Corporate Social Responsibility

Azeem Rasic Nabi

B.A.L., LL.B.
Bangalore University

Introduction
Corporate Social Responsibility also called corporate conscious, corporate
citizenship or responsible business is a form of corporate self-regulation integrated
into a business model. CSR policy functions as a self-regulatory mechanism whereby
a business monitors and ensures its active compliance with the spirit of the law,
ethical standards and national or international norms.
The term corporate social responsibility became popular in the 1960s and has
remained a term used indiscriminately by many to cover legal and moral
responsibility.
Business Dictionary defines CSR as a companys sense of responsibility towards the
community and environment (both ecological and social) in which it operates.
Companies express this citizenship (1) through their waste and pollution reduction
processes, (2) by contributing educational and social programs and (3) by earning
adequate returns on the employed resources.
The evolution of CSR in India refers to changes over time in India of the cultural
norms of companies engagement of Corporate Social Responsibility with CSR
referring to way that businesses are managed to bring about an overall positive
impact on the communities, cultures, societies and environments in which they
operate. The fundamentals of CSR rest on the fact that not only public policy but
even corporate should be responsible enough to address social issues. The
companies should deal with the challenges and issues looked after to a certain
extent by the states.
One of the key changes in the Companies Act, 2013 is the introduction of CSR
incorporated under Section 135 making India the first country to mandate CSR
through a statutory provision, while CSR is not mandatory for companies, the rules
are in line with the Comply or Explain principle with penalties applicable only if an
explanation is not offered.

Application of the Provision

The provisions of the section may be summarized as under:
1. The section applies to the following classes of companies during any financial
year:
a. Companies having Net Worth of rupees five hunderedcrore or more;
b. Companies having turnover of rupees one thousand crore or more;
c. Companies having Net Profit of rupees five crore or more.
2. The companies specified above shall constitute a Corporate Social
Responsibility Committee (CSR Committee) of the Board.

3. The CSR committee shall consist of three or more directors, out of which at
least one director shall be an independent director.
4. After taking into account the recommendations of the CSR Committee, the
Board shall approve the CSR policy for the company.
5. The contents of the policy shall be discussed in the Boards report.
6. It shall also be placed on the companys website, if any, in a manner to be
prescribed by the Central Government.
7. The Board shall ensure that the activities as are included in the CSR policy
(from the activities as specified in the Schedule VII) are undertaken by the
Company.
The following additional features of the Section are relevant:
1. While spending the amount earmarked for CSR activities, the company shall
give preference to the local area and areas around where it operates.
2. If the company fails to spend the amount, the Board shall specify the reasons
for not spending the amount in the Boards report.
3. The eligible companies are required to spend in every financial year, at least
two percent of the Average Net Profits of the Company made during the three
immediately preceding financial years in pursuance of its CSR policy. For this
purpose, Average Net Profit shall be calculated in accordance with the
provisions of Section 198 of the Companies Act, 2013.
The CSR Policy is expected to normally cover following elements;
a.
b.
c.
d.
e.
f.

Care for all stakeholders

Ethical functioning
Respect for workers rights and welfare
Respect for human rights
Respect for environment
Activities for social and inclusive development

Corporate Social Responsibility can be understood to be a concept imposing a

liability on the Company to contribute to the society whether towards social,
environmental, educational causes etc. along with the reinforced duty to conduct
the business in an ethical manner.

