CORPORATE SOCIAL RESPONSIBILITY UNDER COMPANIES ACT

2013: A CRITICAL ANALYSIS

CORPORATE LAW-I

Submitted by

Rajeev Malakar

SM0119039

3rd Year, 5th Semester

National Law University and Judicial Academy

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 TABLE OF CONTENTS

1. INTRODUCTION…………………………………………………………………3-5.
1.1. Overview………………………………………………………………………
……...3.
1.2. Literature
Review……………………………………………………………………..4.
1.3. Research
Questions……………………………………………………………………5
1.4. Scope &
Objectives…………………………………………………………………...5
1.5. Research
Methodology……………………………………………………………….5
2. DEVELOPMENT OF THE CONCEPT OF CSR IN INDIA………………….6-9.
2.1. Historical Background of
CSR……………………………………………………..6-7
2.2. Development of Corporate Social Responsibility in
India…………………………7.
2.3. Government’s Initiative to Promote
CSR………………………………………..7-9.
3. CSR UNDER THE COMPANIES ACT 2013………………………………10-13.
3.1. Definition of
CSR………………………………………………………………….10.
3.2. Applicability……………………………………………………………………
.10-11.
3.3. Corporate Social Responsibility
Policy…………………………………………11-12.
3.4. Corporate Social Responsibility
Committee…………………………………….12-13.

4.OTHER DEVELOPEMNTS IN THE REALM OF CORPORATE

RESPONSIBIITY

4.1. CSR Expenditure………………………………………………………………..14-15

4.2. CSR Activities………………………………………………………………….15-16

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 4.3. Board’s Responsibility Towards CSR………………………………………………16

4.4. Comply or Explain…………………………………………………………………..16

4.5. Few Other Clarifications…………………………………………………………16-17

5. CONCLUSION……………………………………………………………………….18

6.
BIBLIOGRAPHY…………………………………………………………………….19

1.INTRODUCTION

1.1. Overview

A country achieves economic development by using materials available in the environment

and society where the system in which the resources are used affects greatly the economy and
also the environment. Corporate Social Responsibility (CSR) can be defined as how the
companies serve the interests of the society by being accountable for their actions which
directly or indirectly affect their customers, employees, shareholders, community and the
environment. CSR can also be defined as the way companies manage their businesses which
create a positive change on society by indulging along with economical, in social and
environmental actions. There are various names given to CSR such as corporate conscience,
corporate citizenship, social performance etc. Such concept attain significance for the
company because log term positive growth of society is required for businesses to prosper.

There is a wide disparity in the various definition of CSR. Michael Hopkins defines CSR as
behaving with the various participants of the company or institution in a responsible manner
which would mean treating them in a manner acceptable by international norms. On the point
of international norm, the European Union defines CSR as a concept where social and
environmental factors are to be taken into consideration by the companies while operating
their business. Another definition for CSR is being provided by the Business for Social

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Responsibility (BSR) which states CSR to be running of a business in such a manner that it
fulfils the ethical, legal, commercial and public expectations that a society has.

The concept of CSR is becoming more important in today’s time as CSR and Corporate
Governance can be seen to be inseparably connected where society is being more concerned
about the growing exploitations of rich businesses which are becoming more greedy and
powerful day by day. CSR can be seen as a living reality even though most of us are unaware
as for example from the point of view of a consumer, they want to buy products from
companies they can trust, a supplier wants to form a commercial relationship with a company
he can rely on, an employee likewise wants to work for a company he respects and
individuals want to establish business contacts with companies which seek solutions and
innovations in areas of common concern. In simple terms CSR can be considered as a new
business strategy to reduce investment risks and maximise profit by keeping all the
stakeholder’s interest in view and taking them into confidence. Lastly, CSR can be a tool to
increase the reputation of the company in the eyes of the society thus creating long-term
consumer and employee value.

