“A CRITICAL ANALYSIS ON CORPORATE

SOCIAL RESPONSIBILITY”

Project submitted to the School of Excellence in Law in partial fulfillment

of the requirement for the Degree of L.L.M (BUSINESS LAW) for the
subject

(CORPORATE GOVERNANCE )

Submitted by

NAME : R.K.VARSHINI

COURSE : L.L.M- I Year ( BUSINESS LAW)

SECTION: A Section

SCHOOL OF EXCELLENCE IN LAW (SOEL)

THE TAMIL NADU DR.AMBEDKAR LAW
UNIVERSITY
CHENNAI
ABSTRACT

In the present scenario, the CSR is gaining a lot of importance in the Corporate World. Though
CSR is an old conceot and can be traced in the long last history.In Gerneral Sense, CSR refers
to the idea that companies need to invest in socially and environmentally relevant causes in
order to interact and operate with concerned parties having a stake in the company’s work.
CSR is termed as “Triple-Bottom-Line-Approach”, which is meant to help the company
promote its commercial interests along with the responsibilities it holds towards the society at
large. CSR is not a new concept had its history over a lon time. The stages of the development
of CSR Laws are at four levels. The first step toward Legal recognition of CSR is the Corporate
Social Responsibility Voluntary Guidelines 2009. Further, Section 135 The The Companies
Act, 2013 was formulated and prescribed the categories of Companies which has to abide by
the CSR.

The paper is structured in to 2 parts. The first part deals with the Comparison of CSR in U.S,
U.K and India is made and they are distict in their own way. However, the Indian CSR Laws
are adopted from U.K. The Second part covers the all the aspects pertaining to the Recent
Amendment in 2019 to the Companies Act, 2013 which included the Penalty Provisions
resulting in the strict implementation of law.

Key Words: CSR, Committee, BOD

TABLE OF CONTENTS

INTRODUCTION:

1. DEFINITIONS OF CORPORATE SOCIAL RESPONSIBILITY:

2. TRIPLE BOTTOM LINE APPROACH:

3. ORIGIN OF THE CONCEPT OF CSR IN LAW:

3.1. The four phases of CSR development in India:

3.1.1. First phase (CSR motivated by charity and philanthropy)

3.1.2. Second phase: CSR for India’s social development

3.1.3. Third phase: CSR under the paradigm of the ‘mixed economy’

3.1.4. Fourth phase: CSR at the interface between philanthropic and

business approaches

4.CORPORATE SOCIAL RESPONSIBILITY VOLUNTARY GUIDELINES 2009

4.1. Fundamental Principle under the Guidelines:

4.2. Core Elements of the Voluntary Guidelines for Corporate Social

Responsibility

5.CORPORATE SOCIAL RESPONSIBILITY UNDER COMPANIES ACT, 2013.

5.1. When Corporate Social Responsibility Committee to be formed

5.2. Non-applicability

5.3. Corporate Social Responsibility Committee

5.3.1. Function to be performed by CSR committee of any company

5.4. Functions of the board of directors of the company

5.5. Quantum of CSR expenditure

5.6. CSR activities

5.6.1. Control of Board of Directors over the CSR Activities

5.7. CSR policy

 5.7.1. Core elements of the CSR policy

5.8. Corporate Social Responsibility expenditure

5.9. Yearly annual compliances/disclosure:

5.10. Display of CSR activities on its website

5.11. Accounting treatment of expenses incurred on CSR activities

5.12. Tax benefits

5.13. Schedule VII of the Companies Act, 2013

6.COMPARISON OF CSR LAWS IN INDIA, U.K AND U.S

6.1. India

6.2. United Kingdom

6.3. United States

6.4.Analysis

7. CASE ANALYSIS ON CSR:

7.1. Instances for the violation Of CSR Principle:

8. RECENT AMENDMENTS:

8.1. Applicability for Companies

8.2.Transfer to Section VII Funds

8.2.1. Transfer to Unspent CSR Account

8.3.Penalty for Non-Compliance

CONCLUSION:

REFERENCE
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. As 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.

Corporate social responsibility (CSR), also known as corporate responsibility, corporate

citizenship, responsible business, sustainable responsible business (SRB), or corporate social
performance, is a form of corporate self-regulation integrated into a business
model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby
business would monitor and ensure its adherence to law, ethical standards, and
international norms. Business would embrace responsibility for the impact of their activities
on the environment, consumers, employees, communities, stakeholders and all other members
of the public sphere. Furthermore, business would proactively promote the public interest by
encouraging community growth and development, and voluntarily eliminating practices that
harm the public sphere, regardless of legality.

The comparison between the CSR Laws in U.S, U.K and India are distinct in their own way.
Moreover, the Indian CSR Laws were adopted from the U.K in its majority. The analysis of
the various cases of CSR proves its significance and its contribution requirement to the
Environment.

The Recent Amendement to the Companies Act of 2013 also incorporates three main inclusion
to the CSR Laws under Section 135 of the Act. One among them being the Penal Provision
would provide for the effective implementation of the CSR among the Business Enterprises.
1. DEFINITIONS OF CORPORATE SOCIAL RESPONSIBILITY:

‘Corporate,’ ‘Social,’ and ‘Responsibility.’ In broad terms, CSR relates to responsibilities

corporations have towards society within which they are based and operate, not denying the
fact that the purview of CSR goes much beyond this. CSR is comprehended in various ways.

The European Commission1 defines CSR as “the responsibility of enterprises for their impacts
on society”. To completely meet their social responsibility, enterprises “should have in place a
process to integrate social, environmental, ethical human rights and consumer concerns into
their business operations and core strategy in close collaboration with their stakeholders”2

World Business Council for Sustainable Development3 “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”.

The mere idea of a company or corporation being responsible to a society rather than solely to
the corporation’s shareholders is at the core of the debate and thus has an effect on a
comprehensive definition. Subsequently, a 2006 special issue on the strategic implications of
CSR, the editors of the Journal of Management Studies defined CSR as “situations where the
firm goes beyond the compliance and engages in ‘actions that appear to further some social
good, beyond the interests of the firm and that which is required by law.”4

Thus CSR exhorts firms to diverge from their sole aim of maximizing profits and to lay more
importance on improving the economic and social standards of the community in their
countries of operation. CSR can be thus be simply defined as the additional commitment by
businesses to improve the social and economic status of various stakeholders involved while
complying with all legal and economic requirements. As Warhust (2001) points out, the three
major elements of CSR are product use which focuses on contribution of industrial products
which help in well being and quality of life of the society, business practice which focuses on
good corporate governance and gives high impetus for the environmental well being and equity

1
Corporate Social Responsibility,European Union Commission,
http://ec.europa.eu/enterprise/policies/sustainablebusiness/corporate-social-responsibility/index_en.htm
2
Industrial relations in Europe 2010", Chapter 6.3.4, European Commission, DG Employment Social Affairs and
Inclusion, 2011
3
Micheal (2003), p 115
4
McWilliams, A., Siegel, D. and Wright, P. (2006), p117
which tries for distribution of profits equitably across different societies especially the host
community.

2. TRIPLE BOTTOM LINE APPROACH:

The triple bottom line (TBL) is a framework or theory that recommends that companies commit
to focus on social and environmental concerns just as they do on profits. The TBL posits that
instead of one bottom line, there should be three: profit, people, and the planet. A TBL seeks
to gauge a corporation's level of commitment to corporate social responsibility and its impact
on the environment over time.

