, CSR has Developed into a Strategic Framework through which Companies line up their operations with larger societal goals like sustainability, environmental protection, economic development and human rights. In the year 2013, CSR was introduced for the first time in section 135 of the companies act 2013, and back then the CSR provision was not mandatory in nature but it was voluntarily. The Framework was relied on the principle that companies would contribute the stipulated amount sincerely and if they are unable to contribute then they should explain or give a proper reasoning that, why they were unable to contribute. The government noticed that there is a substantial shortfall in compliance because of voluntarily contribution and proposed an amendment companies (Amendment) act 2019 to establish more stricter regime of CSR.
In short the changes to section 135 after amendment were that, Companies which are in profit should mandatorily spent at least of 2% of their average net profit, if any CSR amount is unspent then it should be transferred to a special account named as unspent CSR Account and spent further in the ongoing financial year. Any violation with the amended CSR provision would lead to penal sanction for the company (fine of Rs.50,000 to Rs.25 lakh), in addition to penalties for officers who were in default. After the change in the strictness in the CSR regime, there’s been a central question that is CSR just a new guideline that companies have to follow, or this amendment can really bring positive shift in how business functions and give back to society? With stringent laws and need to comply or explain, does this really encouraging companies to act obediently or simply turning CSR into a compulsory task which needs to be done.
The main purpose of CSR is to give back to the society, it’s a noble task, so by making it mandatory the primary concern raises here is its legitimacy and Efficacy. It is a legal mandate that the company should spent at least 2% of their average net profit to CSR activities. So does this mandatory clause here really helps in achieving the objective or the Company will only see this as a legal mandate which needs to be fulfilled by any cost.
Legislative Framework Governing CSR in India
Section 135 of the companies act regulates the CSR functioning in a company, it lawfully mandates several companies with specific financial threshold. The thresholds are, if a company is having a net worth of Rs 500 crore or more, a profit of Rs 5 crore or more, or a turnover of Rs 1,000 crore or more. Companies meeting these criteria should need to spent at least 2% of their average net profits from the financial years on CSR activities.
If a mandatory clause is there in the section then there should also be a committee that is responsible for the monitoring of the CSR activities, So Section 135 of the Companies act mandates the company to create a CSR committee by the reference of the Board, which will certainly look into the CSR matters like Drafting, Monitoring and reporting the CSR policies, the committee will certainly help the company to achieve the mandatory spent of 2% on CSR activities, they will suggest the company that in which sector they should spent their CSR fund, they will also monitor and report that if the CSR fund is spent beneficially to the Society.
Schedule VII of the Companies act 2013 basically list out certain activities which a company should include in their CSR policy. These activities are Eradicating hunger, poverty and malnutrition, Promotion of education, Promoting gender equality, Ensuring environmental sustainability, Protection of national heritage and Contribution to the Prime Minister’s National Relief Fund etc. So, by specifying certain activities that a company may take for their CSR activities helps the company to choose diverse activities which benefits the society at large as well as helps the companies to choose those activities that align with their expertise. The list includes most important aspects of the Society that needs to be supported by the Companies.
There are notable amendments that made CSR policy more stringent than before, mainly the Companies (Amendment) Act, 2019, and Companies (CSR Policy) Amendment Rules, 2021, these amendments introduced new compliance requirements that if any CSR amount is unspent then it should be transferred to a special account named as unspent CSR Account and spent further in the ongoing financial year, further these amendments helped companies to spent their unspent amount in next financial year encouraging the companies to take long-term initiatives that have a continuous societal impact.
So in short legal frameworks which governs CSR in India are stringent in nature and mandates the companies to follow the CSR policy in India.
Judicial Interpretation and Regulatory Approach
The Ministry of Corporate Affairs (MCA) has played a significant role in moulding the CSR regime through, Clarifications, circulars and FAQs, basically these are quasi-legal instruments to guide corporate behaviour, these are not binding in nature like statutory provision, these instruments helps to fill legislative gaps, interpret ambiguities, and provide operational clarity on CSR compliance under section 135 of the Companies Act,2013.
The Ministry of Corporate Affairs (MCA) has issued several important circulars to clarify and guide the implementation of Corporate Social Responsibility (CSR) under Indian law. General Circular No. 21/2014, dated 18 June 2014, highlighted that the activities listed in Schedule VII should be interpreted in a broad and inclusive manner, allowing companies flexibility in designing CSR initiatives. This was followed by General Circular No. 01/2016 dated January 12, 2016, which provided detailed FAQs on various practical aspects such as eligible expenditures, implementation methods, and operational concerns. It also superseded earlier circulars, including 21/2014 and 36/2014. The most recent, General Circular No. 14/2021, dated 25 August 2021, consolidated FAQs following the Companies (CSR Policy) Amendment Rules, 2021, and addressed new concerns including treatment of unspent CSR funds, administrative overhead limits, impact assessments, and penalties for non-compliance. Collectively, these circulars reflect the government’s intent to provide regulatory clarity while allowing room for practical flexibility in CSR execution.