1.2. Literature Review

Adrian Henriques has discussed in his research should CSR be regulated by law? There are
laws or regulations covering things such as the minimum wage, Health & Safety and
disclosure to investors, but none covering overall disclosure of environmental impact, little
covering supplier relationships and almost nothing on community impact. Opinion in the
CSR world is just as diverse, some favouring a legal framework for CSR and others fearing it
would destroy everything. The most common reason given for why new legislation would set
CSR back is the lowest common denominator argument. This suggests that if there were
legislation around CSR, then companies will deliver what the law requires, but never more.
At the moment, voluntary CSR is experiencing a hundred flowers in bloom. But legislation,
the argument goes, would wither ethical motivation to its roots.

A report by CIIs suggest that by requiring companies, with a minimum net profit of 5 crore
INR, to spend on CSR activities, the Companies Act, 2013 is likely to bring in many SMEs
into the CSR fold. This will usher in a fresh set of challenges to a sector that is increasingly
being asked by its B2B customers to comply with environmental and social standards, while
remaining competitive in terms of price and quality.

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According to a survey carried out by Forbes India, only 6 out of the top 100 companies of
India (ranked on the basis of net sales figures) contributed more than 2% of their profits after
taxes towards CSR initiatives. Similarly, a study indicates that 60% of the participants of the
Global Compact Society (GCS), India’s counterpart of the United Nations Global Compact
(UNGC), had not submitted a ‘Communication on Progress’ or COP Report, which is the
UN’s version of a Sustainability Report by the company, stating the various CSR initiatives
taken by it for the benefit of its various stakeholders. The above facts clearly indicate that
what India Inc. does is ‘corporate compulsion responsibility’, and not CSR. Companies take
up minimal CSR initiatives in order to follow what has been termed as the ‘check-box’
approach – they just want to tick the box of fulfilling their CSR obligations. Hence, from a
practical viewpoint, the Companies Bill, 2011 has actually taken a smart move by bringing in
the ‘2% of PAT’ provision.

1.3. Research Question

a) What do you mean by Corporate Social Responsibility and How is it significant in
today’s time?
b) How did the new Companies Act 2013 incorporated the concept of CSR in it?

1.4. Scope & Objectives

1.4.1. Scope

The present paper is limited to the study of the concept of CSR in India alone and does not
delve into the global perspective of it. The paper firstly attempts to define the concept of CSR
as is understand in its different senses, then seeks to show how it is relevant in today’s for a
successful business economy in the country and also for protecting the larger interests of the
society. The paper mainly studies the concept of corporate social responsibility as present
under the Companies Act 2013 as to how the concept should be applied and in what scenarios
etc.

1.4.2. Objectives

a) To understand the meaning and importance of CSR

b) To study the CSR status in India

c)To highlight the provisions of New Companies Act related to CSR mandate

1.5. Research Methodology

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The research paper is an attempt of exploratory research, based on the secondary data sourced
from journals, magazines, articles and media reports. Looking into requirements of the
objectives of the study the research design employed for the study is of descriptive type.
Available secondary data was extensively used for the study.

2. DEVELOPMENT OF THE CONCEPT OF CSR IN INDIA

2.1. Historical Background Of CSR

The concept of CSR is not new in India. The concept can be traced back to times
immemorial, our Vedas say - man can live individually but can survive only collectively.
Hence the challenge is to form a progressive community by balancing the interests of
individuals and that of the society. To meet this, we need to develop a value system where
people accept modest sacrifices for the common good. A value system is the protocol for
behaviour that enhances the trust, confidence and commitment of members of the
community. It goes beyond the domain of legality. It includes putting the community
interests ahead of our own. Thus, our collective survival and progress is predicated on sound
values. Philosophers like Kautilya emphasized on ethical practices and principles while
conducting business. In that period, Kings had an obligation towards society and merchants
displayed their own business responsibility by building places of worship, education and
various forms to charity for the needy. Although the core function of business was to create
wealth for society and was based on an economic structure, the business community with
their rulers believed in the philosophy of “Sarva loka hitam” which means ‘‘the well-being of
all stakeholders”. Indian Scriptures have at several places mentioned the importance of

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sharing one’s earning with the deprived sections of society. There are different ways through
which a firm can exert positive social change in society and collaborate with partners who
have the explicit power to trigger such change.