In 1994, John Elkington—the famed British management consultant and sustainability guru—
coined the phrase "triple bottom line" 5as his way of measuring performance in corporate
America. The idea was that we can manage a company in a way that not only earns financial
profits but which also improves people’s lives and the planet.6

According to TBL theory, companies should be working simultaneously on these three bottom
lines:

1. Profit: The traditional measure of corporate profit—the profit and loss (P&L) account.
2. People: Measures how socially responsible an organization has been throughout its
operations.
3. The Planet: Measures how environmentally responsible a firm has been.7

By focusing on these three interrelated elements, triple-bottom-line reporting can be an

important tool to support a firm's sustainability goals.8

3. ORIGIN OF THE CONCEPT OF CSR IN LAW:

Although we have seen a period of sustained economic growth in the current decade, we still
continue to face major challenges on the human side in India. The problems like poverty,
illiteracy, malnutrition etc. have resulted in a large section of the population remaining as “un-

5
Slaper, Timothy F. and Hall, Tanya J. (2011). "The Triple Bottom Line: What Is It and How Does It
Work?" Indiana Business Review. Spring 2011, Volume 86, No. 1.
6
https://www.investopedia.com/terms/t/triple-bottom-line.asp
7
Elkington, John (June 25, 2018). "25 Years Ago I Coined the Phrase "Triple Bottom Line." Here's Why It's Time
to Rethink It". Harvard Business Review. Retrieved October 11, 2019.
8
"Triple Bottom Line: Earth, Community, Employees". Avalon International Breads. Retrieved 27
February 2015.
included” from the mainstream. We need to address these challenges through suitable efforts
and interventions in which all the state and non-state actors need to partner together to find and
implement innovative solutions. In order to assist the businesses to adopt responsible
governance practices, the Ministry of Corporate Affairs has prepared a set of voluntary
guidelines which indicate some of the core elements that businesses need to focus on while
conducting their affairs. These guidelines have been prepared after taking into account the
governance challenges faced in our country as well as the expectations of the society.

CSR is not philanthropy and CSR activities are purely voluntary- what companies will like to
do beyond any statutory requirement or obligation. To provide companies with guidance in
dealing with the above mentioned expectations, while working closely within the framework
of national aspirations and policies, following Voluntary Guidelines for Corporate Social
Responsibility have been developed. While the guidelines have been prepared for the
Indian context, enterprises that have a trans-national presence would benefit from using
these guidelines for their overseas operations as well.

3.1. The four phases of CSR development in India:

To understand the current state and future prospects of CSR and the role of the UNGC in India,
the country’s political and economic history must be taken into account. Against this
background, the development of CSR in India can be divided into four main phases.
According to Sundar (2000), the following four phases of CSR development can be identified.
These phases parallel India’s historical development and resulted in different CSR practices.
The division into four phases must be regarded as an analytical tool. However, it is not static,
and features of one phase can also be observed in the others, as is particularly evident from the
last phase.

3.1.1. First phase (CSR motivated by charity and philanthropy)

The first phase of CSR9 is predominantly determined by culture, religion, family tradition, and
industrialization. Business operations and CSR engagement were based mainly on corporate
self-regulation. Being the oldest form of CSR, charity and philanthropy still influence CSR
practices today, especially in community development.

9
The term ‘Corporate Social Responsibility’ did not exist at that time, being coined only in the 20 th Century. A
company’s engagement in social aspects was seen rather as philanthropy.
In the pre-industrial period up to the 1850s, merchants committed themselves to society for
religious reasons, sharing their wealth, for instances, by building temples. Moreover, “the
business community occupied a significant place in ancient Indian society and the merchants
provided relief in times of crisis such as famine or epidemics throwing open godowns of food
and treasure chests”.10 Under colonial rule, Western types of industrialization reached India
and changed CSR from the 1850s onwards. The pioneers of industrialization in the 19th century
in India were a few families such as the Tata, Birla, Bajaj, Lalbhai, Sarabhai, Godrej, Shriram,
Singhania, Modi, Naidu, Mahindra and Annamali, who were strongly devoted to
philanthropically motivated CSR.11 “The early pioneers of industry in India were leaders in the
economic, as also in the social fields”.12 Nevertheless, it has been pointed out that their
engagement was not only altruistic and stimulated by religious motives: “It had business
considerations in supporting efforts towards industrial and social development of the nation
and was influenced by caste groups and political objectives”. The underlying pattern of charity
and philanthropy13 means that entrepreneurs sporadically donate money without any concrete
or long-term engagement. Charitable and philanthropic CSR is practiced outside the company,
focusing on such external stakeholders bas communities and general social welfare bodies.

3.1.2. Second phase: CSR for India’s social development

The second phase of Indian CSR (1914-1960) was dominated by the country’s struggle for
independence and influenced fundamentally by Gandhi’s theory of trusteeship, the aim of
which was to consolidate and amplify social development. During the struggle for
independence, India businesses actively engaged in the reform process. Not only did companies
see the country’s economic development as a protest against colonial rule; they also
participated in its institutional and social development. The corporate sector’s involvement was
stimulated by the vision of a modern and free India. Gandhi introduced the notion of trusteeship
in order to make companies the “temples of Modern India”; businesses up trusts for schools
and colleges; they also established training and scientific institutes. The heads of the companies
largely aligned the activities of their trusts with Gandhi’s reform programs. These programs
included activities that sought in particular the abolition of untouchability, women’s
empowerment and rural development.

10
Arora 2004,24
11
Mohan 2001, 109
12
Arora 2004, 25
13
Both charity and philanthropy can be regarded as sponsoring. Charity is understood as consisting solely of
donations of money, whereas philanthropy includes the practical involvement of business.
3.1.3. Third phase: CSR under the paradigm of the ‘mixed economy’

The paradigm of the ‘mixed economy’, with the emergence of PSUs and ample legislation on
labour and environmental standards, affected the third phase of Indian CSR (1960-1980). This
phase is also characterized by a shift from corporate self-regulation to strict legal and public
regulation of business activities. Under the paradigm of ‘mixed economy’, the role of the
private sector in advancing India receded. During the cold war, India decided to take a third
course between capitalism and communism. In this scenario, the public sector was seen as the
prime mover of development. The 1960s have been described as an “era of command and
control”, because strict legal regulations determined the activities of the private sector. The
introduction of a regime of high taxes and a quota and licence system imposed tight restrictions
on the private sector and indirectly triggered corporate malpractices.14 As a result, corporate
governance, labour and environmental issues rose on the political agenda and quickly became
the subject of legislation. Furthermore, state authorities established PSUs with the intention of
guaranteeing the appropriate distribution of wealth to the needy.

However, the assumption and anticipation that the public sector could tackle developmental
challenges effectively materialized to only a limited extent. Consequently, what was expected
of the private sector grew, and the need for its involvement in socio-economic development
became in-dispensable. An initial and cautious attempt at reconciliation was made by Indian
academics, politicians and businessmen at a national workshop on CSR in 1965. According to
this agenda, businesses were to play their part as respectable corporate citizens, and the call
went out for regular stakeholder dialogues, social accountability and transparency. Despite
these progressive acknowledgements, this CSR approach did not materialize at that time.

3.1.4. Fourth phase: CSR at the interface between philanthropic and business approaches

In the fourth phase (1980 until the present) Indian companies and stake-holders began
abandoning traditional philanthropic engagement and, to some extent, integrated CSR into a
coherent and sustainable business strategy, partly adopting the multi-stakeholder approach.

