SESSION 2021-22

LLM 104A Company Law

PROJECT ON:

CORPORATE SOCIAL RESPONSIBILITY IN INDIA

SUBMITTED UNDER SUPERVISION: SUBMITTED BY;

Mr. Abhishek Bishnoi Asmita Bhardwaj

(FACULTY OF LAW) LLM CORPORATE

& COMMERCIAL

LAW 1st SEMESTER

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DECLARATION

I declare that the project entitled “Corporate Social Responsibility in India” is the outcome of
my own work conducted under the supervision of Mr. Abhishek Bishnoi at Jagannath University,
Jaipur.

I further declare that to the best of my Knowledge the project does not contain any part of any
work, which has been submitted for the award of any degree either in this University or in
another University / Deemed University without proper citation

Asmita Bhardwaj
Dated: -

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CERTIFICATE OF THE SUPERVISOR

This is to certify that the research work entitled “CORPORATE SOCIAL RESPONSIBILITY
IN INDIA”
is the work done by Asmita Bhardwaj under my guidance and supervision for the Partial
fulfillment of the requirement of LLM degree at Jagannath University.

To the best of my Knowledge and belief the project:

1. embodies the work of the candidate himself;
2. has been duly completed; and
3. Is up to the standard both in respect of contents and language for being referred to the
examiner.

Mr. Abhishek Bishnoi

Faculty of Law
Supervisor

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ACKNOWLEDGEMENT

I would like to express profound gratitude to Mr. Abhishek Bishnoi for his invaluable support,
encouragement, supervision and useful suggestions throughout this research work. His moral
support and continuous guidance enabled me to complete my work successfully. His intellectual
thrust and blessings motivated me to work rigorously on this study. In fact this study could not
have seen the light of the day if his contribution had not been available. It would be no
exaggeration to say that it is his unflinching faith and unquestioning support that has provided
the sustenance necessary to see it through to its present shape.

I express my deep sincere gratitude towards my parents for their blessing, patience, and moral
support for this project.

Asmita Bhardwaj

TABLE OF CONTENTS

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S. No Particulars Page No
1 DECLARATION 2
2 CERTIFICATE OF SUPERVISOR 3
4 ACKNOWLEDGEMENT 4
5 ABSTRACT & INTRODUCTION 6-7
6 CORPORATE SOCIAL RESPONSIBILITY IN INDIA 7-29
7 CONCLUSION 29-30
8 BIBLIOGRAPHY 30-31

CORPORATE SOCIAL RESPONSIBILITY IN INDIA

Abstract

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Corporate Social Responsibility (CSR) has spurred intense discussion for over a century, yet it
remains an ambiguous term. Most definitions of CSR presume that the activity is optional and
discretionary, and that it refers to efforts that go beyond what is required by law. Section 135 of
the Companies Act, 2013, which requires CSR for enterprises of a particular size, entered into
force in India on April 1, 2014. As a consequence, previously accepted key principles of CSR
were brought into doubt. This article tries to examine the reasoning, justification, and reasons for
the government mandate on CSR from the literature; what may have been the thought behind
Section 135; and what advances in terms of expenditure and system modifications happened over
the first five years of the Law. It also follows the growth of Section 135 and its accompanying
Rules and compares them to the emergence of a comparable legislation in Mauritius (possibly
the only other nation having such a statute) (probably the only other country with such a law). It
seeks to make some inferences about forthcoming legal trends based on these developments.

Introduction

Corporate Social Responsibility (CSR) is a notion that is continually developing. Despite much
discussion and passionate dispute, there is currently no commonly agreed definition.
McWilliams and Siegel (2001, p 117) define CSR as "actions that appear to further some social
good, beyond the interests of the firm and that which is required by law," while Barnett (2007, p
801) defines it as "a discretionary allocation of corporate resources toward improving social
welfare that serves as a means of enhancing relationships with key stakeholders."

However, as shown from the definitions above, a few notions have underlay the understanding of
CSR, notably, the voluntary and discretionary character of the activity; and that it relates to acts
that go above and beyond what is required by law. Section 135 of the Companies Act 2013 come
into force in India on April 1, 2014. The new Companies Act supplanted the Companies Act of
1956. This was a big move since it amended legislation that were more than five decades old.
One component in the new Act was fiercely disputed and discussed even before the legislation
went into force. This was Schedule 135 of the Act, which makes CSR required for enterprises of
a particular size and describes how it should be controlled, how much should be spent, on what,
and CSR implementation and reporting.

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The industry as a whole was opposed to making CSR obligatory. Many other parties questioned
putting what was previously regarded to be 'beyond law' and voluntary into a required
framework. Regardless, the Schedule passed legislation and entered into effect on April 1, 2014.
As a consequence, the voluntary and discretionary features, as well as the concept of these acts
going beyond legal obligations, have been disputed, which may have ramifications for CSR
definitions and comprehension.

Making CSR required for some organizations under Section 135 is not without context. This
article explores the environment in which this may have happened, as well as the changes that
have transpired in the intricacies of the legislation since January 2018.

Indian Customs

CSR is not a new idea in India. In terms of trusteeship, Mahatma Gandhi (1942) summed up his
idea of the business-society connection. While he did not define how riches created by business
should be spent, he did assert categorically that the wealth's aim was to help society. He declared
(1942, p 49) that "moneyed folks may earn their crores (honestly exclusively, of course), but
only in order to commit them to the service of humanity." According to the official website of
Tata Group, a father of Indian industry, J.N. Tata, remarked, "In a free enterprise, the community
is not merely another partner in company, but the goal of its very existence."

Nehru's worldview was more'statist' than Gandhi's. He did not think that firms would utilize their
money freely to assist society. According to Handy et al. (2011), this led in a transformation in
the Indian corporate regulatory environment in which the legal and policy framework controlling
business was utilized to serve causes that might be referred to as CSR. The law on CSR may find
support in both Gandhiji's moral imperative and the statist paradigm that has prevailed in India.

The Role of Government in CSR: An International Perspective

What have scholars stated about the government's involvement in CSR? Some comprehension of
this may assist in evaluating where Indian law may have derived legitimacy.