Benefits of CSR
The benefits of CSR could be listed as follows:

Strengthened brand positioning

Enhanced corporate image and reputation
Satisfaction of economic and social contribution to society
Contribution to the surrounding society
Increased ability to attract, motivate and retain employee
Enhanced sales and market share
Increased appeals to investors and financial analysts
Local economy gains in all dimensions

Composition of the CSR Committee

The CSR committee shall consist of three or more directors and out of which one
director shall be independent director. The presence of the independent director
shall ensure that the Committee is not a quasi-committee addressing the whims
of the Board but in fact taking up an initiative. The composition of such
Corporate Social Responsibility Committee shall have to be disclosed in the
Boards Report as required under Section 134(4).
An unlisted public company or a private company which is not required to
appoint an independent director shall have its CSR Committee with an
independent director.
A private company having only two directors on its Board shall constitute its CSR
Committee with two such directors.
With respect to foreign companies, the CSR Committee shall comprise of at least
two persons of which one person resident in India and another person shall be
nominated by the foreign company.
The CSR Committee shall institute a transparent monitoring mechanism for
implementation of CSR projects or programs or activities undertaken by the
company.

CSR Policy
The CSR Policy of the company shall inter alia include the following namely:
a. A list of CSR projects or programs which a company plans to undertake
falling within the purview of the Schedule VII of the Companies Act, 2013,
specifying modalities of execution of such project and implementation
schedule for the same;
b. Monitoring process of such projects or programs;
But the activity should not be undertaken in pursuance of normal course of business
of a company.
That Board shall ensure that the activities included by the company in its CSRPolicy
are related to the activities mentioned in Schedule VII of the Act.
The CSR Policy of the company shall specify that the surplus arising out of the CSR
projects or programs activities shall not from part of business profit of a company.

Function of the CSR Committee

The Committee shall formulate and recommend to the Board, a Corporate Social
Responsibility Policy which shall indicate the activities to be undertaken by the
company as specified in Schedule VII of the Act.
The Committee shall also initiate a CSR Policy, which shall stipulate how, where and
when they want to invest their funds with respect to this requirement.

The Committee shall recommend the amount of expenditure to be incurred on the

activities referred to above. Further, the CSR Committee is under an obligation to
monitor the implementation of the CSR Policy from time to time.

CSR Activities
The Companies Act, 2013 does not prescribe the methodology by which CSR
activities are to be undertaken by the company. Companies have been given
flexibility to decide the activity within the framework, choose programs, implement
in the manner it desires, monitor it an ensure compliance of its own CSR Policy.
However, the CSR activities may be undertaken by way of the following methods:
a. By Charity: Company can donate money to various charitable trusts,
societies, NGOs etc. who work for social economic welfare of society.
b. By Contract: Company can hire an NGO or any other agency like that which
can carry out the projects on behalf of the company.
c. By Itself: Company can take up a project on its own or create its own trust
anduse its own staff for its proper working monitoring or through other
trusts/societies.
The companies may adopt any one or all of the above ways for the purpose of CSR
activities.
1. The CSR activities undertaken by the company as per its CSR Policy, as
projects, or programs or activities (either new or ongoing), excluding
activities undertaken in pursuance of its normal course of business.
2. The Board of a company may decide to undertake its CSR activities approved
by the CSR Committee, through a registered trust or a registered society or
company established by the company or its holding or subsidiary or associate
company.
3. If such trust, society or company is not established by the company or its
holding company or subsidiary or associate company, it shall have an
established track record of three years in undertaking similar programs or
projects.
4. The company has specified the project or programs to be undertaken through
these entities, the modalities of utilization of funds on such projects or
programs and the monitoring and reporting mechanism
5. A company may also collaborate with other companies for undertaking
projects or programs or CSR activities in such a manner that the CSR
Committees of respective companies are in a position to report separately on
such projects or programs in accordance with rules.
6. The CSR projects or programs or activities should not be exclusively only for
the benefit of employees of the company or their families.
7. Only those CSR projects or programs or activities would be taken into
considerations that are undertaken within India.
8. Companies may build CSR capacity or their own personnel as well as those of
their implementing agencies through institutions well established track

records of at least three financial years but such expenditure shall not exceed
five percent of total CSR expenditure of the company in one financial year.
9. Contribution of any amount directly or indirectly to any political party shall
not be considered as CSR activity.
Schedule VII of the Companies Act, 2013 describes the following activities to be
undertaken by the company in CSR activities which are as detailed below:
i.
ii.

iii.

iv.

v.

vi.
vii.
viii.

ix.
x.
xi.