In the 1990s, the Indian government initiated reforms to liberalize and deregulate the Indian
economy by tackling the shortcomings of the “mixed economy” and tried to integrate India
into the global market. Consequently, controls and license systems were partly abolished, and
the Indian economy experienced a pronounced boom, which has persisted until today. This

14
The controls and regulations pertained to industrial licensing, capital issues, loans, import licensing, allocation
of resources, prices, and concentration of economic power and growth monopolies”.
rapid growth did not lead to a reduction in philanthropic donations; on the contrary, “the
increased profitability also increased business willingness as well as ability to give, along with
a surge in public and government expectations of businesses”.15

Against this background, India has meanwhile become an important economic and political
actor in the process of globalization. This new situation has also affected the Indian CSR
agenda. With more TNCs resorting to global sourcing, India has become an attractive and
important production and manufacturing site. As Western consumer markets are becoming
more responsive to labour and environmental standards in developing countries, Indian
companies producing for the global market need to comply with international standards.16

4.CORPORATE SOCIAL RESPONSIBILITY VOLUNTARY GUIDELINES 2009:17

In order to assist the businesses to adopt responsible governance practices, the Ministry of
Corporate Affairs has prepared a set of voluntary guidelines which indicate some of the core
elements that businesses need to focus on while conducting their affairs.

These guidelines have been prepared after taking into account the governance challenges faced
in our country as well as the expectations of the society. The valuable suggestions received
from trade and industry chambers, experts and other stakeholders along with the internationally
prevalent and practiced guidelines, norms and standards in the area of Corporate Social
Responsibility have also been taken into account while drafting these guidelines.18

4.1. Fundamental Principle under the Guidelines:

Each business entity should formulate a CSR policy to guide its strategic planning and provide
a roadmap for its CSR initiatives, which should be an integral part of overall business policy
and aligned with its business goals. The policy should be framed with the participation of
various level executives and should be approved by the Board.

4.2. Core Elements of the Voluntary Guidelines for Corporate Social Responsibility19

 Care for all Stakeholders

15
Corporate social responsibilities: An implementation guide for business, Paul Hohnen. IISD.
16
Corporate Social Responsibility: Background and Perspective, John Samuel and Anil Saari.
17
"National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business
(NVGs)" (PDF). Ministry of Corporate Affairs.
18
India, Ministry of Corporate Affairs, Corporate Social Responsibility Voluntary Guidelines 2009
19
"Indian Institute of Corporate Affairs - Partners in Knowledge, Governance, Transformation". Iica.in.
 The companies should respect the interests of, and be responsive towards all
stakeholders, including shareholders, employees, customers, suppliers, project affected
people, society at large etc. and create value for all of them. They should develop
mechanism to actively engage with all stakeholders, inform them of inherent risks and
mitigate them where they occur.

 Ethical functioning

Their governance systems should be underpinned by Ethics, Transparency and

Accountability. They should not engage in business practices that are abusive, unfair,
corrupt or anti-competitive.

 Respect for Workers' Rights and Welfare

Companies should provide a workplace environment that is safe, hygienic and

humane and which upholds the dignity of employees. They should provide all
employees with access to training and development of necessary skills for career
advancement, on an equal and non-discriminatory basis. They should uphold the
freedom of association and the effective recognition of the right to collective
bargaining of labour, have an effective grievance redressal system, should not employ
child or forced labour and provide and maintain equality of opportunities without
any discrimination on any grounds in recruitment and during employment.20

 Respect for Human Rights

Companies should respect human rights for all and avoid complicity with human rights
abuses by them or by third party.

 Respect for Environment

Companies should take measures to check and prevent pollution; recycle, manage
and reduce waste, should manage natural resources in a sustainable manner and ensure
optimal use of resources like land and water, should proactively respond to the
challenges of climate change by adopting cleaner production methods, promoting
efficient use of energy and environment friendly technologies.

"NVGs Aligned Globally, Yet are Very Indian in Character — Asia Futures Magazine Online".
20

Asiafuturesmag.com.
  Activities for Social and Inclusive Development

Depending upon their core competency and business interest, companies should
undertake activities for economic and social development of communities and
geographical areas, particularly in the vicinity of their operations. These could include:
education, skill building for livelihood of people, health, cultural and social welfare
etc., particularly targeting at disadvantaged sections of society.

5.CORPORATE SOCIAL RESPONSIBILITY UNDER COMPANIES ACT, 2013.

The CSR measures are a part of the new Companies Act that has been in work for several years.
The Companies Act of 1956, which was the rule of law till the enactment of the current
Companies Act, 2013, had several clauses inappropriate to the current business and economic
environment. A revision process was started in October 2003 and a Companies Bill 2008 was
tabled in Parliament. That legislation lapsed with the dissolution of the Lok Sabha in 2009. A
new bill, the Companies Bill 2009 was then tabled.

The problem with corporate social responsibility is that nobody is very clear about what exactly
it encompasses. The Indian government has been trying to make it mandatory for companies
to spend at least 2% of net profits on CSR. Today, CSR to some companies means providing
lunch to employees. To others, it's about tackling global warming and environmental issues.
India in the global level has emerged as a global leader with regards to knowledge and in
creating an intellectually high and socially sound society even on a limited basis. This
development can be mainly attributed to highly qualified research foundations and their deep
commitment towards problems in the system.

Till date it is very difficult exercise to analyze the spending of CSR by various firms and private
companies and such information is not maintained at government level, even among the top
100 firms by revenue, there are many who don’t report their CSR spends or even declare the
social causes they support, that is because they are not required to do so by law and no
provisions for CSR exists in the Companies Act, 1956 so currently the Ministry does not
maintain such details. But all that will change when the new Companies Bill, 2012 (which has
already been passed by the Lok Sabha) becomes a law.21

The Companies Bill, 2012 incorporates a provision of CSR under Clause 135 which states that
every company having net worth Rs. 500 crore or more, or a turnover of Rs. 1000 crore or more

21
CSR Report Card: Where Companies Stand - Forbes India Magazine dated 18.3.2013
or a net profit of rupees five crore or more during any financial year, shall constitute a CSR
Committee of the Board consisting of three or more Directors, including at least one
Independent Director, to recommend activities for discharging corporate social responsibilities
in such a manner that the company would spend at least 2 per cent of its average net profits of
the previous three years on specified CSR activities. It is proposed to have detailed rules after
passing of Companies Bill 2012 by Rajya Sabha to give effect to this provision.

5.1. When Corporate Social Responsibility Committee to be formed22

i. Having net worth of rupees five hundred crores or more; or

ii. Turnover of rupees one thousand crores or more; or
iii. A net profit of rupees five crores or more;

It is applicable to every company including its holding company, subsidiary company, foreign
company including its branch office or project office in India.

5.2. Non-applicability23: Any company which ceases to be a company covered as per criteria
mentioned under sub-section (1) of section 135 of the Companies Act, 2013 as mentioned
above for three consecutive financial years shall not be required to –

 Constitute a CSR committee, and

 Comply with the provisions contained in sub-section (2) to (5) of the Companies
Act, 2013 till such time it meets the criteria specified in sub-section (1) of section
135.

5.3. Corporate Social Responsibility Committee

Corporate Social Responsibility Committee shall consist of three or more directors, out of
which at least one director shall be an independent director, in case of companies where
independent director is mandatory to appoint.24

22
https://blog.ipleaders.in/corporate-social-responsibility-2/ , Accessed on
23
Aggarwal, Sanjay. Corporate Social Responsibility in India. 1st Ed. New Delhi: Sage Publications, 2008, Pg102
24
Nirbhay Lumde, Corporate Social Responsibility in India : A Practitioner’s Perspective, 2018, Notion Press, Pg
221
  Private company with only two directors: In the case of private companies where only
two directors are required to be appointed above requirement can be disposed of and
they need not appoint an independent director.

 Constitution of CSR committee in case of foreign company: In case of foreign

companies, Corporate Social Responsibility Committee shall comprise of at least two
persons of which one person shall be residing in India and appointed as authorized
signatory by the foreign company.