Vedas suggest that peace, order, security and justice were regarded as the fundamental aims
of the state. Welfare of the public was clearly regarded as the chief aim of the state. Literature
on politics describes the promotion of dharma (moral law), karma (pleasure) andartha
(wealth).

The concept of corporate social responsibility generally, agreed by the historians, emerged in
the 1930s to 1940s and became formalized in 1953 with the publication of book named
‘Social Responsibilities of the Businessman’ by Howard Bowen. However, the term CSR
became only popular in the 1990s. According to the World Business Council for Sustainable
Development, 1999 “Corporate Social Responsibility is the continuing commitment by
business to behave ethically and contribute to the economic development while improving the
quality of life of the workforce and their families as well as of the local community and the
society at large.

2.2. Developments On Corporate Social Responsibility In India

• The UN Conference on Human Environment and Development held at Stockholm and

‘Stockholm Declaration on the Human Environment’ 1972 was the first major UN
Conference on the environment. It is widely recognized as the beginning of modern political
and public awareness of global environmental problems. It brought Countries together in
proclaiming that the preservation of the environment is essential to the continued enjoyment
of life itself. The Declaration contains 26 principles concerning the environment and
development; an Action Plan with 109 recommendations, and a Resolution.

• 42nd amendment to the Constitution of India incorporated Article 48-A and Article 51-A in
the Constitution. According to Article 48-A (Directive Principles of State) the states are
under the ‘active obligation’ to make all endeavour to protect and improve the environment.
It provides that “The State shall endeavour to protect and improve the environment and to
safeguard the forests and wild life of the country”. On the other hand according to Article 51-
A(g) (Fundamental Duties of citizen of India) it is the duty of every citizen of India to protect
and improve the environment.

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 • After the 1972 proclamation there were several legislations introduced for protection of
environment and planet which includes Water (Prevention and Control of Pollution) Act,
1974 ; Air (Prevention and Control of Pollution) Act, 1981;Environment Protection Act,
1986;The Public Liability Insurance Act, 1991; The National Green Tribunal Act, 2010, etc.

• The term “Sustainable Development” became prominent after the Rio Earth Summit in
1992 which prioritised global environmental discussions and improved upon the initial
framework introduced at the United Nations Conference on the Human Environment,
Stockholm in 1972. Sustainable development in this Summit was defined as “Development
which meets the needs of current generations without compromising the ability of future
generations to meet their own needs”.

2.3.Government’s Initiatives to Promote CSR

The government has taken various initiatives for the development of the society at large.
Developing a society is a collective mechanism, it

requires efforts of the government, corporate, individual. In order to promote the concept of
CSR, the government encourages the corporate to contribute towards the society needs,
welfare, education, research and development. “To enrich quality of life in the society we
operate in we need to give back to the society manifolds than what we get from it”- JRD
TATA. Until the enactment of the Companies Act, 2013, Corporate Social Responsibility
was not a legally mandated. The environmental and labour laws prescribed the basic
responsibilities that a corporate owes towards its employees and the environment. Keeping in
mind the need for development, the Ministry of Corporate Affairs, Govt. of India had notified
the Corporate Social Responsibility Voluntary Guidelines 2009 on 21st November 2009 to be
followed by the corporate. The corporate were required therein to formulate a CSR Policy
according to Voluntary Guidelines 2009 as an integral part of the overall business policy in
order to provide a road map for the CSR initiatives and efforts and guide to its strategic
planning. Accordingly, the CSR Policy was expected to cover the following four core
elements:

1. Care for all stakeholder: It is responsibility of the corporate to take care the interest of all
stakeholders including Customers, shareholders, creditors, supplier, employees, project
affecting persons and of course the society where it operates.