Initially, CSR was considered as something businesses undertook willingly, of their own free
will and desire; something exclusively in the sphere of business, with no involvement from
governments. However, governments have been more aggressive in CSR in the twenty-first

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century, and as Fox et al. (2002) view it, they are playing an active role in this sector. Reasons
for this have also been addressed, ranging from rising expectations on governments to hold
companies responsible to their failure to achieve civil society's objectives on their own. Knudsen
and Brown (2012) feel that government CSR policies strive to achieve multiple aims, and they
generally characterize government CSR policies as (a) those aiming at attaining national, social,
and environmental agendas, and (b) those attempting to assist global competitiveness.

Fox et al. (2002) present an in-depth assessment and comments on the role of governments in
this. They see four roles for government in this: (1) mandating—defining minimum standards for
business performance within the law of the land; (2) facilitating—incentivizing CSR agenda and
giving a push to social and environmental improvements; (3) partnering—enabling synergies
between the public and private sectors, as well as civil society; and (4) endorsing—recognizing,
awarding, and celebrating such practices. Zadek (2001, p 14) believes that governments must
play a role in altering the basis of the interaction between companies and greater society. He
believes this a "issue of governance rather than just operational abilities and capacities." He
argues that voluntary efforts by individual firms toward corporate citizenship are inadequate to
solve deep-seated social and environmental challenges. He proposes for 'third generation
corporate citizenship,' which would require communal procedures to form coalitions among
governments, firms, and civil society. According to the United Nations' Sustainable
Development Innovation Brief (2007), the reasons for governments to participate in CSR policy
would be country-specific, with the overarching objective of harmonizing corporate and social
sector policies to meet national goals. Bichta (2003, p. 4) identifies the mechanisms through
which governments attain social objectives as legislation, regulation, and taxes. Another
technique that evolved in the 1990s was shared responsibility. She says that as thought on the
topic has developed, it has become evident that "government, acting on behalf of its people, has a
legal responsibility to establish rules for managers and modify company conduct to accord with
social expectations." Reich (1998) feels that it is reasonable, under the stakeholder model, for the
government, as the democratic representation of all stakeholders, to be the arbitrator of CSR,
since it would be inefficient for all stakeholders to engage in every conversation regarding a
firm's CSR. Reich (2008) criticizes firms defining their own CSR, claiming that "there is no
alternative method for the private sector to define its social responsibility other than via the

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democratic process." According to Albareda et al. (2008), from the standpoint of governments,
CSR is about managing a complicated relationship in order to reach a win–win solution between
business and social groups. They agree with writers such as Moon (2002) that CSR might be a
means for governments to cope with requests for increased governance while simultaneously
tackling social concerns such as poverty, unemployment, and so on. They claim that in recent
years, CSR public policies have aimed to (a) address developing social concerns, and (b) support
governments in their attempts to build partnerships with other players. They hint to a change in
government vision and approach on CSR.

Joseph (2003) analyzes the role of governments in using'soft' instruments to augment regulation,
as well as economic and fiscal measures, in controlling business. Even within this, he
distinguishes between'structured soft' tools such as codes and 'unstructured soft tools' such as
general positive responsibilities. He specifies a category of measures he terms "hard frameworks
with soft repercussions," mentioning "corporate governance laws and obligatory disclosure" as
examples, suggesting a typology into which the Indian CSR requirement may fall.

Steurer (2010) gives the following arguments in his literature analysis for why governments
should be engaged in CSR:

(1) because CSR may assist them reach policy goals such as sustainable development and human
development.

(2) Such government policies complement and strengthen 'hard law regulations,' and could be
used instead of enacting unpopular laws;

(3) governments want to play an active role in defining CSR and driving desired practices;

(4) CSR is a more partnering, collaborative approach that involves self-regulation and co-
regulation, in keeping with the overall direction in which governments are moving in the
governance transition, from hard laws to softer ones;

(5) He claims that European governments have taken a more active role in shaping and
promoting CSR. Further created a taxonomy of how government policies approach CSR, which
fundamentally fall into the following categories: Instruments of information, economic
instruments, legal instruments, partnership instruments, and hybrid instruments

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While CSR policies are generally'soft' instruments, Steurer (2010) points out that this "does not
imply that governments cannot set enforceable minimum standards and quality assurance
processes for topics now being debated" within the CSR paradigm. According to the UN Global
Compact and Bertelsmann Stiftung (2010) research, governments have the following
possibilities to promote CSR: Raising awareness; cooperation; soft law techniques to promote
and incentivise voluntary acts; and legislating mechanisms to monitor and enforce corporate
responsibility. Moon (2004), commenting on the UK scenario, asserts that governments pushed
CSR owing to a "crisis in governability and legitimacy, as well as governance inadequacies." He
envisions CSR becoming increasingly institutionalized in the UK, with the government actively
supporting and assisting this trend. Ward (2004) cites the rising awareness of CSR as a public
policy problem among governments in developing nations, as a method of accomplishing
sustainable development objectives, reducing poverty, and enhancing national competitiveness.
She views such participation as vital to ensure that CSR is localized and entrenched in local
sustainable development ideas, rather than being led from outside the nation.

Hopkins (2004) discusses the pros and downsides of CSR regulation as follows:

1. It would help in the prevention of excessive labor exploitation, bribery, and corruption.
2. Companies would be aware of what is expected of them, creating a fair playing field.
3. Many parts of CSR activity are helpful to companies (for example, reputation, human
resources, branding, and making it easier to locate in new areas), and laws might assist in
boosting profitability, growth, and sustainability.
4. Some areas, such as downsizing, may assist to rebalance the relationship between
corporations and their workers.
5. It would be more difficult for renegade enterprises to compete by reducing their
standards. Companies that address the serious problem of underdevelopment across the
globe would benefit the wider community.

Cons

1. Increased bureaucracy, with growing consequences for noncompliance.

2. Operating expenses may climb beyond what is necessary to maintain profitability and
sustainability.

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3. Critics already contend that a company's CSR is just to make a profit, and law would
compound these worries.
4. Reporting standards range widely by firm, industry, and region, and they are always
developing.