The Corporate Social Responsibility committee shall institute a transparent monitoring

mechanism for implementation of the projects or programs or activities undertaken by the
company.25

5.3.1. Function to be performed by CSR committee of any company

1. They shall formulate and recommend to the board of directors of the company, a
Corporate Social Responsibility policy which shall indicate the activities to be
undertaken by the company as specified and it shall be within the purview of
Schedule VII of the Companies Act, 2013;
2. They shall recommend the amount of expenditure to be incurred on the activities
referred to them and;
3. They shall monitor the Corporate Social Responsibility policy of the company as
may be required from time to time.

5.4. Functions of the board of directors of the company

The board of directors of the company performs the following functions in relation to Corporate
Social Responsibility:

1. They shall after taking into account the recommendations made by the Corporate
Social Responsibility Committee, approve the Corporate Social Responsibility
policy for the company.

25
Corporate governance and voluntary disclosure, Volume 22, Issue 4, July–August 2003, Pages 325–345
 2. They shall disclose the contents of Corporate Social Responsibility policy in the
board of director’s report which forms the part of an annual report of the company.
3. They shall take care that Corporate Social Responsibility policy of the company
shall be placed on the website of the company if any and also it shall be updated on
the website of the company as and when any changes are made.
4. They shall ensure that the activities which are included in Corporate Social
Responsibility policy of the company are undertaken by the company and not only
they shall be on paper.26

5.5. Quantum of CSR expenditure

Every company which triggers the limits of section 135 shall spend in every financial year, at
least two percent of the average net profits of the company made during the three immediately
preceding financial years. Average net profits of the company shall be calculated as per the
provisions of section 198 of the Companies Act, 2013.27If the company fails to spend the
amount earmarked as CSR expenditure then the company needs to explain the reason behind
not spending on the board of directors report.

Till now no penalty had been prescribed under the Companies Act, 2013 and rules made
thereunder regarding non-compliance of section 134 or for not spending the prescribed amount.
But it has been noted after passing of the first financial year 2014-15 that many of the
companies covered under the purview of CSR who failed to spend the amount were served
with the notices by the respective registrar of companies and they were asked for an explanation
for not spending the amount along with documentary evidence. Further, they may impose a
penalty if deemed fit by them.28 Provided that net worth, turnover or net profit of a foreign
company of the Act shall be computed in accordance with balance sheet and. Profit and loss
account of such company prepared in accordance with the provisions of clause (a) of sub-
section (1) of Section 381and Section 198 of the act.29

26
Brenda Hannigan,Company Law, 3rd Edition, Oxford Publication, Pg 233
27
P.P.S.Gogna,A Textbook of Company Law, 11th Ed, Eastern Book House, Pg 320
28
Avtar Singh, Company Law, 17th Ed, Eastern Book House, Pg 340
29
Dr. N.V. Paranjape, Company Law, 3rd edn., Central Law Agency, 2005, Pg. 432
5.6. CSR activities

 Every company shall give preference to the local areas and areas where they operate
for spending the amount earmarked for Corporate Social Responsibility activities.
 The CSR activities shall be undertaken by the company, as per its CSR policy, as
projects or programs or activities (either new or ongoing), excluding activities
undertaken in pursuance of its normal course of business.

5.6.1. Control of Board of Directors over the CSR Activities30

1. Through a registered trust or;

2. A registered society or a section 8 company established under Companies Act, 2013
either singly or along with its holding or subsidiary or associate company, or along
with any other company or holding or subsidiary or associate company of such other
company;

But if such trust, society or company is not established by the company, either singly or along
with its holding or subsidiary or associate company, or along with any other company, or
holding or subsidiary or associate company of such other company it shall have an established
track record of three years in undertaking similar programs or projects.

Every company has to specify the projects or programs to be undertaken through any of the
above-mentioned entities, the modalities of utilization of funds on such projects and programs
and the monitoring and reporting mechanism.31 Every company may also collaborate with other
companies for undertaking projects or programs or Corporate Social Responsibility activities
in such a manner that the CSR committees of the companies are in a position to report
separately on such projects or programs. According to sub-section (5) of Section 135 of the
Act, the Corporate Social Responsibility projects or programs or activities undertaken in India
only shall amount to Corporate Social Responsibility expenditure. The Corporate Social
Responsibility projects or programs or activities shall not benefit only the employees of the
company and their families shall not be considered as Corporate Social Responsibility
activities. It means that employees can form part of the project or program or activities but any
project or program of activity cannot be exclusively held for the benefit of employees and its

30
Ramaiya A, Guide to Corporate Act, 8th Ed, Pg. 108
31
CS Guneet Mayall CS Rajnish Kumar, Company Law, 10th Ed, Commercial Law Publishers, Pg 224
families. Any company may build CSR capacities of their own personnel as well as those of
their implementing agencies through institutions with established track records of at least three
financial years but such expenditure including expenditure on administrative overheads shall
not exceed five percent of total corporate social responsibility expenditure of the company in
one financial year. If any company contributes any amount directly or indirectly to any political
party then it shall not be considered as Corporate Social Responsibility activity.

5.7. CSR policy

Every company shall form the CSR policy of the company and it shall include the following
things in it namely:-A list of CSR projects or programs which a company plans to undertake
falling within the purview of the schedule VII of the Companies Act, 2013 specifying
modalities of execution of projects or programs and implementation schedules for the projects
or programs; and

 Monitoring process of projects or programs,

 The CSR activities or projects or programs shall not include the activities
undertaken by the company in pursuance of its normal course of business.
 The board of directors of the company shall ensure that activities or projects or
programs included by a company in its Corporate Social Responsibility policy are
related to the activities included in schedule vii of the Companies Act, 2013.
 The CSR policy of the company shall clearly specify that any surplus arising out of
the CSR projects or programs or activities shall not form part of the business profit
of a company.32

5.7.1. Core elements of the CSR policy

 Care for all stakeholders

 Ethical functioning
 Respect for workers’ rights and welfare
 Respect for human rights
 Respect for environment

32
Cadman, “The Corporation in New Jersey”, (1949) 353.
  Activities for social and inclusive development

5.8. Corporate Social Responsibility expenditure

Corporate Social Responsibility expenditure shall include all expenditure including

contribution to corpus, or on projects or programs relating to CSR activities approved by the
board of directors of company on the recommendation of its Corporate Social Responsibility
committee, but it shall not include any expenditure on an item not in conformity or not in line
with activities or programs or projects which fall within the purview of Schedule VII of the
Companies Act, 2013.33

5.9. Yearly annual compliances/disclosure: The board report shall include an annual report
on CSR in the format as prescribed in the Companies (Corporate Social Responsibility Policy)
Rules, 2014,34 which contains particulars as mentioned under.

1. A brief outline of the company’s Corporate Social Responsibility Committee policy,

including an overview of projects or programs or activities, proposed to be
undertaken and a reference to the web-link to the CSR policy and projects or
programs or activities.
2. The composition of CSR committee.
3. Average net profit of the company for last three financial years.
4. Prescribed CSR expenditure for the financial year.
5. Details of CSR spent during the financial year:
6. Total amount to be spent for the financial year;
7. Amount unspent, if any;
8. CSR project or program or activity identified by the company;
9. Sector in which the project or program or activity is covered;
10. Name of state in which project or program or activity is undertaken whether it is
local area or other areas;
11. Budget project or program or activity wise;Direct and indirect expenditure on
projects or programs or activities;35

33
Janet Dine, Marios Koutsias Company Law(Macmillan International Higher Education 2014), 77
34
http://www.fiinovation.co.in/corporate-social-responsibility/
35
https://www.pwc.in/assets/pdfs/publications/2013/handbook-on-corporate-social-responsibility-in-india.pdf
 12. Cumulative expenditure upto the reporting period. For companies carrying projects
or programs or activities for a period of more than one year or more cumulative
expenditure needs to be mentioned upto the reporting period.
13. Whether the amount is spent directly or through any implementing agency or
through collaboration with any other company.