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2. Ethical Functioning: Ethics are the values, behaviour, nature, conduct of the person or
persons in any organization or society. The best Ethical practices are also awarded. They
should not engage in any abusive, unfair, anti-competitive or corrupt language.

3. Respect for Worker’s Right and Welfare: The companies should provide the workplace
environment that is safe, hygienic and humane to work. They should be taken care of the
heath issues arising out of the work of the organization. It should conduct the training and
development program within the organization for the people of the organization.

4. Respect for Environment: The companies are required to utilize the Planet i.e., Natural
Capital in a well manner so that it cannot be wasted, excess utilized which is also required for
the other states or countries and also requires to be preserve for the future generation.

The Government plays a very proactive role to ensure that CSR is promoted. Even companies
that practice CSR aggressively, such as the Tata, Johnson & Johnson, Unilever, Infosys,
Mattel Toys, etc., need the necessary support from the government which has the
responsibility to create the necessary safe environment for business investment, provide basic
infrastructure, reasonable regulatory, processes and public policies because every country has
its unique culture, history and political institutions, different standard of living, different
policies of the countries. Therefore the role of the government needs to be understood as a
collaborative process that seeks a balance between authority and responsibility.

3. CSR UNDER THE COMPANIES ACT 2013

Companies Act, 2013 [“Act”] is a legislation which officially embarked on one of the world’s
largest experiments of introducing the concept of CSR as a mandatory provision. With the
introduction of new Act, there is a statutory obligation for the corporates to take initiatives
towards Social, Environmental and Economic Responsibilities. The initiatives taken have to
be reported to the company and other stakeholders appropriately. Section 135 of the Act and
the Companies (Corporate Social Responsibility Policy) Rules, 2014 [“CSR Rules”] framed
thereunder govern CSR in India. The detailed provisions are explained below:

3.1. Definition of CSR

The Act does not define the term CSR. As per rule 2(c) of the CSR Rules “Corporate Social
Responsibility means and includes but is not limited to: (i) projects or programs relating to
activities specified in Schedule VII of the Act; or (ii) projects or programs relating to
activities undertaken by the board of directors of a company (Board) in pursuance of

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recommendations of the CSR Committee of the Board as per declared CSR Policy of the
company subject to the condition that such policy will cover the subjects enumerated in
Schedule VII of the Act.”

3.2. Applicability

Section 135 of the Act provides for the applicability of the CSR provisions on corporates.
Sub-section (1) of section lays down that every company having • net worth of Rs. 500 Crore
or more; or • turnover of Rs. 1000 Crore or more; or • net profit of Rs. 5 Crore during any
financial year shall be required to constitute a CSR Committee of the Board consisting of
three (3) or more directors, out of which at least one(1) director shall be an independent
director. Rule 3 of the CSR Rules specify that every company which ceases to be a company
covered under section 135 as per the limits specified thereunder for three consecutive
financial years shall not be required to constitute a CSR Committee and comply with the
provision ofsection 135, till such time that it meets the criteria specified. Ministry of
Corporate Affairs (MCA) vide Circular No. 21/2014 dated 18.06.2014, has clarified that the
term ‘any financial year’ refered to in section 135 means any of the three preceding financial
years. Effectively, section 135 and Schedule VII have come into effect from April 01, 2014,
accordingly, every company which meets the criteria specified under sub-section (1) of
section 135, in any of the three preceding financial years (i.e. 2011-12, 2012-13, 2013-14) is
required to comply with the same from April 01, 2014 onwards. The section is applicable to
both public and private companies as long as they fulfill the criteria.

3.3. 1. Applicability to holding and subsidiary companies

Rule 3(1) provides that CSR is applicable to (a) every company including its holding or
subsidiary; and in case where the company fulfils the criteria specified in sub-section (1) of
section 135 of the Act. The net worth, turnover or net profit of a foreign company will be
prepared in accordance with the requirements under the Act.