Hopkins & Associates (2004)

According to Midttun (2005), CSR is increasingly becoming more integrated as a consequence

of NGOs' efforts as well as a larger focus on CSR and Corporate Governance in financial
assessment, which is supporting governmental welfare goals. In fact, he views this incorporation
of social factors as an emergent governance paradigm that might assist to restore the welfare
agenda that was challenged by the globalization regime.

According to Knudsen and Brown (2012), how a nation sees CSR and formulates legislation in
this area is clearly a feature of its National Business System. They found that governments may
apply CSR policies to minimize industry's social and environmental consequences, address
welfare requirements, increase international competitiveness, meet developing societal demands,
or even build new forms of governance. Their conclusion is that government CSR initiatives are
not driven by a single reason, but rather by a range of ones. 'Government CSR policies are
focused at altering or assuring corporate conduct,' Knudsen and Brown (2012) suggest that the
sort of CSR policies a government adopts will be a determinant of the country's capitalism, e.g.,
is it a liberal market economy vs. a more state-controlled one, and so on. They perceive two
primary ways that governments may use to CSR policies: (a) CSR policies may be connected
with domestic policies to encourage firms to contribute to national objectives. Government
initiatives will either replace or replicate the government's social and environmental concerns in
such instances. It indicates that governments perceive CSR as a tool of attaining their social or
environmental objectives, and that such national institutions have enormous political influence.
(b) Governments will construct CSR programs to promote global competitiveness, indicating that
they would cater to the requirements of consumers or non-domestic stakeholders rather than
voters. This would suggest that extra-national groups, such as MNCs, have power, and that they
may even be undermining the government's regulatory function.

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Horrigan (2010) groups the rationales in a somewhat different method. He categorizes them as
follows: (1) achieving a national competitive edge, (2) reacting to global problems, and (3)
advancing national social aims and policies. Knudsen and Brown (2012), on the other hand,
suggest that (1) and (3) are comparable. Knudsen and Brown (2012) identify two early
pioneering administrations that promoted CSR policy. Since the 1980s, the government in the
United Kingdom has stressed corporate social responsibility as a reaction to the poor societal
implications of previous years' privatization. It released 'A New Vision for Business' in 1999,
which blended CSR into public policy. It appointed its first CSR Minister in 2000. CSR policies
in the United Kingdom have traditionally focused on supporting national social objectives as
well as strategies to increase global competitiveness. Other pioneering government attempts
included France, which was among the first to make social reporting obligatory in 1977. This has
happened as a consequence of feedback from labor unions.

Denmark was another nation that created a CSR strategy. According to Knudsen and Brown
(2012), the government "engaged a broad spectrum of social partners," but the outcomes
"actually reflect what top corporations in terms of CSR (--) were already doing." Mauritius may
have been the first nation to force firms to spend money on CSR. The first mention of this was in
their 2009 Income Tax Act, in which enterprises were expected to spend 2 percent of their book
profits for CSR activities under programs authorized in published guidelines
(www/mof.govmu.org/English/Documents/New percent 20CSR percent 20Franework percent
202016.pdf.): According to Ah-hen (2016), this drive for CSR in Mauritius is "a complement to
the social protection system, with the objective of elimination of poverty and social protection."
She contends that the gains of development have not been dispersed evenly, stressing the
necessity for such policies.

Various other players have had a part in promoting and developing CSR agendas during the past
few decades. Fox and Prescott (2004) summarized international discussions on the role of
development agencies in CSR and identified three reasons for this: (1) the urgency of
development challenges, and the inadequacy of international systems and nations to address
these effectively; (2) the inability of governments alone to address these, necessitating collective
action; and (3) because international development agencies were already facilitating CSR in
some areas, this would be an extension of that.

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Overall, it seems that governments should have a major voice in CSR, not only because it is a
method of defining the connection between society and business, but also because influencing
the direction of CSR may help them fulfill their own aims. Similarly, governments seem to want
to push firms to look within, to modify the way they conduct business. CSR, as described by Fox
et al. (2002), is "a process of managing the costs and benefits of company activities to both
internal (.) and external (.) stakeholders."

While governments may lead CSR at one level, it is uncommon (save in Mauritius) for them to
delve into the intricacies of dictating how much, how, what, where, and so on has been done
under Section 135. Similarly, the definition of what should be done as CSR tends to take away
from the 360-degree perspective of stakeholders and duties under Indian law.

The Government's Role in CSR: The Indian Case

The Public Sector

In the Indian setting, CSR in the public sector is crucial. According to a Deloitte-Indian Chamber
of Commerce research from 2009, there were 246 Central Public Sector Enterprises (CPSEs)
(CPSEs). Their GDP contribution was roughly 23 percent . The paper discusses the aims of
creating CPSEs in India, such as fostering inclusive development and attaining equality and
justice for the community and society. According to Baxi and Ray (2012), satisfying social
commitments is key to the aim of CPSUs.

In the contemporary setting, the Government of India (GOI) has defined requirements for CPSE
CSR. In 2007, the Government of India announced 'Guidelines for Corporate Social
Responsibility in Central Public Sector Enterprises.' This stipulated that these businesses spend
on CSR as a proportion of their previous year's income (3-5 percent for profits of Rs. 100 crore;
2-3 percent for profits of Rs. 100 to 500 crore; and 0.5-2 percent for profits of more than Rs. 500
crore) (3-5 percent for profits of Rs. 100 crore; 2-3 percent for profits of Rs. 100 to 500 crore;
and 0.5-2 percent for profits of more than Rs. 500 crore). More significantly, it provided
procedures, methods, and suggestions for successful CSR implementation, such as what
activities may be conducted, how to plan, manage, and monitor them, and so on. The GOI
therefore created a National Hub for CSR at Tata Institute of Social Sciences (TISS) in Mumbai,

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a joint project of TISS and the GOI's Department of Public Enterprises (DPE), to help PSUs in
this area.

Following the new Companies Act, new criteria were implemented in 2013, maintaining the
history of the public sector being at the forefront of CSR. Section 135 of the Act and Schedule
VII of the Act (CSR Rules) were clarified to apply to all firms, including CPSEs. Furthermore,
DPE has created CSR and Sustainability Guidelines that are relevant to CPSEs. These Guidelines
do not replace or displace any sections of the Act, Schedule VII, or CSR Rules, but rather
enhance them. It has been noted that if there is a dispute between CSR Rules and DPE
Guidelines, the former will always take priority.