The company which has failed to spend 02% of the average net profits of the company of the
last three financial years they need to disclose the reason for not spending such amount. It shall
also contain the responsibility statement of the CSR committee that the implementation of CSR
policy is in compliance with CSR objectives CSR policy of the company. It shall be signed by
the chairman of the CSR committee, chief executive officer or managing director of any
director of the company. In case of foreign company, it shall be signed by the authorized
representative of the company.36

5.10. Display of CSR activities on its website

The board of directors of the company shall after taking into account the recommendations of
CSR committee approve the CSR policy of the company and they shall display the CSR policy
of the company on its website if any and shall update the CSR policy of the company as and
when it is amended. In March, this year Shri Arun Jaitley has said as many as 460 companies
have disclosed spending of INR 6337.36 crores towards CSR activities during 2014-2015.37

5.11. Accounting treatment of expenses incurred on CSR activities

Accounting treatment usually differs with route which the company adopts for CSR activities.
Depending upon the policy, accounting treatment is given in the books of accounts of the
company.38Various accounting treatment is as follow:-

1. Expenses incurred by the company itself

Under this situation, the first classification is required to be made in relation to

whether it is revenue or capital expenditure. When expenditure does not give rise to

36
Advantages of Corporate Governance for Indian Enterprises, By Shailendra Sial.
37
Mallin, Christine A., "Corporate Governance Developments in the UK" in Mallin, Christine A (ed), Handbook
on International Corporate Governance: Country Analyses, Second Edition, Edward Elgar Publishing,
2011, ISBN 978-1-84980-123-2
38
Corporate Governance via GRC Glossary". GRC Glossary. Open Compliance and Ethics Group. 21 April 2010
 an asset it would be treated as revenue expenditure which is a charge against profit
of the company and when an asset is generated i.e., when the company has
controlling power and derives future economic benefits out of that asset, it would be
treated as capital expenditure in the books of accounts.

2. Expenses incurred by the company through trust, NGOs

Under this situation, amount spent on CSR activities would be treated as expense
and charged to profit and loss account.

3. Expenses in relation to supply of goods manufactured by the company

Where the company supplies the goods manufactured by it or renders the services
as CSR activities, treatment in the books of account shall be provided when the
control of goods is transferred. Manufactured goods shall be valued at cost or market
price whichever is lower as per as-2 and services to be valued at cost.

5.12. Tax benefits

No specific tax exemptions have been extended to CSR expenditure per se. While no specific
tax exemption has been extended to expenditure incurred on CSR, spending on several
activities like contributions to Prime Minister’s Relief Fund, scientific research, rural
development projects, skill development projects, agricultural extension projects, etc. Which
find place in Schedule VII, already enjoy exemptions under different sections of the income tax
act, 1961.39

5.13. Schedule VII of the Companies Act, 201340

Following are the activities or programs or projects which may be included by the companies
in their Corporate Social Responsibility policies relating to:—

1. Eradicating hunger, poverty, and malnutrition, promoting health care including

preventive health care and sanitation including contribution to the Swach Bharat

39
V Lakshmikumaran, Corporate Social Responsibility: The saga of new compliances and penalties, Business
Today 28.08.2019
40
https://corporate.cyrilamarchandblogs.com/2019/08/corporate-social-responsibility-less-carrot-more-stick/
 Kosh set-up by the central government for the promotion of sanitation and making
available safe drinking water;
2. Promoting education, including special education and employment enhancing
vocation skills especially among children, women, elderly and the differently abled
and livelihood enhancement projects;
3. Promoting gender equality, empowering women, setting up homes and hostels for
women and orphans; setting up old age homes, day care centers and such other
facilities for senior citizens and measures for reducing inequalities faced by socially
and economically backward groups;
4. Ensuring environmental sustainability, ecological balance, protection of flora and
fauna, animal welfare, agroforestry, conservation of natural resources and
maintaining quality of soil, air, and water including contribution to the clean Ganga
fund set-up by the central government for rejuvenation of river Ganga;
5. 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 art and handicrafts;
6. Measures for the benefit of armed forces veterans, war widows, and their
dependents;
7. Training to promote rural sports, nationally recognised sports, Paralympic sports
and Olympic sports;
8. Contribution to the Prime Minister’s National Relief Fund or any other fund set up
by the central government for socio-economic development and relief and welfare
of the schedule caste, tribes, other backward classes, minorities, and women;
9. Contributions or funds provided to technology incubators located within academic
institutions which are approved by the central government;
10. Rural development projects;
11. Slum area development.

CSR has gone through many phases in India. The ability to make a significant difference in the
society and improve the overall quality of life has clearly been proven by the corporates. Not
one but all corporates should try and bring about a change in the current social situation in India
in order to have an effective and lasting solution to the social woes41. So according to the above

41
https://blog.ipleaders.in/csr-laws-india/
study Corporate Social Responsibility is not mandatory for every company but the company’s
which are covered under the ambit of Section 135 of the Companies Act, 2013 are only required
to spend 2 % of average net profits earned for last three financial years.

6.COMPARISON OF CSR LAWS IN INDIA, U.K AND U.S

6.1. India

The Indian government felt the need to introduce various reforms in corporate governance and
create a system of ethical, transparent and accountable corporate functioning42 after various
scams in the corporate sector manipulated by Ramalinga Raju43, Harshad Mehta44, Ketan
Parekh45, etc.

In 1998, the Confederation of Indian Industry (CII) came up with a voluntary code of corporate
governance, which was followed by the formulation of Clause 49 of the Listing Agreement as
per the recommendations of the SEBI* appointed Kumar Mangalam Birla Committee on
Corporate Governance. Subsequently, there were many revisions to Clause 4946, which focuses
primarily on: Board composition and procedure, Audit committee responsibilities related party
transactions, subsidiary companies, risk management, CEO/CFO certification of financial
statements and internal controls, legal compliance and other disclosures.47 Subsequently, in
2002, the Naresh Chandra Committee Report examined the Auditor-Company relationship and
the role of independent directors, defined punitive measures for auditors committing
irregularities and introduced CEO/CFO certification.

Other guidelines for good corporate governance include Corporate Governance Voluntary
Guidelines (2009),48 etc. In addition to all this, the National Stock Exchange of India (NSE)
set up an independent expert advisory body called the NSE Centre for Excellence in Corporate

42
Afra Afsharipour, Directors as Trustees of the Nation? India’s Corporate Governance and Corporate Social
Responsibility Reform Efforts.
43
Satyam Computers Scandal (2009). The chairman, Ramalinga Raju, of Satyam Computer Services falsified the
company’s accounts it make a change of US $1.47 billion. http://in.reuters.com/article/2015/04/09/satyam-
computer-fraud-idINKBN0N00CQ20150409
44
http://indianeconomyataglance.blogspot.in/2009/03/harshad-mehtas-scam.html,
45
Securities and Exchange Board of India. http://www.icmrindia.org/free%20resources/casestudies/ketan-
parekh-scam3.htm
46
The Narayana Murthy Committee Report 2003 made revisions to Clause 49. Later, the original provisions were
adopted again. The last amendment applicable w.e.f October 1, 2014 to comply with the provisions of Companies
Act, 2013.
47
http://taxguru.in/sebi/clause-49-listing-agreement-corporate-governance.html
48
http://www.mca.gov.in/Ministry/latestnews/CG_Voluntary_Guidelines_2009_24dec2009.pdf
Governance (NSE CECG) to encourage the Indian corporate to maintain standards of
Corporate Governance.49 The Companies Act, 2013 deals with several aspects of corporate
governance such as director’s duties and related party transactions.