3.2.2. Applicability to Foreign Company

A foreign company defined under clause (42) of section 2 of the Act having its branch office
or project office in India which fulfils the criteria specified in sub-section (l) of section 135 of
the Act shall comply with the provisions of section 135 of the Act and the rules. The net
worth, turnover or net profit of a foreign company under the Act shall be computed in
accordance with balance sheet and profit and loss account of such company prepared in

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accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198
of the Act. In simple terms the net worth, turnover or net profit of a foreign company under
the section shall be computed in accordance with its Indian business operations.

3.4. Corporate Social Responsibility Committee

As per section 135, every company which fulfils the criteria under subsection (1) of the
section 135 as mentioned above is required to constitute a Committee of the Board of
directors, the CSR Committee, consisting of at least three directors out of which one shall be
an independent director. Certain companies have been exempted from the requirement of
appointing an independent director, an CSR Committee they are:

• a private company or unlisted public company covered under sub-section (1) of the section
135 of the Act, which is not required to appoint independent director under sub-section (4) of
the section 149 of the Act; and

• where a private company has only two (2) directors on its Board, it shall constitute a CSR
Committee with those two (2) directors. A foreign company covered under these rules shall
constitute a CSR Committee with at least two (2) persons of which one (1) shall be as
specified under clause (d) of sub-section (1) of section 380 of the Act and another person
shall be nominated by the foreign company.

A person as specified under section 380(1)(d) means a person resident in India authorised to
accept on behalf of the company service of process and any notices or other documents
required to be served on the company.

The functions of CSR Committee:-

• To formulate and recommend to the Board, a CSR Policy which would indicate the
activities to be undertaken as specified in Schedule VII of the Act.

• To recommend the amount of the expenditure to be incurred on the activities undertaken in

pursuance of the CSR policy.

• To Institute a transparent monitor mechanism for implementation of the CSR projects or

programs or activities undertaken by the company.

• To monitor the CSR policy of the company time to time.

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• To institute a transparent monitoring mechanism for implementation of the CSR projects or
programs or activities undertaken by the company [As per rule 5(2)]. As mentioned above,
rule 3(2) provides that in case a company ceases to be covered under section 135(1) for three
consecutive financial years, it shall not be required to constitute a CSR Committee and
comply with provisions thereof.

3.5. Corporate Social Responsibility Policy

According to sub-section (4) of section 135 the Board of every company which falls under
the criteria of sub-section (1) shall after taking into consideration the recommendations of the
CSR Committee approve the CSR Policy of the company and disclose its contents in its
report and also place it on the website of the company. The Rules further elaborated that the
CSR Policy shall include a list of CSR projects or programs which a company plans to
undertake specifying the modalities for execution of such projects or programs and
implementation schedules for the same. The CSR Policy must also contain the monitoring
process of such projects or programs.

As per clause (e) of the rule 2, ‘CSR Policy relates to the activities to be undertaken by the
company as specified under Schedule VII (annexed herewith as Annexure 1) of the Act and
expenditure thereon excluding the activities undertaken in pursuance of normal course of
business of a company.

The MCA clarification vide Circular 21/2014 specifies that the entries in the Schedule VII
must be Interpreted Liberally so as to capture the essence of the subjects enumerated in the
said Schedule. The clarification gives an illustrative list of the wide range of activities which
may be covered under the activities mentioned under Schedule VII of the Act. The list is
provided for reference at Annexure 2.

The Board should therefore, ensure that the activities included in the CSR Policy are those
related to the activities mentioned in Schedule VII of the Act. Further, it must ensure that the
activities specified in the CSR Policy are carried out by the company.

CSR Policy shall specify the surplus arising out of the CSR projects or programs or activities
and shall not form part of the business profit of a company.