CPSEs must incorporate their CSR vision and purpose statements, as well as how they will
comply with the Guidelines, in their CSR policies. CSR requirements for CPSEs are even stricter
than for private sector companies, because DPE Guidelines state that even companies that do not
meet the net-worth, turnover, or net profit criteria specified in Section 135 (1), but made a profit
the previous year, must engage in CSR as specified, and such CPSEs are expected to incur CSR
spend of at least 2 percent of previous year profit. Furthermore, if such an amount is not spent in
a given year, it is not enough for the CPSE to report and explain why; the unspent CSR amount
must be carried forward to the next year for use towards the aim for which it was assigned.

The Government's Role in Corporate Social Responsibility in the Private Sector

The 'Corporate Social Responsibility Voluntary Guidelines' (2009) of the Ministry of Corporate
Affairs are perhaps the first formal document in India CSR aimed more at the private sector
(MCA) (MCA). One may detect the roots of two future developments in this, notably the
'National Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of
Business' (NVG) issued by MCA in July 2011 and Section 135 of the Companies Act, 2013.

The then-Minister for Corporate Affairs, in his prologue to the 2009 publication, outlined
plausible grounds for such a document at the time. He says that the rising private sector, together
with the global financial crisis, drove industry to a tipping point where it had to choose between
inclusive expansion and unsustainability. He thinks that corporate expansion leads to larger
inequality and hence wants industry to exhibit socially responsible business practices,
community care, and economic distribution. According to Indian Knowledge@Wharton (August
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2, 2011), when releasing the document, then-Minister Salman Khurshid stated that "the business
sector must also take responsibility for exhibiting socially responsible business practices that
ensure the distribution of wealth and the well-being of the communities in which the business
operates."

In the document's Preface, the then-Secretary asserts that "a culture of social responsibility must
go deeper in the control of corporations." The statement also notes that "CSR is not altruism, and
CSR actions are fully optional," and urges companies to embrace the recommendations
wholeheartedly. It outlines socially responsible business practices and urges firms to adopt CSR
policies that meet the following important elements:

 Belief in all Stakeholders

 Ethical conduct
 Concern for employees' rights and well-being
 Human Rights Observance
 Environmental sensitivity

Social and Inclusive Development Activities

MCA issued the NVG in 2011, expressing respect to the triple bottom line. However, within the
document, there is a difference in the slant of the Message of then-Union Minister MCA, which
focuses on the "concept of parting with a portion of one's surplus wealth for the good of society,"
charity, and trusteeship, and the Foreword by then-Minister of State MCA, which highlights the
need for business to "take responsibility for the ways their operations impact society and the
natural environment." The general tone and tenor of the paper swings toward the latter. The
paper seeks to be open, flexible, and non-prescriptive, saying that they are recommendations that
give exemplars of best practices while also recommending methods and frameworks rather than
mandating anything. It also recognizes the necessity for ethical business methods to be
implemented to Medium and Small Scale enterprises, which are the backbone of Indian industry.
It defines nine Principles of Responsible Business that are comparable to, but far wider than, the
2009 declaration. They are as follows:

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 Businesses should behave and regulate themselves in line with the values of ethics,
transparency, and accountability.
 Businesses should deliver safe products and services that contribute to long-term
sustainability throughout their life cycles.
 Companies should encourage the health and well-being of all workers.
 Businesses should respect and react to the interests of all stakeholders, especially those
who are disadvantaged, vulnerable, or marginalized.
 Companies must respect and support human rights.
 Businesses should respect, preserve, and help to repair the environment.
 When it comes to influencing public and regulatory policy, corporations must behave
responsibly.
 Companies should encourage inclusive growth and equitable development.
 Companies should communicate with and deliver value to their customers and consumers
in a responsible way.

National Voluntary Guidelines on Business's Social, Environmental, and Economic

Responsibilities, 2011.

Many insights into the development and thought behind NVG may be found in an interview with
Mr. Bandopadhyay, then-Secretary, MCA, to India Knowledge@Wharton in 2010. 'The ministry
and the government have a duty to investors and the entire public,' he argues. He describes how
NVG came to be: previous to that time, there were various committees looking at the subject of
corporate responsibility, including the Naresh Chandra committee, the Kumar Mangalam Birla
committee, and the Narayana Murthy committee. Many of their ideas were placed on the
Ministry's website, and opinions were invited from all stakeholders, which were then collated
and reviewed. NVG were framed as a consequence of this. He elaborates on the Guidelines'
voluntary character and why it has been preserved that way: 'we have kept it optional because the
MCA doesn't want to produce anything that is totally codified and becomes a part of legislation
so that you [have to] obey it.' If you do not follow it, you will be penalised. We don't want to do
that at first. We have offered the greatest recommendations, which have changed through time,
advising firms to embrace as many rules and clauses as possible that are acceptable for their
company. For valid reasons, you may not be able to completely adopt all of these rules. You

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comply to the maximum degree feasible. If you are unable to comply, you must submit an
explanation, not to the government, but to your shareholders and board of directors.' He stresses
that this is merely the first stage, and that MCA would examine the experience before
determining whether the effort should continue to be optional.

Mr. Moily (2012), then-Union Minister MCA, addressing at the inaugural National CSR
Conclave at a time when the draft Companies Bill (known to then as Companies Bill 2011),
states that CSR is a "Symbiotic interaction with the environment in which a business functions."
He adds that CSR must go beyond contributions and even "risk-reducing investments in
community development" to devise "new ways to operate core business differently, with
inclusion as a driving factor." According to him, "stakeholders in a responsible company exceed
shareholders." He discusses the argument for CSR in a society characterised by massive
economic inequality. He unequivocally maintains that the government does not support forcing
its ideas on the private sector and, as a consequence, has not enforced a 2 percent profit margin,
although mentioning it in the draft Companies Bill. In relation to this paragraph in the draft Bill,
he argues that it is an endeavor to establish an appropriate legal framework for corporates to
freely unleash entrepreneurship while also contributing to inclusive growth and development.

