Major business entities like Tata group, infosys, Aditya Birla Group, etc. have been known for their charity serving the society way before CSR was in talks during policy making. The Corporate Social Responsibility in India got legal backing through the Companies Act, 2013. The current status of CSR in India has also gained mandate with its non-compliance being declared a civil wrong by the concerned authorities. Find out about corporate social responsibility in Indian companies in a detailed manner.
Corporate Social Responsibility - Introduction
Social responsibility can be understood as a person’s obligation towards the society. The term ‘Corporate Social Responsibility’ or CSR in India can be understood as the responsibility of corporate entities in India towards the society which they conduct their business in. The idea is to make companies socially responsible by “integrating social, environmental, ethical, consumer, and human rights concerns into their business strategy and operations”[1] through applicable laws.
Corporate Social Responsibility in India - Companies Act, 2013
The concept of CSR in India has been there as a norm for a long time. However, the same did not get backing from any law. India is the first country which implemented CSR through Companies Act, 2013. Section 135 of the same Act provides for ‘Corporate Social Responsibility’. It may be noted that not all Indian companies are liable to CSR in India but only those which fall under the radar of any three of the categories mentioned below:
- Company with Net Worth of Rs 500 Crore or more, or
- Company with a turnover of Rs 1000 Crore or more, or
- Company with net profits of Rs 5 Crore or more.
Companies with any of the above have to constitute a CSR Committee which consists of 3 or more directors of the company. At least one of the said directors in the CSR committee has to be an independent director. The target is to spend at least 2% of the average net profit in the preceding 3 financial years towards the corporate social responsibility policy with preference to local areas. Companies located in Kolkata who fall under the ambit of CSR policy as per Section 135 of Companies Act may refer to corporate lawyers in Kolkata for clarity on legal aspects.
For the purposes of a report by the Board of Directors of a Company on financial statement, the report shall also disclose the composition of the committee for corporate social responsibility in Indian companies.
Role of CSR Committee in India - Companies Act, 2013
The functions of corporate social responsibility committee as provided under Section 135 of Companies Act, 2013 are as follows:
- To prepare and recommend a CSR policy indicating the specific activities to be undertaken;
- Recommend monetary expenditure in pursuance of the CSR policy; and
- Monitor the implementation of CSR policy once in a while.
Schedule 7 to Companies Act, 2013
The given schedule specifies the activities to be focussed upon with financial contributions through corporate social responsibility:
- Education sector
- Sanitation
- Ensure environmental sustainability
- Eradicate poverty
- Diminish hunger and malnutrition
- Protection of flora and fauna
- Support healthcare
- Contribute to Swachh Bharat funds
- PM CARES fund
- Prime Minister's National Relief Fund
- Any other fund setup by the central or state government for development, relief or welfare.
The Board of Directors has to consider and accordingly approve the recommendations of the CSR committee, disclose such policy in the report and also publish the same on the company website. Non-compliance with the CSR policy has recently been notified as a civil wrong by the Ministry of Corporate Affairs. The essence of corporate social responsibility under Section 135 of Companies Act, 2013 is the expenditure of 2% profit amount towards a social cause. Thus, if a company fails to comply with the CSR policy but manages to spend the amount required through a specific fund transfer (eg. PM CARES), the corporate social responsibility is still complied with. Legal technicalities related to CSR in India can be understood with the help of a corporations lawyer.
Punishment for Non-Compliance of CSR in India
If CSR policy is not complied with as per annual report, the same is notified to be a civil wrong as notified by the Ministry of Corporate Affairs.
In regards with the company, given below is the fine to be paid by the company, whichever is less:
- Penalty of twice the amount left unspent to the specific funds, or
- Penalty of twice the amount unspent as per the CSR account, or
- Penalty of Rs 1 Crore.
In regards with the officers in default, given below is the penalty whichever is less:
- Penalty of 10th part of the amount unspent which was required to be transferred to specific funds, or
- Penalty of 10th part of the amount unspent as per the CSR account, or
- Penalty of Rs 2 lakh.
What is the Purpose of Corporate Social Responsibility in India?
When a company carries out its business in a particular area, so many people contribute to the profits earned by such a company. A lot of things are compromised in the name of sustainable development while running a business. Sometimes, the environment is compromised over employability. The role of CSR in India is to make all such companies with huge profits contribute towards the society which has been contributing towards the benefits. The single arrow of CSR hits three targets, including the society, economy and eventually the enterprise. The corporate social responsibility helps in integrating the social, ethical and environmental concerns into business strategy and operations, thereby promoting consumer, and human rights.
Need of Corporate Social Responsibility in India
Any business entity is run by humans for providing goods or services to fellow human beings. But the idea of businesses usually succumbs to making more money. To give this process a human touch, the importance of corporate social responsibility in India reflects. Economy of a country depends more upon the big business entities. Thus, if part of profits made by such big names is contributed towards a social cause, it aids the country as a whole and the area of business in particular. The whole process of CSR in India brings more transparency in the financial obligations of a company.
Current Status of CSR in India
One of the major issues with the rules regarding corporate social responsibility is that a company has to prioritize the local areas or area of operation of business for expenditure under CSR in India. Following the same, more concentrated development took place in major cities like Maharashtra, Karnataka and Gujarat, i.e. states which are already well developed, as depicted by CSR data. From another view, states with more backward areas receive a handful of such contributions. Since COVID-19 hit the businesses really hard, the expenditure graph showed a reclination in the couple of years passed. However, if things are planned well and implemented as regarded as mandatory by the government, better results can be expected in the coming years.
[1] European Union definition of Corporate Social Responsibility.
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