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4. OTHER DEVELOPMENTS IN THE REALM OF CORPORATE RESPONSIBITY

4.1. CSR Expenditure

According to sub-section (5) of the section 135 of the Act the Board of a company which
fulfils the criteria mentioned under sub section (1) of the section 135 shall ensure that the
company spends in every financial year at least two percent (2%) of the average net profits
made during three immediately preceding financial years of the company in pursuance of the
CSR Policy formulated by its CSR Committee. ‘Average net profit’ is to be calculated as per
the provisions of section 198 of the Act. As per clause (f) to rule 2 “Net Profit” means the net
profit of a company as per its financial statement prepared in accordance with the applicable
provisions of the Act, but shall not include the following, namely :- (i) any profit arising from
any overseas branch or branches of the company whether operated as a separate company or

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otherwise; and (ii) any dividend received from other companies in India, which are covered
under and complying with the provisions of section 135 of the Act.

This rule 2 further elaborates that net profit in respect of a financial year for which the
relevant financial statements were prepared in accordance with Companies Act, 1956 shall
not be required to the recalculate as per Companies Act, 2013.

In case of a foreign company covered under the provisions, net profit means the net profit of
such company as per the profit and loss account prepared in accordance with the provisions
of clause (a) of sub-section (1) of section 381 read with section 198 of the Act.

It has been further clarified that the expenditure incurred by foreign holding company for
CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR
expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to
do so as per section 135 of the Act.

Rule 7 provides that CSR Expenditure shall include all expenditures incurred in connection
with the projects or programs or activities undertaken as part of the CSR Policy approved by
the Board, including capital contribution to such projects or programs but shall not include
any expenditure on any item not in conformity or in connection with any activity which fall
within the preview of Schedule VII of the Act.

Expenses incurred by companies in pursuance of the requirement of any Act/Statute or

regulations (such as labour laws, land acquisition laws, etc.) would not count as CSR
expenditure under the Act. However, expenditure on administrative overheads in building
CSR capacities can be factored into CSR cost where the expenditure does not exceed 5% of
total CSR expenditure of company in one financial year.

4.2. CSR Activities

CSR Activities are the activities which are to be undertaken by the company as stated in
CSR Policy as programs or projects or activities. As per rule 4, the Board may undertake its
CSR activities as approved by the CSR committee through a registered trust or a registered
society or a company established under section 8 of the Act 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, or otherwise.

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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, such
trust/society/company must have an established track record of three (3) years in undertaking
similar programs or projects. For the purpose of undertaking these projects or programs by
such entities the Board shall also specify, the modalities of utilization of funds on such
projects and programs and the monitoring and reporting mechanism. It is specified that
‘Registered Trust’ shall include trusts registered under Income Tax Act 1961, for states where
the registration of a Trust is not mandatory. A company may also collaborate with other
companies for undertaking CSR projects or program or activities in such a manner that the
CSR committees of the respective companies are in a position to report separately on such
projects or programs. This means that in case of a holding and subsidiary company, though
they are required to constitute a CSR Committee independently if they fall under the criteria
of section 135(1), they may collaborate for undertaking a CSR projects/ programs. As per
rule 4, only expenses incurred on projects or programs or activities undertaken in India shall
be considered as CSR activity. The basic structure of the provision is to ensure inclusive
growth within the country. This rule restricts the corporate from undertaking CSR activities
in a foreign land, which means an Indian MNC doing CSR in Africa shall not be counted for
CSR under Indian laws. Activities undertaken in normal course of business shall not be
counted towards CSR. Those activities which are only for the benefits of the employees or
their family shall also not be termed as the CSR activities. The company should focus its
CSR activities in and around local area and areas where it operates for conducting CSR
activities for spending such amount. Companies may build CSR capacities of their own
personnel as well as those of their Implementing agencies. Such training may be given
through Institutions with established track record of at least three(3) financial years but such
expenditure, including expenditure on administrative overheads shall not exceed five per cent
(5%) of total CSR expenditure of the company in one(1) financial year. An amount
contributed directly or indirectly by any company to a political party under section 182 of the
Act shall not be considered as CSR activity.

4.3. Board’s Responsibility Towards CSR

• To approve the CSR Policy after taking into account the recommendations made by CSR
committee for the company. • To ensure that the activities that are included in the CSR Policy
are undertaken by the company and are in accordance with Schedule VII of the Act.