Corporate Social Responsibility can be divided into four: Economic, Legal, Ethical and
Discretionary. It is practised by businesses to address stakeholder expectations and enhancing
shareholder value. It is mandatory for every company having net worth of Rs 500 crores or
more, or turnover of Rs 1000 crores or more or a net profit of Rs 5 crores or more during any
financial year to constitute a Corporate Social Responsibility Committee of the Board
consisting of a minimum three directors, of which at least one should be an independent
director.50 The main functions of the Committee include formulating a Corporate Social
Responsibility Policy as specified in Schedule VII, recommending the amount of expenditure
to be incurred and monitoring the said policy. The Board has to ensure that the mentioned
duties are carried out. Supplementing this, there is Voluntary Guidelines for Corporate Social
Responsibility, 200951. The CSR Guidelines envisage the assimilation of social and
environmental issues into businesses’ decisions, goals and operations and in interactions
between corporations and their stakeholders.

There are certain international instruments like the United Nations Global Compact
Principles52 and ISO 26000 Standard on Social Responsibility53 of the International
Organization of Standards, which identifies the contours of CSR and gives guidance to
organizations for the integration of social responsibility within themselves respectively.

The emergence of all the new laws, regulations and guidelines has had a positive outcome. This
is clearly laid out in a study54 analyzing the corporate governance practices in three prominent
Indian firms, namely, ITC Ltd., Reliance Industries Ltd., and Infosys Technologies Ltd. The
companies have a very satisfying approach to Corporate Governance and CSR and they are

49
Corporate Governance in India: Development and Policies, ISMR, www.nseindia.com
50
Section 135 of the Companies Act, 2013.
51
www.mca.gov.in/Ministry/…/CSR_Voluntary_Guidelines_24dec2009.pdf
52
www.mca.gov.in/Ministry/…/CSR_Voluntary_Guidelines_24dec2009.pdf
53
http://www.iso.org/iso/socialresponsibility.pdf
54
Debabrata Chatterjee, Corporate Governance and Corporate Social Responsibility: The Case of Three Indian
Companies, International Journal of Innovation, Management and Technology, Vol. 1, No. 5, December 2010
ISSN: 2010-0248
doing very well. In addition to these companies, one of the companies that is leading in this
respect is Tata, which was the pioneer of CSR activities in India.

6.2. United Kingdom

In the UK also there were many frauds that shook the corporate world, including that of Polly
Peck55, BCCI56 and the Maxwell57 group of companies, linked with corporate governance
failures. A committee chaired by Adrian Cadbury prepared a report 58, which made three
recommendations:

1. Separation of CEO and Chairman,

2. Inclusion of at least three non-executive directors (two of whom should have no
personal or financial ties to executives), and
3. Creation of an Audit Committee composed of non-executive directors.

Later, there was the adoption of the UK Corporate Governance Code, which was a Cadbury
Code, the Greenbury Report, the Hampel Report, Higgs Review, the Walker Review, etc. The
contents of the code can be divided into five sections: Leadership, Effectiveness,
Accountability, Remuneration, and Relations with shareholders.

The UK government seems very enthusiastic in developing CSR policies. British CSR minister
Stephen Timms has drafted a global framework that will use British embassies and diplomatic
staff ‘to promote CSR principles to governments, companies and civil society and explain the
role they can play in promoting sustainable development.’ The government has recognized the
need to raise social and environmental issues at international forums like the G8, the Doha
Development Agenda and the Commission on Sustainable Development, as they would be
encouraged to integrate CSR considerations into their actions. It seeks to form a CSR Academy
to train them to practice good governance and wants to create partnerships with the businesses

55
The CEO of Polly Peck International, Asil Nadir, stole more than £150m from Polly Peck and faced trial on
13s pecimen charges and was found guilty on 10 counts of
theft. http://www.theguardian.com/business/2010/aug/26/polly-peck-business-asil-nadir
56
This was one of the biggest banking scandals in UK. The money of money launderers and drug dealers flowed
through the bank’s accounts. See http://news.bbc.co.uk/2/hi/business/3383461.stm
57
Robert Maxwell took money from the pension funds and channeled it to companies he was connected with
outside of Britain to buy stock from MCC, which later became bankrupt. http://articles.baltimoresun.com/1991-
12-22/news/1991356032_1_robert-maxwell-daily-mirror-britain
58
The Cadbury Report of 1992, which led to the formation of the Cadbury Code of Best Practices.
to help them to work on poverty eradication. In addition, the London Stock Exchange is also
creating a centralized database to collect information on the social, environmental and ethical
performance of companies.59

Fujitsu Services Ltd, Imperial Tobacco Group PLC, Jaguar Land Rover, etc have taken up CSR
practices that are commendable.60

6.3. United States

The Foreign and Corrupt Practices Act was passed in 1977 followed by Securities and
Exchange Commission in 1979 for the tightening of mandatory reporting of internal financial
controls. Later, in 1987, the Treadway Commission submitted a report highlighting the need
for a proper control environment, independent audit committees and an objective internal audit
function.61 In 1998, the New York Stock Exchange and the National Association of Securities
Dealers jointly established the Blue Ribbon Committee on Audit Committee Effectiveness.
However, even this did not prove to be very effective as there were many scams like the Enron
and WorldCom, which led to the passage of the Sarbanes-Oxley Act (SOX) in 2002 to regulate
auditing and corporate financial reporting.62

CSR practices in the United States was not voluntarily taken by the corporates but was a
reaction to public responses to issues, which were not considered as part of their business
responsibilities. There are four points put forward by the proponents of CSR, i.e., moral
obligation, sustainability, license to operate, and repute. 63 One of the guidelines available is
the OECD (Organization for Economic Cooperation and Development) Principles.64

59
Nathan E. Hurst, Corporate Ethics, Governance and Social Responsibility: Comparing European Business
Practices to those in the United States, Santa Clara University.
60
CR Index 2015: Company Listing available at www.bitc.org.uk/node/355077 last visited on 28th September
2015.
61
Speech delivered by Shri Vepa Kamesam, Chairman, Governing Council, Institute for Development and
Research in Banking Technology (IDRBT), Hyderabad at the top management workshop on Corporate
Governance & Corporate Social Responsibility in Public Enterprises, organized by ICFAI and Indian Institute of
Public Administration at New Delhi on 8th July, 2004.
62
L. Murphy Smith, Audit Committee Effectiveness. Did the Blue Ribbon Committee Recommendations make a
difference? Int. J. Accounting, Auditing and Performance Evaluation, Vol.3, No.2, 2006.
63
Michael E. Porter & Mark R. Kramer, Strategy and Society: The Link Between Competitive Advantage and
Corporate Social Responsibility, Harvard Business Review (December 2006).
64
he OECD Principles of 1999 and 2004 http://www.oecd.org/corporate/principles-corporate-governance.htm
There is a Corporate Social Responsibility team in the Bureau of Economic and Business
Affairs, which promotes responsible and ethical business practices. It is their mission to provide
guidance and support to companies and encourage them to adopt corporate policies that help
companies “do well by doing good”.65 There is a body called the US National Contact Point,
which works with the Bureau to promote the OECD Guidelines for Multinational Enterprises.66
An Award for Corporate Excellence program carried out by the Secretary of State to encourage
corporates to conduct good governance. A few corporations, like Ben & Jerry’s, Patagonia,
Microsoft67and the Body Shop have made a difference by taking up social responsibility.68

6.4.Analysis

 In all the three countries, the need for corporate governance arose due to some
failures in the management of companies and various frauds that were conducted by
officers and board members.

Each country has a statutory law, which sets out the principles of corporate governance.

 In the UK, it is mandatory to have a Nomination committee while in India it is not

so. There is a distinction made between small and large quoted companies with
regard to Audit committee in the UK while no such distinction is made in India. In
both countries, there should be a Remuneration committee.69 In US, the Sarbanes-
Oxley Act makes only the Audit Committee mandatory.