Eradicating hunger, poverty and malnutrition, providing preventive health

care and sanitation and making available safe drinking water;
Promoting education including special education and employment enhancing
vocation skills especially among children, women, elderly and the differently
abled and livelihood enhancement projects;
Promoting gender equality, empowering women, setting up homes and
hostels for women and orphans, setting up old age homes, day care centers
and such other facilities for senior citizens and measures for reducing
inequalities faced by socially and economically backward groups;
Ensuring environment sustainability, ecological balance, protection of flora
and fauna, animal welfare, agroforestry, conservation of natural resources
and maintaining quality of soil, air and water;
Protection of national heritage, art and culture including restoration of
building and sites of historical importance and works of art, setting up public
libraries, promotion and development of traditional arts and handicrafts;
Measures for the benefits of armed forces veterans, war widows and their
dependents;
Training to promote rural sports, nationally recognized sports, paralympic
sports and Olympic sports;
Contribution to the Prime Ministers National Relief Fund or any other fund set
up by the Central Government or the State Government for socio-economic
development and relief and welfare of the Schedule Castes and the Schedule
Tribes, other backward classes, minorities and women;
Contribution or funds provided to technology incubators located within
academic institutions which are approved by the Central Government;
Rural development projects;
Slum area development.

Role of the Board

The Board of every company shall:
1. To compose a Corporate Social Responsibility Committee;
2. After receiving recommendation and policy made by the Corporate Social
Responsibility Committee, approve and take steps to implement/execute the
CSR Policy for the company and disclose such policy:
a. in the Board Report as per the sub-section (3) of Section 134 pertaining
to a financial year commencing on or after the 1st day of April, 2014;
and

b. also place the contents of policy on its companys website, if any, in

form prescribed under Companies (Corporate Social Responsibility
Policy) Rules, 2014.
3. Ensure that the activities which are formulated by CSR Committee in the
Policy are duly undertaken by the Government.
4. Ensure that the company in every financial year, at least two percent of the
average net profit (to be calculated in accordance with the provisions of Sec.
198) of the company made during the three immediately preceding financial
years, in pursuance of its Corporate Social Responsibility Policy. The company
shall give a preference to the local area and areas around it where it
operates, for spending the amount earmarked for Corporate Social
Responsibility activities as per CSR Policy.
5. If the company fails to spend such amount, the Board shall in its report made
under Section 134(3)(o) specify the reasons for spending the amount. The
intention is that the company should spend on approved CSR activities or
explain the reasons for not so spending in its Board report.

CSR Contribution/Expenditure
For a contribution to qualify as a CSR contribution, the nature of the contribution to
be kept in mind. Any contribution to CSR may not result in any direct or indirect
commercial benefit to the company. However, it should be ensured that CSR
expenditure includes all expenditures including contribution to corpus for projects or
programs relating to CSR activities approved by the Board on the recommendation
of its CSR Committee, but does not include the expenditure on an item not in
conformity or not in line with activities which fall within the purview of Schedule VII
of the Act.

Penalty
As per Clause (o) of sub-section (3) of section 134 the companies Act, 2013, the
Board shall lay down a statement before a company in general meeting about the
details of the policy developed and implemented by the company on corporate
social responsibility initiatives taken during the year.
As per section 134 of the Companies Act, 2013 if the company fails to disclose such
information, it shall be punishable with fine, which shall not be less than fifty
thousand rupees but which may extend twenty five lakh rupees and every officer of
the company who is in default shall be punishable with imprisonment for a term
which may extend to three years or with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees.

Triple Bottom Line

The term was coined by John Elkington in 1994.

People, Planet and Profit also known as triple bottom line form one way to
evaluate CSR.
People refers to fair labour practices, the community and the region where the
business operates.
Planet refers to the sustainable environmental practices.
Profit is the economic value created by the organization after deducting the cost of
all inputs, including the cost of the capital.