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• To ensure that the company speeds at least 2% of the average net profits in pursuance of its
CSR Policy.

• To disclose the composition of CSR Committee in the Board’s Report.

• To disclose the details of the CSR Policy developed and implemented by the company in
CSR in Board’s Report (clause (o) of the sub-section (1) of the section 134).

• The content of the policy and CSR activities are to be placed on the company’s website
(Rule 9).

4.4. Comply Or Explain

The section does not require earmarking certain percentage of amount as CSR rather it calls
for spending on CSR. The proviso to sub-section (5) of the section 135 states that, where any
company fails to spend such amount, it shall specify the reasons for not spending the amount
in its Board’s Report. The Act only provides for disclosure, there is no monetary penalty for
non-compliance.

4.5.Few other clarifications

Following are some other clarifications given by the Ministry of Corporate Affairs on
Corporate Social Responsibility vide Circular No. 21/2014 dated 18.06.2014:

• One-off events such as marathons/ awards/ charitable contribution/ advertisement/

sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.

• Contribution to corpus of a Trust/ Society/ Section 8 Company will qualify as CSR

expenditure as long as (a) the trust/society/section 8 company is created exclusively for
undertaking CSR activities or; (b) where the corpus is created exclusively for a purpose
directly relatable to a subject covered in Schedule VII of the Act.

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 5.CONCLUSION

Corporate Social Responsibility has gained much attention in the recent past. CSR or
citizenship aims at invoking the corporate conscience whereby companies incur short-term
costs that do not provide an immediate financial benefit to them, but instead promote positive
social and environmental change. The New Companies Act 2013 has come up with the
concept of mandatory CSR and this Act will replace the archaic, almost 60 years old
Companies Act, 1956. This paper is focused on Companies Act, 2013 & its provision on
mandatory spending and disclosure of Corporate Social Reasonability activities.

Although the thought behind passing the legislature of CSR is commendable but it will be
fruitful only if the mandate will be followed in practice too. There are certain suggestions to
make the law more effective which are as below

• Broadening the definition of CSR by amending Schedule VII

• Tax deduction must be provided for CSR expenditure

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• Appointment of a separate body for overlooking compliance with the obligations under
clause 135. The introduction of mandatory CSR provision in the new Companies Act is an
honest attempt to meet India’s social and sustainable development goals. Businesses have
failed to take care of external costs of their operations and it is time when they should
seriously contemplate social responsibilities towards their employees, customers,
stakeholders and society at large. There is urgent need for more inclusive management of
CSR activities where businesses should not view CSR as a hindrance of carrying business in
India. Rather it should be considered as an opportunity to make a positive impact on the
community. CSR presents an opportunity by which India can achieve a balance of social,
environmental and economic imperatives and at the same time protecting the interest of
various stakeholders and reducing administrative burdens.

With introduction of corporate social responsibility (CSR) guidelines under the New
Company’s act it became the first country to have CSR legislation. The government has
mandated corporations over a certain net worth to spend two percent of their last three years’
net profit on social development, report on the activities or explain in case they failed to
spend. The CSR clause within the Companies Act, 2013 thus seems to be an honest attempt
to achieve the goals of equitable development and at the same time promoting greater
transparency and disclosure

6. BIBLIOGRAPHY

 Lawctopus' Law Journal + Knowledge Center, November 16, 2014, Section 135 & the
Concept of Revolutionary Legislation: The fine line in between, available at
http://www.lawctopus.com/academike/section-135-the-concept-of-revolutionary-
legislation-thefine-line-in-between/ (accessed 31st December 2014)
 Confederation of Indian Industry, Handbook on Corporate Social Responsibility in
India (2014) available at www.pwc.in/.../handbook-on-corporate-social-
responsibility-in-india.pdf (accessed on 30th December 2014)
 Forbes India, Key Implications of the Companies Act 2013 on Board Room Decision
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