September 17, 2021

An Brief Overview on Corporate Social Responsibility

Companies Act

What is Corporate Social Responsibility?

Every individual living in society has certain commitments towards it. This is especially significant in instances of organizations, which are viewed as artificial people’s according to law. Any business association should target operating in manners that help it to satisfy the expectations of society. A Firm is allowed by society to complete its financial exercises and procure benefits, however, it ought to likewise refrain from exercises that are undesirable from the general public’s viewpoint


Corporate Social Responsibility (CSR) can be said to mean the accomplishment of commercial achievement in a manner that honors morals and regards individuals, communities, and the climate. It additionally includes tending to several lawful, moral, and business expectations that society has from corporates, whose decisions should aim to adjust the requirements of each one of those groups which have any interest in the existence of the body corporate.

CSR is named as “Triple-Bottom-Line-Approach“, which is intended to assist the organization with advancing its commercial interests alongside the obligations it holds towards the general public.

Companies (Corporate Social Responsibility Policy) Rules, 2014 defines Corporate Social Responsibility under section 2(d) as[1]

“Corporate Social Responsibility (CSR) means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these rules, but shall not include the following, namely: –

(i) activities undertaken in pursuance of normal course of business of the company:

Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that –

(a) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act;

(b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report;

(ii) any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level;

(iii) contribution of any amount directly or indirectly to any political party under section 182 of the Act;

(iv) activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);

(v) activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services;

(vi) activities carried out for fulfilment of any other statutory obligations under any law in force in India;”

The World Business Council for Sustainable Development defined Corporate Social Responsibility as, “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.”[2]

Laws dealing with Corporate Social Responsibility

India’s new Companies Act 2013 (Companies Act) has presented certain guidelines for Corporate Social Responsibility (CSR). The notion behind CSR lays in the theory of compromise. Organizations take assets as raw materials, HR, and so forth from the general public. By fulfilling the task of CSR exercises, the organizations are giving something back to the general public.

Section 135of the Companies Act 92013) definesCorporate Social Responsibility as[3]

“(1) Every company having a net worth of rupees five hundred crores or more, or turnover of rupees one thousand crores or more or a net profit of rupees five crores or more during any financial year shall constitute a Corporate Social Responsibility Committee of the A board consisting of three or more directors, out of which at least one director shall be an independent director.

(2) The Board’s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.

(3) The Corporate Social Responsibility Committee shall, —

(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

(c) monitor the Corporate Social Responsibility Policy of the company from time to time.

(4) The Board of every company referred to in sub-section (1) shall, —

(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and

(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

Explanation. —For the purposes of this section ‘average net profit’ shall be calculated in accordance with the provisions of section 198.”

Section 135 of the Companies Act 2013 gives a threshold limit to the appropriateness of the CSR to a Company:

(a) total assets of the organization to be Rs 500 crore or more; or

(b) turnover of the organization to be Rs 1000 crore or more; or

(c) the net benefit of the organization to be Rs 5 crore or more.

Further according to the CSR Rules, the arrangements of CSR are relevant to Indian organizations, also addition pertinent to branch and extend workplaces of a foreign organization in India

The activities (in areas or subject, specified in Schedule VII) that can be done by the organization to accomplish its CSR commitments include: Schedule VII of Companies Act 2013

  • Eradicating hunger, poverty, and malnutrition, advancing medical care including preventive medical services and sanitation including a commitment to the ‘Swachh Bharat Kosh’ set up by the Central Government for the advancement of sterilization and making easy access to safe drinking water
  • Advancing education, including special curriculum and employment improving vocation abilities especially among kids, ladies, older, and the disabled.
  • Encouraging sex equality, women empowerment, setting up homes and lodgings for women and orphans; setting up old age homes, daycares, and such different facilities for senior residents and measures for lessening disparities faced by SEBCs
  • Guaranteeing ecological sustainability, environmental equilibrium, conservation of widely varied vegetation, protection of resources, and keeping up nature of the soil, air, and water including a commitment to the ‘Clean Ganga fund’ set up by the Central Government for restoration of waterway Ganga;
  • Measures to assist military veterans, war widows, and their wards;
  • To promote Rural and National sports
  • Funding to the Prime Minister’s National Relief Fund or some other fund set up by the Central Government 
  • Projects for the development of rural areas
  • Development of Slum vicinities

Advantages of Corporate Social Responsibility

  • If the creative capacity of a business suffers social issues, resistance can be changed into assets and the useful limit of assets can be expanded ordinarily.
  • A stable society would deliver a stable work environment wherein the business may acquire long-term profit. A company that is delicate to public needs would in its capability like to have a stable community to continue its business. To accomplish this it would carry out friendly projects for social welfare.
  • Productivity and Quality: Improved working conditions, diminished ecological effects, or rising worker contribution in decisions would result in – expanded efficiency and blemished rate in an organization.
  • It would also lead to improvement in the financial performance
  • An organization considered socially mindful can profit both from its improved standing with the general population as well as in the business community by expanding the organization’s capacity to pull in investors.
  • The development of socially investing ideas implies organizations with solid CSR execution have expanded admittance to capital that may not in other cases have been accessible.