Following this, the Securities and Exchanges Board of India (SEBI) required, through Circular
dated August 13, 2012, that the 100 biggest firms include a Business Responsibility Report based
on the NGV framework as part of their Annual Reports. (In 2015, it suggested to the Board an
expansion in coverage from the top 100 to the top 500 enterprises.)

According to Praxis and Corporate Responsibility Watch's (2015) analysis based on a survey of
the top 100 firms, SEBI's action and the introduction of the Business Responsibility Report
format resulted in more corporations taking such reporting seriously and aligning such reporting
to NVGs. It was observed that PSUs have worked more than the private sector to match their
policies with NVGs.

So far, Indian thought looks to be in tune with foreign events. NVGs, for example, draw a lot of
influence from the UN Global Compact and the Global Reporting Initiatives, which urge
companies all over the globe to adopt, implement, and report on sustainable and socially

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responsible activities. The ideas of NGV are similar, however they are more contextualized to
the Indian reality. Nonetheless, one may observe the agreement with UNGC ideals.

The next stage in this process will be the enactment of the Companies Act 2013, which would
incorporate Section 135 as the cornerstone of CSR in India after 2014. Schedule VII of the
publication builds on this and outlines actions that will be covered by CSR. Following the
passing of the Act, the MCA announced CSR Rules on February 27, 2014, which entered into
effect on April 1, 2014. Further explanations, alerts, and addendums were also provided, with the
purpose of resolving uncertainties and grey situations rather than modifying the main parts.

There is a prevailing environment before new companies act.

The notion of CSR seems to have significant acceptance among the Indian populace. According
to Balasubramanian, Kimber, and Siemensma (2005), who report on a study on thinking and
attitudes regarding CSR in India, most respondents feel that social development is not primarily
the duty of the government, but that firms also play a role. Surprisingly, poll respondents claimed
that social responsiveness has improved during the early 2000s. Government law was not seen as
a primary driver at this time, and a majority thought that further legislation was necessary. The
TERI research Kumar, R. et al. demonstrates that Indians feel companies should have a stronger
role in social development (2001). (2001).

Sundar (2000) offers a case for the private sector's role in India's development. She notes not just
the government's lack of all resources and abilities essential for growth, but also the private
sector's (including business and nonprofit civil society groups) particular characteristics, such as
the capacity to innovate. In India, there is a rising interest in CSR not just among firms but also
among the government, civil society, and academics (Arora and Puranik 2004). (Arora and
Puranik 2004). They further claimed that during the 1990s, industrial organisations have been
aggressively pushing CSR. Rai and Bansal (2015) evaluated business CSR spending in 2013,
when the legislation had not yet taken effect. They identified a more than fourfold rise in CSR
expenditure in that year compared to the previous two years, which they assume was in
anticipation of the regulation. According to their data, there was a roughly five-fold rise in public
sector CSR from 2011 to 2013, as well as a large increase in CSR spending by Indian businesses
when compared to overseas corporations. This survey also indicated that there was a

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considerable rise in CSR expenditure declarations throughout this time period. While just 336
enterprises reported in 2010-11, the number grew to 1470 in 2012-13. Similarly, environmental
reporting grew from 52 to 162 enterprises over same time period. It could have been in
preparation for the law, or it could be in line with Campbell's (2007) proposition that
'Corporations will be more likely to act in socially responsible ways if there is a system of well-
organized and effective industrial self-regulation in place to ensure such behavior, especially if it
is based on the perceived threat of state intervention.' At a time when the CSR section of the
draft Companies Bill was being contested, Vohra and Sheel (2012) argued that the desire to
incorporate CSR in the Companies Bill, as well as the rising number of awards, ratings, and
conferences on CSR, reflect the growing prominence of CSR in public discourse. As surveys
from Partners of Change and ratings such as Karmayog reveal, interest in CSR in India was
rising long before the legislation was established. For example, an analysis of Karmayog's
ratings from 2007 to 2010 showed that the number of organizations ranked as Level 4 (the
highest) went from 4 to 12, while Level 3 climbed from 38 to 66, showing that more companies
were doing more and better.

While this was a general feeling previous to the law's development, some particular assessments
and responses to the actual Law (draft and final) are represented here.

Arguments surrounding Section 135 of the Companies Act of 2013.

Section 135 was one of the new Law's most problematic parts. Overall, industry was opposed to
legislating CSR, and many business executives spoke out against it.

Van Zile (2012) examines and speculates about the development. This study was undertaken
while the Companies Bill had not yet been approved, but it is important since the document was
already being debated and there were not many modifications made after that. While she agrees
that mandated CSR is radical, she does not see a mismatch with the GOI's historical strategy,
which guarantees economic equality, with this as one more step in the right path. She sees it as a
"product of specific historical necessities." She views it as a move that indicates the
government's commitment to social welfare measures, therefore gratifying the community, while
also avoiding further taxes on companies and providing them choice in how they spend this
money. She views this as one potential approach to prevent what has occurred in other nations

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dealing with comparable issues—the alternatives being to re-nationalize industry or to slip into
political and economic instability. She feels that India's experience is quite intriguing and may
have implications for other nations, and that it should not be disregarded. However, she also lists
other reasons why CSR should not be enforced, including the risk that India would be at a
competitive disadvantage in terms of costs, and that the legislation is poorly established or
controlled. According to Van Zile (2012), although the legislation "may combine some
weaknesses of liberal economics with the limitations of overt regulation," it "may also be
considered as combining the finest parts of both the voluntary and the developmental approaches
to CSR."

The new rule is condemned by Praxis and Corporate Responsibility Watch (2015), who see it as
a move back toward perceiving CSR as charity and abandoning the comprehensive emphasis that
NVGs had on different stakeholders. This stance led to the formation of the India Responsible
Business Index in 2015, against which they started rating the top 100 firms. According to Mitra
and Schmidpeter (2017), the following variables contribute to mandating in India:

(1) poor Human Development Index performance, including a gap in education and skilling;

(2) much weaker environmental regulation requirements; and

(3) increasing inequalities Singh and Verma (2014) analyze the inequality and injustice of
development in India as a cause of societal discontent, as well as the regulation of CSR as a
preventive strategy.

