Juris Centre

Impact of Corporate Social Responsibility Laws in India

Before the enactment of CSR laws in India, the companies used to donate in the form of charity, such as setting up educational institutions, donating in temples, etc.  Making donations was not mandatory for the companies. Over the past few decades, the concept of corporate social responsibility has changed. Though charity is serving the society, it does not aim for something in return. Corporate social responsibility has an agenda of getting positive impact in return. It is related to the moral and ethical side of an organization while conducting business. After Independence in India, the roots of CSR can be traced back to Mahatma Gandhiji’s concept of self-sustainability. He brought the concept of trusteeship which made the industrialists to contribute to the welfare of the society. Further, the emergence of globalization in 1991 made the companies to make strategies to conduct business ethically. However, the Indian government recognised that there was lack of social responsibilities by private sectors. This made the government to make CSR laws legally mandate in India.  The emergence of the CSR laws imposed the responsibility on the companies to give it back to the society. Dr. Bhaskar Chatterjee is known as the Father of Corporate Social Responsibility in India. He is known to have contributed his work in bringing Section 135 in Indian Companies Act, 2013 and further framing rules and polices on CSR. Corporate social responsibility was made mandatory in India on 1st April, 2014.

INCLUSION OF SECTION 135 IN INDIAN COMPANIES ACT, 2013.

Section 135 of the Indian Companies Act 2013 lays down provisions regarding Corporate Social Responsibility. The provisions of CSR is applicable to the companies which satisfy the following conditions:

  • Companies having net worth of Rs. 500 crore
  • Companies having turnover of more than Rs. 1000 crore
  • Companies with net profit of more than Rs. 5 crore. [1]

According to the CSR provisions, the company must spend atleast 2% of their average net profits in every financial year. These are the profits that are made during immediately preceding three financial years. The provisions further lays down rules for the formation of the committees and further lays down duties of such committees. Further, the unspent amount can be transferred to the Prime Minister’s National Relief Fund. The provision also lays down CSR activities under Schedule VII of the Companies Act 2013:

  1. Eradication of poverty, hunger and malnutrition, promotion of healthcare, sanitation and making facilities available such as safe drinking water.
  2. Improvement in education and enhancing vocational skills among women, children and differently- abled citizens.
  3. Promotion of gender equality, establishing hostels and day care centres, providing facilities for senior citizens.
  4. Protection of flora and fauna, maintaining ecological balance, animal welfare, protection of quality of soil and conservation of natural resources.
  5. Protecting natural heritage, art and culture, protection of historical forts, setting up libraries.
  6. Taking measures for armed forces, war widows and dependents, including Central Armed Police Forces and Central Para Military Forces.
  7. Providing training in rural, Paralympic and Olympic sports.
  8. Contribution in PM Cares Fund and any other fund set up by Central Government for providing socio-economic development.
  9. Contribution in the field of science, research and development, technology, medicine funded by Central Government and State Government.
  10. Contributions to public funded institutions such as IITs, National Laboratories and Department of Pharmaceuticals and any other institutions engaged in research, science and technology.
  11. Development in rural areas
  12. Development of slum areas
  13. Taking effective measures for disaster management, including relief, rehabilitation and reconstruction activities. [2]

PENALTIES DUE TO NON-COMPLIANCE OF THE PROVISIONS

Earlier, the companies used to provide sufficient reasons if they fail to contribute towards Corporate Social Responsibility. Since Corporate Social Responsibility has been made mandatory to every company falling under the conditions as given in section 135, the companies cannot escape from contributing towards Corporate Social Responsibility. Companies who do not comply with the provisions of section 135 are penalised and will be punishable with a penalty of twice the amount to be transferred by company to CSR fund as given under schedule VII. Further, the officers shall also be liable for imprisonment up to 3 years.

TYPES OF CORPORATE SOCIAL RESPONSIBILITY

There are different types of corporate social responsibilities which enable the companies to carry out the responsibilities in an organized and efficient manner.