Corporate Social Responsibility committee

Constitution of CSR Committee

The CSR Committee of the Board usually comprises at least three directors, amongst which, one will be an independent director.

Section 5 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 states that A Foreign organization must comprise of a CSR Committee with a minimum of two people where one should be a resident, approved to acknowledge notices /archives served on the foreign organization and the other as named by the foreign organization. And in the case of a Private Company, which just has two directors on its board will have the said two directors in the CSR committee.

Functions of CSR Committee

The CSR Committee drafts the conclusive CSR strategy, the ultimate goal for all the enterprise’s activities on corporate obligations, focus sector, standards, and qualities. Proposals for the CSR strategy are presented to the corporation’s Board of directors. The Board speculates every one of the projects before supporting the policy report. The CSR strategy is unveiled in the yearly report which is published on the organization’s site.

The CSR Committee is likewise dependent on defining CSR projects or programs that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act; It is a comprehensive plan and includes all the costs to be incurred along with the name of the stakeholders. It lists out how the activity would be conducted along with its impact on the company.

Examples

Pfizer

Pfizer utilizes the term corporate citizenship to coin their CSR drives and sees it as a central piece of their organization and ‘simply how they work”. Across the globe, they conduct organization drives that bring issues such as non-infectious diseases to light and also provide medical care to needy women and children. One illustration of this is the decrease in the cost of their Prevnar 13 vaccine (for pneumonia, ear and blood diseases) for those who cannot afford it and in circumstances like displaced people and emergency circumstances.

Netflix and Spotify

From a social point of view, organizations, for example, Netflix and Spotify offer incentives to help their workers and families. Netflix provides 52 weeks of paid parental leave, which can be taken whenever, whether it is the intermediate year of the kid’s life or some other time that suits their requirements as compared to other tech organizations, which usually has 18 weeks.

Judgments related to Corporate Social Responsibility

In Technicolor India (P.) Ltd. v. Registrar of Companies[4] the Company met the net profit models, under section 135 of the Companies Act, 2013, and had a CSR committee as well. Yet, during the financial year 2017-18, the company spent less than the limit referenced in Section 135 (5) of the Act, for which an explanation was appropriately given by the organization in its Director’s Report. However, it was tracked down that the sum spent on the CSR and related detail is inaccurately mentioned in the Director’s report, subsequently to which the organization sent an application to NCLT Bangalore. The court permitted the organization to reconsider its report, offering freedom to the organization to file for compounding under section 441 of the Act.

Alok Pharmaceuticals and Industrial Company Private Limited[5], Rapid Estates Private Limited[6], Avinash Developers Private Limited[7] where a Compounding Application was filed before the Registrar of Companies and the NCLT. According to the ROC, the application was filed because the Company abused the guidelines of Section 134 (3) (o) of the Companies Act, 2013 read with Rule 8 of Companies (Corporate Social Responsibility Policy) Rules, 2014 wherein the Company neglects to give justification for the non-spending of the CSR sum for the Financial Years 2011-12 to 2013-14 in Director’s Report.

Conclusion

Society’s expectations for the developmental growth of the country by companies are increasing day by day. In this way, it has gotten essential for organizations to exercise social duties to boost their appearance in the general public. CSR does not only create a brand building of the company on the outside, but it also makes an inside reputation among its representatives. some of their drives without a doubt make shared worth; a few, however, expected to do as such, make more incentive for society than for the firm; and some are planned to make value fundamentally

for society. Reveling into practices that help society build adds to the goodwill of an organization. CSR can’t be extra – it should run as the foundation of each business’s morals, and its treatment of workers and clients. Thus, CSR is turning into an emerging and progressively competitive field. Being a respectable company is progressively significant for business success and the source lies in adhering with public expectations and needs, and in conveying contributions and accomplishments generally and effectively.


[1] The Companies (Corporate Social Responsibility Policy) Rules, 2014

[2] Micheal (2003), p 115

[3] Companies Act, 2013, Section 135

[4] 2020 (7) TMI 423

[5] 2018 SCC OnLine NCLT 28915

[6] 2018 SCC OnLine NCLT 545

[7] 2018 SCC OnLine NCLT 29665

Author: Abhilasha Agarwal (PES University)

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