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Home > India > Corporate/Commercial Law
INTRODUCTION
Corporate Social Responsibility is not a new concept in India, however, the Ministry of
Corporate Affairs, Government of India has recently notified the Section 135 of the
Companies Act, 2013 along with Companies (Corporate Social Responsibility Policy) Rules,
2014 "hereinafter CSR Rules" and other notifications related thereto which makes it
mandatory (with effect from 1st April, 2014) for certain companies who fulfill the criteria as
mentioned under Sub Section 1 of Section 135 to comply with the provisions relevant to
Corporate Social Responsibility.
WHAT IS CSR?
The term "Corporate Social Responsibility (CSR)" can be referred as corporate initiative to
assess and take responsibility for the company's effects on the environment and impact on
social welfare. The term generally applies to companies efforts that go beyond what may be
required by regulators or environmental protection groups1.
Corporate social responsibility may also be referred to as "corporate citizenship" and can
involve incurring short-term costs that do not provide an immediate financial benefit to the
company, but instead promote positive social and environmental change2.
Moreover, while proposing the Corporate Social Responsibility Rules under Section 135 of
the Companies Act, 2013, the Chairman of the CSR Committee mentioned the Guiding
Principle as follows: "CSR is the process by which an organization thinks about and evolves
its relationships with stakeholders for the common good, and demonstrates its commitment in
this regard by adoption of appropriate business processes and strategies. Thus CSR is not
charity or mere donations. CSR is a way of conducting business, by which corporate entities
visibly contribute to the social good. Socially responsible companies do not limit themselves
to using resources to engage in activities that increase only their profits. They use CSR to
integrate economic, environmental and social objectives with the company's operations and
growth3 ."
Eradicating hunger, poverty and malnutrition, promoting preventive health care and
sanitation and making available safe drinking water;
Promoting gender equality, empowering women, setting up homes and hostels for
women and orphans; setting up old age homes, day care centres and such other
facilities for senior citizens and measures for reducing inequalities faced by socially
and economically backward groups;
Protection of national heritage, art and culture including restoration of buildings and
sites of historical importance and works of art, setting up public libraries, promotion
and development of traditional arts and handicrafts;
Measures for the benefit of armed forces veterans, war widows and their dependents;
Training to promote rural sports, nationally recognized sports, paralympic sports and
Olympic sports;
Contribution to the Prime Ministers' National Relief Fund or any other fund set up by
the Central Government for socio-economic development and relief and welfare of
the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and
women;
The above mentioned acitivities constitute the CSR activities and the companies which are
covered under the provisions of Section 135 shall be required to carry out any one or more of
the activities as specified above along with following its CSR Policy.
The above provision requires every company having such prescribed Networth or Turnover
or Net Profit shall be covered within the ambit of CSR provisions. The section has used the
word "companies" which connotes a wider meaning and shall include the foreign companies
having branch or project offices in India.
Average net profit of the company for last three financial years;
Prescribed CSR Expenditure (2% of the amount of the net profit for the last 3
financial years);
In case the company has failed to spend the 2% of the average net profit of the last
three financial year, reasons thereof;
The CSR Committee constituted in pursuance of Section 135 of the Companies Act, 2013
shall be required to carry out the following activities:
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.
CONCLUSION
Considering the increasingly vast and complex business environment, the move of the
Ministry of Corporate Affairs is a welcoming step which apart from contributing towards
society, plays a major role in various ways which includes attracting and retaining employees
in a such a way as to increase morale of the employees along with creating a sense of
belonging to the company and contributes towards enhancement of company's own goodwill,
positive image along with bringing competitive advantages. Also, as rightly mentioned by
United Nations Industrial Development Organization (UNIDO), CSR is generally understood
as being the way through which a company achieves a balance of economic, environmental
and social imperatives ("Triple-Bottom-Line- Approach"), while at the same time addressing
the expectations of shareholders and stakeholders.
Footnotes
1. http://www.investopedia.com/terms/c/corp-socialresponsibility. Asp
2. ibid
3. http://www.cuts-international.org/pdf/Draft-CSR_ Rules_2013.pdf
The content of this article is intended to provide a general guide to the subject matter.
Specialist advice should be sought about your specific circumstances.
Contributor
Megha Kapoor
Singh & Associates
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