Professional Documents
Culture Documents
IX TRIMESTER
PROJECT -1
TABLE OF CONTENTS
1. ACKNOWLEDGEMENT........................................................................................................3
2. INTRODUCTION....................................................................................................................4
3. STATEMENT OF PROBLEM................................................................................................4
5. RESEARCH QUESTIONS......................................................................................................5
6. RESEARCH METHODOLOGY.............................................................................................5
7. REVIEW OF LITERATURE...................................................................................................5
13. BIBLIOGRAPHY..................................................................................................................19
Page |3
ACKNOWLEDGEMENT
I, Gaurav, hereby declare that the project titled “Critical Analysis of Corporate Social
Responsibility Bill 2019” made under the guidance of Assistant Professor Padma Singh, National
Law Institute University, Bhopal is an original work. This project has been submitted as the end-
term project for the subject of Corporate Law -II for the IX trimester of B.A. LL.B (Hons) course.
All the information and data that has been analysed and used from various sources has been duly
cited and accredited. I extend my sincere thanks to everybody who helped with the completion of
this project.
I would like to thank our colleagues, my classmates for the invaluable discussion and debate from
which I garnered many relevant points.
Page |4
INTRODUCTION
There is a growing perception among the enterprises that sustainable success and shareholder value
cannot be achieved solely through maximizing short term profits, but instead through market-
oriented yet responsible, sensitive, humane behaviour. Companies are aware that they can
contribute to sustainable development by managing their operation in such a way as to enhance
economic growth and increase competitiveness whilst ensuring environment protection and
promoting social responsibility, including consumer interests. With Indian Corporate fraternity
facing mandatory Corporate Social Responsibility inclusion in laws there becomes a greater need to
concentrate and analyse on various basic aspects of Corporate Social Responsibility and its
provisions.
Corporate Social Responsibility is an evolving concept that currently does not have a universally
accepted definition. Corporate Social Responsibility is also called Corporate Citizenship or
Corporate Responsibility. Generally, CSR is understood to be the way firms integrate social,
environmental and economic concerns into their values, culture, decision making, strategy and
operations in a transparent and accountable manner and thereby establish better practices within the
firm, create wealth and improve society. For the International Labour Organization, social
responsibility of business is the set of actions that take into account the companies so that their
activities have a positive impact on society and affirm their principles and values that they
governed, both in their own internal methods and processes and in their relationship with the other
actors.
In this project the authors have critically examined the Corporate Social Responsibility Bill, 2019.
At first, the authors have defined about the concept of CSR, then delved into the question on
whether the provisions under Companies Act 2013 was adequate to ensure social responsibility.
Lastly, critical examination was done on whether the penal provisions of the bill compliance and
also turn companies into good corporate citizens.
STATEMENT OF PROBLEM
Corporate social responsibility is a model that makes a company be socially accountable to the
public. By practicing corporate social responsibility, also called corporate citizenship, companies
can be conscious of the kind of impact they are having on all aspects of society including economic,
social, and environmental. India is the first country in the world to make corporate social
Page |5
responsibility mandatory, following an amendment to The Company Act, 2013 in April 2014. This
project examines whether the compliance mechanism of the Companies Act, 2013 is adequate. We
further analyse the impact of the Corporate Social Responsibility Bill, 2019 on different
stakeholders and especially understand its benefits in making companies responsible and good
corporate citizens.
To critically analyse the effects of the Corporate Social Responsibility Bill 2019 and find out if it
can turn companies into good corporate citizens.
RESEARCH QUESTIONS
2. Whether provisions under Companies Act 2013 are adequate to ensure social responsibility?
3. Whether the penal provisions of the bill ensure compliance and also turn companies into
good corporate citizens?
RESEARCH METHODOLOGY
This project is basically a doctrinal form of study. The topic has been studied and further explained
in a descriptive and systematic manner. The doctrinal method has been adopted to closely examine
and analyse the legal doctrines, legal framework and case laws in a systematic and scientific
manner.
HYPOTHESIS
The CSR is very helpful in the social welfare of the societies and companies act are adequate to
hold the CSR and also able to punish the companies which does non comply with the CSR.