Clause 49 of the Listing Agreement was a transplant of governance reforms adopted in the US
and the UK into the Indian context without any comprehensive analysis of Indian corporate
structures. This is why Clause 49 was criticized a lot.70

65
http://www.state.gov/e/eb/eppd/csr/
66
http://www.state.gov/e/eb/oecd/usncp/index.htm
67
Microsoft was ranked the corporation with the best CSR by Forbes magazine in
2012 http://www.forbes.com/sites/jacquelynsmith/2012/12/10/the-companies-with-the-best-csr-reputations/
68
Michael E. Porter & Mark R. Kramer, Strategy and Society: The Link Between Competitive Advantage and
Corporate Social Responsibility, Harvard Business Review (December 2006).
69
http://www.grantthornton.co.uk/en/insights/corporate-governance-in-india-and-the-uk-a-comparative-analysis
70
Supra 18
  Unlike in India and UK, exchanges in the US have shown no movement to increase
corporate governance and social responsibility.71 The US seems more reluctant to
take up CSR activities compared to the other two.

Corporate Governance and Corporate Social Responsibility are complementary and are closely
linked with market forces. CSR operates in a free-form manner while CG operates within well-
defined and accepted structures.72 In India, UK and US, the importance of CSR and CG are
being increasingly recognized and this had had a positive impact on the society as well as the
corporates in general.

7. CASE ANALYSIS ON CSR:

1)Reliance Industries Ltd.-73

Reliance Industries Ltd. launched a countrywide initiative known as “Project Drishti”, to

restore the eye-sights of visually challenged Indians from the economically weaker sections of
the society.

2) Hero MotoCorp-74

Hero MotoCorp takes considerable pride in its stakeholder relationships, especially ones
developed at the grassroots. The Company believes it has managed to bring an economically
and socially backward region in Dharuhera, Haryana, into the national economic mainstream.

3) Infosys Technology Limited-75

Infosys promoted, in 1996, the Infosys Foundation as a not-for-profit trust to which it

contributes up to 1% PAT every year. Additionally, the Education and Research Department
(E&R) at Infosys also works with employee volunteers on community development projects.

4) ITC Limited-76

71
Supra 35
72
Lawrence E Mitchell, The Board as a Path toward Corporate Social Responsibility in Doreen McBarnet,
Aurora Voiculescu and Tom Campbell, The New Corporate Accountability: Corporate Social Responsibility and
the Law (2007) 279 in M.M. Rahim, Corporate Social Responsibility, Corporate Governance and Corporate
Regulation, Legal Regulation of Corporate Social Responsibility, Springer-Verlag Berlin Heidelberg 2003.
73
http://www.legalservicesindia.com/law/article/944/3/Corporate-Social-Responsibility
74
Ibid
75
Ibid
76
Ibid
ITC partnered the Indian farmer for close to a century. It is now engaged in elevating this
partnership to a new paradigm by leveraging information technology through its trailblazing
‘e-Choupal’ initiative. ITC is significantly widening its farmer partnerships to embrace a host
of value-adding activities viz. creating livelihoods by helping poor tribes make their wastelands
productive, investing in rainwater harvesting to bring irrigation to parched dry lands,
empowering rural women by helping them evolve into entrepreneurs, and providing
infrastructural support to make schools an exciting platform for village children.

5) ‘LABS’ of Dr. Reddy’s Labs-77

Dr. Reddy’s lab started ‘LABS’ (Livelihood Advancement Business School) in the year 1999.
It trains the underprivileged youngsters, even street children for livelihood earnings in the job
areas i.e. technology, healthcare, hospitality, finance and marketing issues. It involves four
types of volunteers viz Student volunteer mentors, Faculty volunteer mentors, Network
mentors and Resource mentors.

In a newly emerged global market as the competition is very intense and the customers are very
sophisticated, companies must ensure social responsibility in order to secure fundamental
relationships that fuel business growth.

7.1. Instances for the violation Of CSR Principle:78

1. Bhopal Gas Tragedy, the Bhopal disaster also known as Bhopal Gas Tragedy was one of
the world's worst industrial catastrophes. It occurred on the night of December 2–3, 1984 at the
Union Carbide India Limited (UCIL) pesticide plant in Bhopal, Madhya Pradesh, India. A leak
of methyl isocyanate gas and other chemicals from the plant resulted in the exposure of
hundreds of thousands of people. Estimates vary on the death toll. The official immediate death
toll was 2,259 and the government of Madhya Pradesh has confirmed a total of 3,787 deaths
related to the gas release. Others estimate 3,000 died within weeks and another 8,000 have
since died from gas-related diseases. A government affidavit in 2006 stated the leak caused
558,125 injuries including 38,478 temporary partial and approximately 3,900 severely and
permanently disabling injuries.79

77
Ibid
78
https://www.utrechtjournal.org/articles/10.5334/ujiel.bz/
79
Ibid
UCIL was the Indian subsidiary of Union Carbide Corporation (UCC). In 2001 the US-based
gigantic Dow Chemical purchased Union Carbide, thereby acquiring its assets and liabilities.
However it has been steadfastly refusing to clean up the site, provide safe drinking water or
compensate the victims, or even disclose the composition of the gas leak, Dow Chemical, like
UCIL earlier, claims that it has no liability of the past. The Dow Chemical Company, with
annual sales of $28 billion, says in its web site: it is “committed to the principles of Sustainable
Development and its approximately 50,000 employees seek to balance economic,
environmental and social responsibilities.”

2. Cadbury, In October 2003, a Cadbury stockiest in Mumbai detected worms in Cadbury’s

Dairy Milk chocolate. Then the Commissioner of Food and Drug Administration of
Maharashtra examined the sealed Dairy Milk packs and found worms in them. He immediately
ordered the seizure of all Cadbury’s Dairy Milk chocolates from the company’s factory in
Talegaon near Pune. This attracted lots of criticism from consumer activists on lack of
appropriate laws on storage. They also demanded immediate government action against
Cadbury. Another factor brought to light was that the chocolates were delivered by three
wheelers, which did not have refrigeration facility for appropriate transit maintenance of the
product.80

3. Unilever Global Company, In the year 2001 the Unilever Company has dumped 300 metric
tons of mercury at Kodaikanal located at South India. As a contrast to the above activity the
Unilever website states, “We are committed to conducting our operations with integrity and
with respect for the interests of our stakeholders….. We are also committed to making
continuous improvements in the management of our environmental impacts and to working
towards our longer term goal of developing a sustainable business.”81

In order to tackle above situations a new initiative has taken by Government of India, that is
CREP, or “The Corporate Responsibility for Environmental Protection” initiated by the Indian
government recently this year in 2003, is a case in point. A guideline for a set of non-mandatory
norms for 17 polluting industrial sectors has been set but there is no real pressure for
implementation or internalization. An ethical being which claims to respect the earth cannot
have discontinuities in its practices. Ethical practices have to place in an integrity framework,
and that implies at the very least a lack of multiple ways of ‘being.’ This can be no different

80
Supra 73
81
Ibid
for individuals as for companies. Contrast to the above news the Unilever website states “All
Unilever companies must comply with local laws and adopt the same standards for
occupational health and safety, consumer safety and environmental care.”

The above cases show that emerging markets might have loose laws which protect the interests
of the local population. However it is in the best interest of the corporations to take care of the
welfare of the local community. The adverse publicity caused by the protests and media
coverage brings out high degree of negative public response for the product safety of the
company.