According to Rai and Bansal (2014), CSR has been ordered "to simplify charitable operations
and provide greater accountability and transparency." They feel that CSR might be an alternative
to the government delivering public goods since it would be a more effective method to do so,
and that the legislation will assist to achieve greater environmental and social sustainability.
They think that CSR initiatives, which were previously picked at random, will now be
simplified, and that as a consequence, a sector of the population that has been "left behind in the
development process" would gain immensely. Sarkar and Sarkar (2015) believe that overall
required CSR investment will amount to less than 2 percent of total government development
spending, and so will have minimal influence on social development programs or results. As a
consequence, they feel that the government's justification for regulating CSR is to force the
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business sector take greater responsibility and inculcate the spirit of CSR. Mandating CSR is a
"staggering" move, according to Mahajan (2015), but it will only be effective if firms incorporate
the notion of CSR into core business. She stresses that students should consider this as an
opportunity rather than a burden. With this viewpoint, CSR may be leveraged to generate more
corporate innovation, profitability, and success. According to the CII-PWC Handbook (2013),
the legislation fosters increased openness and disclosure "via its disclose-or-explain duty."

Sarkar and Sarkar (2015) find that CSR guidelines are 'conceptually robust and properly thought
out' after analyzing arguments for and against mandated CSR. They think that since CSR
expenditure originates from earnings, it does not compromise the firm's economic goals.
Furthermore, since 2 percent profit is fairly tiny, corporations will not find it oppressive, and it
will really bring large soft advantages to the company. The availability of different channels of
expenditure helps enterprises without CSR employees or processes to comply. Importantly, they
feel that wording the rule as 'comply or explain' rather than 'comply or otherwise' offers
companies some latitude. Furthermore, they argue that the government's absence of a formal
monitoring system implies a willingness on their side to encourage firms into voluntary
expenditure with mandated reporting. According to Afsharipour (2011), the viewpoints
expressed in the new legislation, "although admirable, fall short of a broad vision of CSR." She
explores the process from a different angle, wondering if the reliance on independent directors to
advise and supervise the CSR role is enough and successful. She worries that the current system
provides board members too much 'discretion and authority.' Karnani (2013) cites a number of
problems concerning obligatory CSR. He recounts objections from the left of the political
spectrum that required CSR was proof of the government abdicating its obligations, and that
instead of making CSR mandatory, the government should have increased business taxes and
spent the money on its objectives. Those on the right, on the other hand, argued that legislating
CSR was tantamount to hiking business taxes, which were already high in India, by 2 percent ,
making India less competitive. Those in the middle, he believes, resist because CSR should not
be forced; rather, it should be driven by individual company motives. According to Karnani
(2013) and Gangopadhyay (2012), requiring either CSR expenditure or reporting makes little
economic sense. Firms would do it themselves if either made economic sense. Gangopadhyay
(2012) is scathing in his critique, arguing that the legislation is a "out of the box notion" and that

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"most out-of-the-box ideas are quite poor." According to him, India loves such notions since they
"do not flow from anything and hence demand no explanation." He maintains that, although the
Ministry refers to it as the firm's profit, it is really the profit of the shareholders, and that the
expenditure is therefore an imposition on them.

However, Deodhar (2015), in his Working Paper, disagrees, arguing that required CSR is not
regarded as a concern by firms or shareholders. He thinks that the new Act will result in not just
community development but also enhanced operational efficiency, environmental management,
and novel methods for producing shared benefit. According to Mitra and Schmidpeter (2016),
although obligatory CSR may seem to be an imposition at first, it may potentially lead to long-
term solutions to major concerns. According to Chatterjee and Mitra (2016), this rule is based on
a separate CSR model known as the 'Chatterjee Model,' which varies from the 'Porter Model'
(based on shared value), the 'Elkington Model' (based on the Triple Bottom-line Approach), and
the 'Prahlad Model' (bottom- of-pyramid approach) (bottom- of-pyramid approach). They
highlight distinctive aspects of the 'Chatterjee Model' as (1) measuring CSR expenditure, (2)
prioritizing CSR, (3) assigning responsibilities inside the corporation for CSR, (4) establishing a
budget, and (5) linking CSR to national goals through Schedule VII. (6) making CSR outcome-
oriented (7) going above and beyond statutory duties (8) auditing CSR (9) measuring CSR

While the CSR legislation in India is unquestionably'mandatory' and 'facilitating,' as described

by Fox et al. (2002), it concentrates on a subset of their entire concept of CSR. The regulation
might be in reaction to Zadek's (2001) statement that governments may strive to bolster their
legitimacy by measures like this. The law's emphasis on national priorities such as Swachchh
Bharat and Skill India is obviously geared toward aligning the business sector with national
priorities, which is something mentioned in the UN's Sustainable Development Innovation Brief
(2007) as a reason why governments get involved in CSR. This is also consistent with Bichta's
(2003) argument that governments are increasingly considering'shared responsibility' to
accomplish social objectives. It is consistent with Moon's (2002) thought that this may be a
solution for government to cope with calls for more governance while simultaneously addressing
societal concerns such as poverty and unfairness. It is consistent with Ward's (2004) observation
that there is a rising awareness in developing nations that CSR is an issue of public policy. The
law is developing in the direction that Midttun (2005) envisioned, with industry becoming an

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essential partner of governments in attaining social good. According to Joseph (2003)'s

taxonomy of government functions, Indian law is now classed as a 'hard framework with soft
effect,' with legislation and required disclosure. There are presently no repercussions for failing
to achieve the standards. It does not seem that the rule will have many of the advantages listed by
Hopkins (2004), such as preventing labor abuse or bribery, or considerably enhancing business.
However, one crucial benefit that he has noted has come into play, namely that corporations now
have a clear grasp of what is expected of them, and the playing field is equal. However, he stated
other downsides that should be addressed, including greater bureaucracy, growing compliance
expenses, and an increase in operating costs. It appears that the law supports Knudsen and
Brown's (2012) assertions: that a government may adopt a CSR stance for a variety of reasons,
including mitigating the negative effects of business on society and the environment, meeting
welfare needs, emerging social demands, and so on. According to Horrigan (2010) and Fox and
Prescott (2004)'s discussions of the rationales for government involvement in CSR, the law is
more geared toward supporting national social objectives than gaining a national competitive
advantage or responding to global challenges. According to a UNDP/British Council/CII/PwC
research (2002), specific expectations of industry from government as a trade-off for CSR
include tax advantages, speedier project approvals, and so on. The law has put an end to all of
this.