REVIEW OF LITERATURE
The paper refers directly to CSR as well as to information regarding those events that have
influenced to some extents the social expectations of corporate behaviour. The findings show that
there is a link between social expectations of corporate behaviour and the way in which CSR is
understood and implemented and opens room for future research. Beyond that, this paper has
practical contributions that can be used as the basis for exploring how CSR can address the latest
social expectations of generating shared value as a main business objective, which can translate into
practical implications if CSR is implemented with the objective of creating shared value, a topic
that only few authors have discussed.
The authors of the article state that there is growing research in all areas of ethics and CSR that
govern the activities of a firm and the value systems that underlie their business activities In the
paper they have explored the concepts of Business Ethics and Corporate Social Responsibility with
a perspective that meaningfully CSR should be seen in the context of an overall paradigm of
Business Ethics. They have studied CSR through the framework of the stakeholder theory of the
firm and posit that CSR as practiced today is a subset of Business Ethics with other dimensions of
an overall ethics framework still uncovered.
Responsibility. It follows a neutral approach to provide all the necessary information on the concept
of CSR. The authors leave it for an open interpretation to determine the impact of the newly
formulated policies. It emphasizes on the aspect that it is too early to assess the consequences of the
legislation.
Page |9
Corporate Social Responsibility (herein after named as CSR) refers to a business model that is self-
regulated and which helps the company to be accountable socially to the public, the shareholders
and to itself.1 CSR can also be referred as “corporate citizenship”. United Nations defines CSR as
“a management concept whereby companies integrate social and environmental concerns in their
business operations and interactions with their stakeholders.” 2 The World Business Council for
Sustainable Development (WBCSD) has defined CSR as “the continuing commitment by business
to contribute to economic development while improving the quality of life of the workforce and
their families as well as of the community and society at large.”3 It can also be said that CSR is how
the business processes are managed by the companies with an aim of producing an overall
constructive effect on the society.
The evolution of CSR i.e. how CSR has evolved in a country like India. Before India got
independence, the businessmen used to do charities because of their strong religious sentiments.
Post-independence the Gandhian philosophy of trusteeship was pretty much popular. The PSUs
were considered as an important part for the development. After 1991, the era of globalisation
allowed many global players to enter into the market which resulted in the enhancement of the
competition in market. The enhanced competition helped in motivating the local players to cater the
needs of the consumers and assisted them to meet consumer protection.
1
James Chan, ‘Corporate Social Responsibility’ (Investopedia, Feb 11, 2019)
<https://www.investopedia.com/terms/c/corp-social-responsibility.asp> accessed 10 July 2020
2
2Soundarya S, ‘Corporate Social Responsibility: A Contemporary Approach Towards Sustainable Development’
(2018) 1 (1) IOSR < http://www.iosrjournals.org/iosr-jbm/papers/NCCMPCW/P007.pdf> accessed 11 July 2020
3
Ibid
P a g e | 10
2. Ultra Tech Cement - Being the biggest cement company of India, Ultratech Cement has also
involved itself in the betterment of the people at large. Its aim is to create self-reliance and
sustainability among the peoples. Mainly the focus of its CSR activities is on education,
environment, sustainable livelihood, healthcare, etc.
3. Mahindra & Mahindra - The primary focus of this company is on the education programs for
the people who are financially backward through providing scholarships and grants in remote
areas. The Lifeline Express has been provided by this company in remote areas.
ranging from educational programs, skill development, social welfare, healthcare, and environment
conservation. 2017 CSR spends further rose with corporate firms aligning their initiatives with new
government programs such as Swachh Bharat (Clean India) and Digital India, in addition to
education and healthcare, to foster inclusive growth.”6
6
Apresh Mishra, ‘20% increase in actual CSR spend in FY 2017’ (INDIA CSR, 9 July 2017) < http://indiacsr.in/20-
increase-in-actual-csr-spend-in-fy-2017/> accessed 11 July 2020
P a g e | 12
The concept of social responsibility and recognising the interests of stakeholders is not a new
concept in India. After the 2008 crisis initially India tried to implement Corporate Social
Responsibility7 through voluntary guidelines in 2009.8 Due, to less participation because of the use
of term voluntary, Securities and Exchange Board of India proceeded to issue a circular in 2012
mandating top 100 companies to comply with Corporate Social Responsibility. 9 The socialistic
perspective of recognising various stakeholders is reinstated through the Section 135 of Companies
Act 2013.