8. RECENT AMENDMENTS:

he following are the amendments made to Section 135 of the Companies Act, 2013 through the
Companies (Amendment) Act of 2019.82

8.1. Applicability for Companies

The following is a part of the amendment of Section 135 from the Companies (Amendment)
Act, 2019 that talks about applicability of companies.83

As per the issued amendments, companies that have not completed 3 whole years but fall under
the following category will have to contribute 2% of their average net profit of the previous 3
years or years after the incorporation, if less than 3 years, on CSR:

 Companies that have a networth of INR 500 Crores or more

 Companies having an annual turnover of INR 1,000 Crores or more
 Companies having a net-profit of INR 5 Crores or more

8.2.Transfer to Section VII Funds

The following is a part of the amendment of Section 135 from the Companies (Amendment)
Act, 2019 that talks about transferring unspent CSR amounts to various Funds.84

82
https://www.indiafilings.com/learn/csr-amendments-2019/
83
In section 135 of the principal Act,—(a) in sub-section (5), —

(i) after the words “three immediately preceding financial years,”, the words “or where the company has not
completed the period of three financial years since its incorporation, during such immediately preceding financial
years,” shall be inserted;
84
In Section 135 (6)

(ii) in the second proviso, after the words “reasons for not spending the amount” occurring at the end, the words,
brackets, figure and letters “and, unless the unspent amount relates to any ongoing project referred to in sub-
If the amount allocated for CSR activities by a company is unable to spend the targeted amount,
then the company is required to transfer the amount to a Fund prescribed in Schedule VII. An
example of a fund specified in the Schedule would be the Prime Minister’s National Relief
Fund. The unspent amount has to be transferred to such a Fund within 30 days post the date of
closure of the third financial year.

8.2.1. Transfer to Unspent CSR Account

The following is a part of the amendment of Section 135 from the Companies (Amendment)
Act, 2019 that talks about transferring unspent CSR amounts to a special CSR account.85

Companies are only required to retain amounts only to the extent of what is necessary for any
ongoing projects. However, there will be specific rules and regulations under which a project
will be selected as eligible for current projects. Even in such cases of ongoing projects, the
amount set aside by the company for the project is required to be put into a special CSR account
post 30 days from the end of a financial year. It is from this account that the expenditure for
the ongoing project must be utilised in the next 3 years. Additionally, if the amount in the CSR
account is not utilised for any CSR activity within the next 3 years, then the amount will once
again be transferable to the Funds mentioned in Schedule VII.

8.3.Penalty for Non-Compliance

The following is a part of the amendment of Section 135 from the Companies (Amendment)
Act, 2019 that talks about penalties for non-compliance.86

section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of
the expiry of the financial year” shall be inserted;
85
(b) after sub-section (5), the following sub-sections shall be inserted, namely:—

“(6) Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such
conditions as may be prescribed, undertaken by a company in persuance of its Corporate Social Responsibility
Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a
special account to be opened by the company in that behalf for that financial year in any scheduled bank to be
called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in
pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial
years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in
Schedule VII, within a period of thirty days from the date of completion of the third financial year.
86
Section 135(7) states that

(7) If a company contravenes the provisions of sub-section (5) or sub-section (6), the company shall be punishable
with fine which shall not beless than fifty thousand rupees but which may extend to twenty-five lakh rupees and
every officer of such company who is in default shall be punishable with imprisonment for a term which may
If a company fails to comply with the provisions prescribed in the new amended Section 135
of the Companies Act, 2013, the company will be liable to a penalty of an amount that will be
more than INR 50,000 but less than INR 25 Lakhs. Moreover, it also prescribes that every
officer of such non-compliant company will be levied with a fine that is more than INR 50,000
but less than INR 5 Lakhs, or up to 3 years of imprisonment as punishment, or even both.

CONCLUSION:

A concern for social and environmental development should be made a part of every corporate
entity through its inclusion in the annual agenda backed by strong and genuine programs. It’s
up to the lobbying groups and governmental agencies to convince the corporate power houses
to come forward and take up the challenge by making them aware of the associated advantages
that these companies stand to gain from Corporate Social Responsibility.

Too often, the private sector is unaware of government policies promoting CSR or simply does
not take advantage of them. However, these policies are ubiquitous; developed and developing
countries alike have laws that can bolster companies’ CSR efforts. Companies should
investigate and make use of national policies in all the countries in which they operate. By
supporting existing government programs, companies can leverage their investments and
potentially increase the impact and sustainability of their efforts. Many governments already
have incentive programs in place, and those that do not may be open to dialogue if the initiatives
would lead to increased investment or productivity in the country. By advocating for policies
that promote CSR, companies can help a country or region develop a comparative advantage
as a socially and environmentally responsible country. This advantage can help ensure the long-
term success of an industry’s operations within the country, which would benefit both sectors.

The argument that Corporate Social Responsibility is not the area of concern of business
corporations, and that it is only for individuals and governments does not stand in the modern
world. This microscopic view needs to be altered as gone are those days where a sector was
depend on a single enterprise limited to the borders of that country. The holistic objective must
be to achieve the macro-economic goals such as achieving public welfare and sustainability.
The theory behind the origin of CSR is growth oriented. It says that the income is earned
only from the society and therefore it should be given back; thus wealth is meant for

extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five
lakh rupees, or with both.
use by self and the public; the basic motive behind all types of business is to quench the
hunger of the mankind as a whole, not specific to a particular geographical area. The
fundamental objective of all business is only to help people.
REFERENCES:

BIBLIOGRAPHY

1. CS Guneet Mayall CS Rajnish Kumar, Company Law, 10th Ed, Commercial Law Publishers

2. P.P.S.Gogna,A Textbook of Company Law, 11th Ed, Eastern Book House

3.Avtar Singh, Company Law, 17th Ed, Eastern Book House

4.Dr. N.V. Paranjape, Company Law, 3rd edn., Central Law Agency, 2005
5.Ramaiya A, Guide to Corporate Act, 8th Ed, Eastern Book House.

WEBLIOGRAPHY

https://blog.ipleaders.in/csr-laws-india/
http://www.fiinovation.co.in/corporate-social-responsibility/
https://blog.ipleaders.in/corporate-social-responsibility-2/
http://www.legalservicesindia.com/law/article/944/3/Corporate-Social-Responsibility
https://www.utrechtjournal.org/articles/10.5334/ujiel.bz/
https://www.pinsentmasons.com/out-law/guides/corporate-social-responsibility--the-uk-
corporate-governance-code
https://blog.ipleaders.in/corporate-governance-social-responsibility-comparative-analysis-
india-united-kingdom-united-states/
 PLAGIARISM
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In the present scenario, the CSR is gaining a lot of importance in the Corporate World. Though CSR is an
old conceot and can be traced in the long last history.In Gerneral Sense, CSR refers to the idea that
companies need to invest in socially and environmentally relevant causes in order to interact and
operate with concerned parties having a stake in the company’s work. CSR is termed as “Triple-Bottom-
Line-Approach”, which is meant to help the company promote its commercial interests along with the
responsibilities it holds towards the society at large. CSR is not a new concept had its history over a lon
time. The stages of the development of CSR Laws are at four levels. The first step toward Legal
recognition of CSR is the Corporate Social Responsibility Voluntary Guidelines 2009. Further, Section 135
The The Companies Act, 2013 was formulated and prescribed the categories of Companies which has to
abide by the CSR. The paper is structured in to 2 parts. The first part deals with the Comparison of CSR
in U.S, U.K and India is made and they are distict in their own way. However, the Indian CSR Laws are
adopted from U.K. The Second part covers the all the aspects pertaining to the Recent Amendment in
2019 to the Companies Act, 2013 which included the Penalty Provisions resulting in the strict
implementation of law.

Sources Similarity
CSR laws in India - Provision under the Companies Act, 2013 - iPleadersCompare text
...to invest in socially and environmentally relevant causes in order to interact and operate with concerned parties having a stake in
the company’s work.this will help corporate undertakings to take up a lot more social, economic and environmental activities in order 20%
to help the general populace.
https://blog.ipleaders.in/csr-laws-india/