Overall, researchers tend to think that the government has the power to oversee CSR. However,
the method in which it has been carried out in India is likely to be innovative and without
precedent.

Discussions and developments since the start of activities

The CSR Bill and Law were highly contested and condemned. However, in terms of compliance
and expenditure, there seems to be an overall improvement in the two years after the
requirement.

According to Sarkar and Sarkar (2015), previous to the passage of India's legislation, the
argument on regulating CSR was mostly over whether CSR expenditure and reporting should be
optional or whether spending should be voluntary and reporting required. The subject of whether

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expenditure should be required was hardly addressed. Internationally, the focus has always been
on encouraging firms to report and disclose.

India was likewise headed in the same manner, with CSR disclosure being optional until 2012,
and then compulsory by SEBI for the larger corporations starting in 2012. The legislation has
made both expenditure and transparency required for a huge number of corporations. As a result,
India moved from a situation in which CSR was purely a firm-level decision, determined by
management based on their motivation or pressures, to one in which the government acted as a
facilitator for CSR (by assisting in information dissemination, issuing guidelines, fostering
dialogue, and so on), to one in which the government took a proactive and direct role. To put the
legislation in perspective, Sarkar and Sarkar (2015) observed that whereas just 7 percent of the
top 500 enterprises had conducted and reported CSR in 2003, by the conclusion of the term,
about 62 percent had done so. This growth, they say, has less to do with the government and
more to do with the businesses' own demands.

While noting the significant upward trend, they also discover that many more firms than were
doing/reporting CSR at the time would come into the fold as a result of the law, because the law
sets the criteria (size, assets, or profitability) fairly low, and many of the firms studied by them
met the criteria but were not doing CSR. The India CSR Report 2015 (www.ngobox.com) gives
a summary of CSR expenditure by 250 major BSE firms in 2014-15, the law's first year of
implementation. This reveals that 44 percent of enterprises spent as much as or more than the
statutory amount, while 3 percent did not spend at all throughout the year. These firms spent Rs.
7014 crores against a stipulated expenditure of Rs. 8016 crores (79 percent ). (79 percent ).
According to the 2016 NGO Box study, 'A Snapshot of CSR Spend in FY 2015-16: 250 Big
Corporations in India,' 58 percent of companies spent as mandated or more, a 5 percent increase
over FY 14-15. In addition, no firm in this group did not spend money on CSR in fiscal year
2015-16.

According to 'Making Growth Inclusive,' Praxis and Corporate Responsibility Watch (2015), just
7 of the top 100 firms satisfied the 2 percent expenditure criteria in 2014-15. According to Praxis
and Corporate Responsibility Watch (2015), who performed a Rapid Assessment of the top 100
firms between July and October 2015, 87 of them had CSR policies in place, and 75 of these
indicated monitoring mechanisms as well as implementation strategies. According to the Samhita
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Report (2016), in the two years following the law's introduction, most firms have put in place the
essential processes for execution and are seeking to be more strategic in their CSR.

Desai, Pingali, and Tripathy (2015) ran an experiment to examine how a 2 percent requirement
might effect real expenditure. Their finding was that when no minimum was enforced, CSR
expenditure may be larger than when a restriction was applied. They feel that this may
potentially have a detrimental influence on expenditure since managers are likely to attach to this
amount.

However, as Deodhar (2015) points out, with firms that were not spending anything or spending
less than 2 percent being compelled to spend 2 percent , there may not be a negative effect and
there will most likely be an overall rise as a consequence of the regulation.

To test whether obligatory CSR will have a detrimental effect on companies, Mehta and Deodhar
(2014) investigated share prices of food sector stocks that were subject to the requirement
immediately after the legislation was approved. They identified no negative effect on share
prices, demonstrating that required CSR expenditure has no negative impact on enterprises and
may therefore be utilized to develop positive brand value.

Soon after the legislation was implemented, Rajeev and Kalagnanam (2015) remarked that the
following might offer obstacles for firms in satisfying the mandate: lack of clarity on areas of
contribution; confusion regarding the location of the expenditure; if donations made to
institutions linked with politicians are forbidden activities; and what sorts of excuses would be
recognized for failing to reach the spend goal.

Chronology of Important Government Notifications, Clarifications, and Other Developments

Regarding Section 135

When a new and unprecedented legislation is presented, clarifications, explanations, and

adjustments will be necessary when operationalization starts and input is gathered. This has
actually been the case, and a number of notifications/clarifications pertaining to Section 135 have
been released in recent years (as seen on www.mca.gov.in) (as seen on www.mca.gov.in). These
are some examples:

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The India Gazette Companies (Corporate Social Responsibility Policy) Rules 2014 were issued
on February 28, 2014.

 The Indian Express, April 2, 2014. Corrigendum to the MCA. 'Promoting preventive
health care' should be read as 'Promoting health care, especially preventive health care.'
 General Circular No.021/2014, published in response to multiple inquiries received by
MCA, explains the terms of Section 135. Among the highlights are:
 Section VII will be extensively read.
 CSR activities must be project-based or program-based, and one-time events do not
qualify as CSR.
 Expenses spent in carrying out any other Act or Regulation do not qualify as CSR.
 Salaries provided to employees and volunteers may be included in the project cost.
 Definition of 'financial year'.
 How foreign holding corporations' CSR expenditure will be counted.
 Definition of "Registered Trust."
 Circumstances in which donations to the corpus of Trust/Society/Section 8 will be
regarded CSR
 General Circular No. 36/2014, confirming that Rule 4 (6) has been granted and, as a
consequence, clarification about including wages of CSR personnel and volunteers as a CSR
expense is no longer applicable.
 The Indian Express, September 12, 2014. Notification that the regulations have been
modified and will be in force. That 5 percent expenditure restriction includes a ceiling on
administrative overhead costs.
 General Circular 01/2015 creating a high-level commission to suggest methods to strengthen
CSR implementation monitoring.
 MCA General Circular No.5/2016 specifies that firms carrying out CSR under the
Companies Act 2013 shall not infringe any other legislation.
 General Circular 13/2015, which extends the duration of the high-level committee.