The law in India mandates for constitution of a committee responsible for dealing with activities
related CSR, if the turnover of the company is more than one thousand crores or its net worth being
more than 500 crore.10 In order to have enough power to implement activities related CSR the law
also mandated that directors should be members of such committee. 11 Further disclosure regarding
the composition of such committee has also been mandated. 12 Companies having such threshold
limits are required to utilize 2 percent of average profits of past three years for CSR. Supplementing
these procedural rules on how to spend these funds have been provided through CSR Rules 13 in
2014.
7
Hereinafter CSR
8
Corporate Governance Voluntary Guidelines 2009
9
Business Responsibility Reports 2012
10
The Companies Act 2013, s 135(1)
11
ibid
12
The Companies Act 2013, s 135(2)
13
The Corporate Social Responsibility Rules 2014
P a g e | 13
It is essential to realize that the focus given on transparency mechanisms for the composition of the
committee has not been given to work that they do. Schedule 7 though prescribes on reporting on
how much money has been spent, how much is the unspent amount. It also states that if the
companies fail to mention the same, they just need to explain. There is standard definition of this
explanation and limits to it as of now.14 During the negotiation process between government and
companies the mandatory provisions on how the company is spending have been taken off.
Therefore, leaving no mechanism to check what the company is doing with funds.
The law has no effective mechanism to deal with non-compliance of section 135. The only liability
is imposed for non-disclosure of CSR funds. The act just imposes fine on the in-charge officer that
may extend to 10,000 and extended by 1000 for continuance of the offence.15 Voluntary
mechanisms can be driven by society, however the opinions of society can be easily influenced
through consumer mindset.
In India there has always need for mandatory regulations to ensure compliance. 16 Ministry of
Corporate affairs that is responsible for regulating the compliance doesn’t have adequate power to
govern regarding non-compliance. Further more due to concentrated shareholding it is difficult to
implement CSR provisions.17 It can be understood that the compliance to CSR regulations is left to
the sole discretion of directors. Section 166 obligates a director to act in the best interests of the
community.18
The government of India in 2016 has stated that, out of 10,475 eligible companies, only 7,334 have
reported on CSR as of 31 January 2016, indicating compliance by about 70% of the companies. A
Study points that though there was a rise in CSR activities there is lack of disclosure. 19 The
conclusion of several detailed empirical studies shows that though there is compliance there is non-
disclosure.20
14
VarottilUmakanth, ‘Analysing the CSR Spending Requirements Under Indian Company Law’ (2018) Springer
international publishing<https://ssrn.com/abstract=317394> accessed on 16 July 2020
15
The Companies Act 2013, s 460
16
Jill Treanor, ‘Corporate governance: does ‘comply or explain’ have a future?’ the guardian (2012<
http://www.theguardian.com/business/blog/2012/feb/15/corporate-governance-comply-explain-future.>accessed on 16
July 2020
17
Bala N. Balasubramanian and Anand Ramaswamy, ‘Ownership Trends in Corporate India (2001–2011): Evidence
and Implications’, < http://www.nseindia.com/research/content/res_WorkingPaper11.pdf>accessed on 16 July 2020
18
The Companies Act 2013, s 166(2)
19
Vidhi Chaudhri and Jian Wang, ‘Communicating Corporate Social Responsibility on the Internet A Case Study of the
Top 100 Information Technology Companies in India’ (2007) sage publications
<http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.832.9619&rep=rep1&type=pdf>accessed on 16 July 2020
20
VarottilUmakanth, ‘Analysing the CSR Spending Requirements Under Indian Company Law’ (2018) Springer
P a g e | 14
21
The Companies Act 2013, s135
22
A Ramaiya, Guide to the Companies Act, p. 2523, 2524 (18th ed., 2015).
23
The Companies (Amendment) Act 2019
24
The Companies Act 2013
P a g e | 16
months. The abovementioned fund includes “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 scheduled castes / tribes, other backward classes, minorities and women.”25
2. The non-compliance with the CSR obligations provide for a penalty ranging from Rs. 50,000 to
Rs. 25 lakh. Moreover, it incorporates an imprisonment for the concerned officers of the
company up to the period of 3 years with a fine of Rs 50,000 extending up to Rs. 5 lakh or
both.
3. The instances of newly formed companies which have not completed three years of
incorporation be dealt in a way that their amount towards CSR shall be equivalent to 2 percent
of the net profits of the previous financial year of the company.