These circulars and FAQs help the companies for easy interpretation of corporate compliances, with the evolving nature of CSR obligations.
Global Perspective and Comparative Analysis
Corporate Social Responsibility (CSR) has evolved differently in different jurisdiction. In the USA CSR policy is not like India, in India it is a statutory mandate to release funds for CSR but in USA it is voluntary in nature and driven by market forces, consumer expectations, investor pressure, and reputation management. In UK it is also not statutory mandate to have CSR but in the UK Companies Act 2006, in section 172 – it is specified that Directors must act in good faith to promote the company’s success while considering employees, environment, community, and business relationships, and in section 414(c) it is specified that ESG report should be submitted by the Large Companies. France was the first country to adopt a compulsory and binding law on Corporate due diligence in 2017 to avert human right abuses, corruption and environmental harm caused by the French corporations. The 2017 law on the corporate duty of vigilance places a due diligence duty on large French companies and requires them to publish an annual vigilance plan.
Reform Suggestions and the Way Forward
If we talk about the future of CSR in India, then certain reforms are necessary to make it truly impactful. Section 135 of Companies act 2013 mandates 2% profit spending on CSR activities but the companies take this as an tick-box exercise and they do not focus on real impact of their CSR spending and because of this the focus should shift from merely spending 2% of net profits to introducing a standardized impact assessment framework that evaluates the effectiveness of CSR projects. Most of the CSR money are spent on Developed states like Maharashtra, Gujarat, Karnataka because most of the companies are operated from these developed regions and they spent their CSR in their specific region where they operate and undeveloped regions like Bihar, Jharkhand and northeastern states get very little share from the CSR initiatives so that’s why it is important that CSR should not be concentrated only in specific regions such as urban or developed areas; instead, there should be geographic equity, with all regions being monitored for fair distribution. The main aim of CSR spending is to make an impact on the society and help in betterment of the common people but this is not true the 2% mandate is not effective many CSR Reports only states the amount which they spend on the CSR activity, not whether the goals are achieved or not. So Strengthening transparency and accountability must also be prioritized so that people have faith in companies and believe that CSR initiatives are creating real impact. To achieve this, independent third-party audits should be mandated, ensuring that any discrepancies in CSR spending are effectively monitored. The main issue here is that Companies should focus on the real impact of the CSR activity that they have initiated and not on how much money they have spent on the CSR Activity.
Conclusion
Corporate Social Responsibility (CSR) in India has come a long way. Earlier, it was a voluntary commitment, but it was mandated on April 1, 2014, under Section 135 of the Companies Act, 2013, making India the first country in the world to implement a legal mandate requiring companies to spend a percentage of their net profits on CSR. While this legislative framework positioned India as a pioneer in mandating CSR, the genuine challenge is to ensure that it does not remain a mere compliance exercise but evolves into a real driver of social and environmental change. A comparison with other nations shows that many countries rely on voluntary disclosure and soft law mechanisms, whereas India has opted for a mandatory CSR provision. However, if CSR is to achieve its true purpose, the focus should shift from expenditure to actual impact achieved, along with ensuring geographical diversity so that every state benefits from CSR initiatives. Enhanced transparency, independent audits, and alignment with global sustainability frameworks can help bridge the gap between intent and impact. Ultimately, CSR in India should be viewed not as a statutory burden but as an opportunity for businesses to contribute meaningfully to inclusive growth and sustainable development.
Notes:
1 CMA MD Rehman, “CSR in India: A Comprehensive Guide to Regulations and Framework” ,Taxguru, May 18 , 2023, available at
<CSR in India: A Comprehensive Guide to Regulations and Frameworks>
2 Bharat Vasani et el, “Corporate Social Responsibility – Less Carrot More Stick”, CAM , August 7, 2019, Available at<
https://corporate.cyrilamarchandblogs.com/2019/08/corporate-social-responsibility-less-carrot-more-stick/ >
3 Ministry of Corporate affairs Inclusion in Schedule VII of The Companies Act, 2013, 21/2014, dated 18 June 2014, available at,
https://sansad.in/getFile/loksabhaquestions/annex/176/AU2080.pdf?source=pqals&utm
4 Ministry of Corporate affairs, Frequently asked question on CSR, 01/2016, 12 January 2016, available at
https://www.cacsindia.com/Uploads/Files/30fa5569-6ff0-462a-bbd7-4d6a91357ecf.pdf?utm
5 state of the union, European commission, Corporate sustainability and responsibility, 10th September 2025, available at
https://single-market-economy.ec.europa.eu/industry/sustainability/corporate-sustainability-and-responsibility
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