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 Report of the High Level Committee in September 2015 (Report of the High Level
Committee Ministry of Corporate Affairs Sept 2015) (Report of the High Level Committee
Ministry of Corporate Affairs Sept 2015)

 MCA provided FAQs on CSR under General Circular 01/2016, clarifying:

 Which firms are subject to the law?
 What does the word "financial year" mean?
 CSR cannot be deductible as a business cost.
 Net profit shall be computed in line with Section 198.
 Schedule 7 may be liberally defined, and the Board may make the ultimate decision on
actions to be conducted.
 There is no special tax advantage for CSR investments.
 What does not come within the ambit of CSR?
 Section's application to subsidiary corporations and Section 8 companies
 Under certain situations, donations to a trust/society/section 8 firm count as CSR.
 The CSR policy must be published on the website.
 Annual reports of corporations, including international companies, must contain a CSR
disclosure report.
 In-kind donations cannot be monetized and claimed as CSR expenditure.
 Any amount spent in excess of 2 percent in a calendar year cannot be carried over for
credit in the next year.
 Unspent money may be carried over, but the following 2 percent must be spent as well.
 The government has no role in supervising implementation.
 The government will not be engaged in hiring third-party monitors.
 In general, CSR funding would not be utilized for government initiatives, although the
Board may make a decision.
 The government has no say in the approval or execution of co-programs.
 Funds for CSR may be pooled.
 Employee volunteerism cannot be quantified and compared to spending.
 On January 3, 2018, a Gazette Notification was released on the general modifications to the
Companies Act 2013, as well as a few adjustments to Section 135, including:

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 A firm is liable to the CSR obligation if it meets any of the three conditions in the
preceding fiscal year.
 Making it explicit that activities may take place "in regions or topics designated in
Schedule VII," rather than "as stated in Schedule VII."
 Reiterating that net profit would be computed in line with Section 198.

A Contrast with Mauritius

Because the only other similar case is Mauritius, which has required such law, it may be
instructive to explore comparative trends there. Mauritius' government paper
(www:/mof.govmu.org/) chronicles the development of Mauritius' CSR mission. The 2 percent
rule was enforced on all successful firms in 2009. Six programing domains were described, as
well as the methods of implementation (e.g., who would carry out) (e.g., who will carry out).
Soon after, these program categories were formed to specify acceptable activities. Focus areas
were reduced down to three national goals in the 2010 Budget Address. In 2012, the 2 percent
contribution base was altered from book profit to "profit payable to income tax," and one
additional priority area was added. All constraints in this respect were abolished in 2015,
enabling firms to spend according to their own framework.

A number of civil society critiques were levied at this period, including:

1. That firms were distributing CSR funding arbitrarily and without transparency;
2. That certain NGOs and organizations were having trouble acquiring these grants, despite
the fact that they were worthy;
3. That there had been an upsurge in the number of organizations founded exclusively to
receive CSR monies owing to a lack of clear criteria:
a) That CSR initiatives were not being sufficiently managed.
b) That there were occasions when CSR monies were not utilised as planned. As a
consequence, Budget 2016-17 presented a new structure in which;
I. A National CSR Foundation was created to carry out, oversee, and act as a
platform for CSR.
II. Identified six intervention priority areas

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III. Specified that corporations would donate at least 50 percent of their CSR
to the Foundation, as well as any unspent monies at the conclusion of the
fiscal year.

Conclusion

When we compare the Indian case to the Mauritius example, we notice that the general tendency
in India seems to be toward more permissive interpretation of the law. The Mauritius experience
(www:/mof.govmu.org/) is one of numerous modifications that happened after the passing of the
legislation, ranging from target regions to profit calculation methodologies to manner of
implementation. This looks to be based on civil society talks rather than business engagement.
The ultimate effect, as it stands now, is a limitation in the freedom for enterprises to operate on
their own by mandating at least a 50 percent payment to the government's Foundation.

In India, however, in addition to clarifying details and particular, notifications released in regard
to Schedule VII promote a wide interpretation, enabling corporations to establish their priorities
and even go beyond the parameters indicated in the Schedule. Furthermore, successive
notifications to the Law reaffirm that the government sees no role for itself in monitoring,
implementation, and so on, and encourage Boards to maintain these obligations. They seek to
make it simpler for firms to participate in CSR by emphasizing that money may be pooled and
permitting corpus contributions. The administration is stressing that CSR monies should ideally
not be utilized to subsidize government programs. The most recent clarification is that the size
element influencing whether or not the CSR obligation applies solely to the prior year. All of this
adds to the establishment of a facilitator atmosphere.

However, the clarifications reiterate that the government has not granted many of the industry's
requests: that in-kind contributions and employee volunteering be monetized and shown as
contributions; that there is carrying over credit for excess spent over 2 percent ; that CSR be
counted as a business expense with special tax breaks; and that the 5 percent cap on capacity
building and administrative expenses be removed.

While some of these explanations are not what business has wanted, the government has made an
attempt to offer better clarity on operational specifics, widen areas of activity, and provide

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guarantee of non-interference. This is a welcome contrast to the example of Mauritius, which

looks to be leaning toward more control.

Only time will tell whether the Law achieves what the government may have hoped for, such as
'new ways to do core business differently, with inclusion as a driving force' (Mr. Moily, 2012),
or what academics hope for, such as Deodhar (2015) community development and new models
of creating shared values. Or if academics' worries, such as Karnani (2013), that the government
would abandon its obligations, or that it will undermine India's competitiveness, as Van Zile
(2012) predicts, will be realized.

It is hoped that, as stated in the High Level Committee report, the CSR provisions of the
Companies Act, 2013, would be revisited now that Section 135 has been in existence for over
four years. A multi-stakeholder approach to this might deepen and strengthen CSR in India.

Bibliography

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