Taking the abovementioned amendment into consideration and analyzing them through the lens of
CSR enforcement, we tend to realize that there are certain shortcomings of the amendment. The
government through multiple committees has made consistent efforts to ameliorate the functioning
of CSR implementation and in case of failure has questioned the companies to provide for
justifiable reasons for the same. The mandatory provision of CSR is a deviation from the general
approach and has only adopted by countries such as Indonesia, Mauritius and Nepal. Most of the
countries of the world at most mandate a disclosure obligation on the companies. This compulsory
provision that has been adopted after the amendment does not encourage CSR spending to that
extent rather focuses largely on penalizing for non-compliance. It has defeated the original idea and
has taken such shape which is closely associated with tax. The failure to spend CSR amount within
a specified time frame leads to flow of the amount towards the government funds and non-payment
attracts penal provision. This channelization of funds towards the government, somewhere deprive
the local communities of betterment because it is more viable for the companies to takeover this
task where they operate locally.
Moreover, the amendment has encouraged a narrowed approach by promoting short-termism. It has
circumscribed the autonomy of the companies to plan for long term CSR activities by capturing
them in the cage of a time frame.
Also, the amended CSR provisions leaves certain aspects open ended, which further strains the
whole scenario. These include retrospective application of the amended provisions over the unspent
25
ibid
P a g e | 17
CSR amount of the previous financial year as well as the carry forward of CSR amount if spent
more than the amount so desired.
Furthermore, there are certain existing issues which remain unsolved even after the concerned
amendment. It includes the conflict between the Act and the Companies (CSR Policy) Rules, 2014
with reference to their applications of CSR on a company incorporated in India with that of a
foreign company having the branch or project office in India. Additionally, the disconnection in law
wherein the amount spent as CSR is not automatically deducted under the Income Tax Act, 1961
remains unnoticed.
Therefore, when we take all the aspects into account, it can be deduced that the mandate of CSR is a
retrograde step which needs reconsideration so as to ensure good corporate framework in India. It
should promote long term social contributions rather than being aimed at penalizing the private
sector.
P a g e | 18
Through this project we could validly conclude that corporate citizenship is an integral segment of
the corporate sector generating a sense of social accountability and responsibility. It widens the
identity of the corporations by involving them towards the growth and development of the nation.
Herein, we not only focused on the need and objectives of corporate social responsibility but also
witnessed a transition in its dimensions as per the changing dynamics of the society. We examined
the shift of the whole concept from being voluntary to mandatory with the advent of the concerned
bill. Additionally, we analysed the provisions in both the cases so as to understand the viability of
the newer policies.
However, we were able to deduce that the CSR bill is potentially nonviable due to the mandate it
creates on private sector, not allowing them to flourish as per their framework. It can be seen as a
backward approach wherein one sector is penalized to uphold the ideals of social development and
growth. We should formulate such policies which lays an equitable burden on all the sectors
thereby not punishing any one of them.
P a g e | 19
BIBLIOGRAPHY
4. VarottilUmakanth, ‘Analysing the CSR Spending Requirements Under Indian Company Law’
(2018) Springer international publishing<https://ssrn.com/abstract=317394> accessed on 16
July 2020
5. Vidhi Chaudhri and Jian Wang, ‘Communicating Corporate Social Responsibility on the
Internet A Case Study of the Top 100 Information Technology Companies in India’ (2007)
sage publications <http://citeseerx.ist.psu.edu/viewdoc/download?
doi=10.1.1.832.9619&rep=rep1&type=pdf>accessed on 16 July 2020
7. Jill Treanor, ‘Corporate governance: does ‘comply or explain’ have a future?’ the guardian
(2012< http://www.theguardian.com/business/blog/2012/feb/15/corporate-governance-comply-
explain-future.>accessed on 16 July 2020
8. Apresh Mishra, ‘20% increase in actual CSR spend in FY 2017’ (INDIA CSR, 9 July 2017) <
http://indiacsr.in/20-increase-in-actual-csr-spend-in-fy-2017/> accessed 11 July 2020
9. Tima Bansal, ‘The unintended consequences of India’s CSR law’ (Business Today, 13 July
WEBSITES REFERRED
1. Manupatra
2. Indiankanoon
3. Advocatekhoj
P a g e | 20
4. http://www.indiacorplaw.blogspot.in/2009/04/csr-in-india-some-theory-and practice.html
ACTS
1. The Companies Act 2013