  1. Environmental responsibility: The companies carry out this responsibility in order to create a sustainable future. The responsibilities under this category includes recycling products, focusing on renewable energy such as setting up solar panels, invention of vehicles that can run on batteries, taking effective measures for reducing pollution, carbon footprints, greenhouse gas emissions, global warming, etc. Companies such as Tesla contributes to environmental CSR by taking initiatives like invention of electric cars, Cummins India Ltd. is another example which contributes to environmental CSR by setting up oxygen hubs which can help reduce pollution.
  2. Ethical responsibility: The companies make commitment to practice ethics that upholds human rights principles such as fair treatment of stakeholders, fair trade practices, equal pay and equal treatment to employees and prevention of gender discrimination. The companies have to follow the principles laid down in Universal Declaration of Human Rights. The Body Shop is a brand that conducts fair trade practices and works for equal treatment to different communities.
  3. Philanthropic responsibility: Philanthropic responsibility is carried out by the companies for the betterment of the society. The tasks can for non-profit purpose and majorly focuses on helping the needy. Tata Trust focuses on contributing to the society and also in different areas such as education, healthcare.
  4. Economic responsibility: The companies make financial decisions that creates a positive impact on environment, people and society at large. It can create economic well-being of society. [3]

COMPANIES CONTRIBUTION TOWARDS CSR

According to the National CSR Portal Report (Ministry of Corporate Affairs), there are total 19043 companies that are contributing towards CSR. The total CSR expenditure according to the current report is Rs. 26278.71 cr.

The companies that have major contributions towards CSR are as follows:

  1. Reliance Industries Ltd. – The report of FY – 2022-23 states that Reliance contributed Rs. 1271 crores towards CSR in the following areas
  2. Rural transformation – Provided information to fisher folks regarding fishing zones, women entrepreneurship, smart agricultural techniques.
  3. Health awareness – Conducted awareness campaigns for diseases such as TB, organizing eye-check-up centres.
  4.  Education – Established institutions, provided scholarships and access to healthy meal and child care.
  5. Women empowerment – Skill development programmes for rural women, providing healthcare services, networking of women through online platform ‘her circle’.
  6. Disaster management – Providing basic amenities and security to the disaster – affected citizens.
  7. Sports development – Promoted gender equality in sports, trained youth, and organized tournaments.
  8. Conservation of Art, culture and heritage and other initiatives such as animal welfare.

Reliance Industries Ltd. was awarded best CSR initiative awards at India Digital Enabler Awards, and was also awarded Golden Peacock Award. [4]

  • HDFC Bank Ltd. – Contribution of Rs. 722 crores towards CSR, Parivartan Programme
  • Rural development and upskilling rural people
  • Education
  • Skill training and livelihood enhancement
  • Healthcare and hygiene – Organizing blood donation camps every year, has been recorded in Guinness Book of Records
  • Financial literacy
  • Tata Consultancy Services – The largest software and IT Company have spent Rs. 783 crores towards CSR as stated in its annual report FY- 2022-23. Contributions include
  • Health and wellness by setting up hospitals
  • Education by organizing literacy programmes
  • Employment, entrepreneurship and self-employment focusing on skill development of the youth.  [5]
  • Oil and Natural Gas Corporation Limited (ONGC) – Contributed Rs. 436 crores
  • Education
  • Healthcare
  • Infrastructure
  • Rural development
  • Organizing cleanliness drive, such as cleaning Sabarmati River Bank
  • NTPC – Contributed Rs. 356.71 crores
  • Green mission and conservation of energy
  • Education
  • Healthcare

NTPC has been awarded Gold Award for its Annual Report and conducting ethical responsibilities.

Apart from the companies, NGOs and Law Firms too play an important role in contributing towards CSR. Several law firms have started contributing towards CSR after addressing the issues faced by the society and environment. Social development is possible through a strong partnership between corporate and NGO. NGOs like Smile Foundation, CRY, Nanhi Kalhi, Care India are contributing towards CSR. Similarly, law firms like Hammurabi & Soloman Partners, Singhania & Partners are carrying out CSR activities for bringing a change in the society.

 BENEFITS OF CSR IN INDIA

Companies contributing towards corporate social responsibility benefits not only the society but also the company. It benefits the society by improving the environment, improving education and healthcare sectors, benefitting the stakeholders, etc. It benefits the companies in the following manner:

  1. Building brand image: Companies who contribute towards CSR and conduct business ethically have high chances of creating a brand image in the market. This is possible through media coverage, which also attracts the consumer’s attention towards the brand.
  2. Builds reputation: Companies contributing towards CSR builds and boosts reputation in the market and society as well. Increase in reputation further increases the sale of products and thus helps to gain profits.
  3. Retention of employees: When the company practices in an ethical manner, the employees are also motivated to work and put efforts for the company. This leads to retention of the employees in the company, which also improves productivity at workplace.
  4. Public Trust: Companies ethically conducting business in the market builds trust in the minds of the people. People believe that the companies are genuinely putting efforts in bringing the change in the society. Building public trust can be one of the major benefits which a company can have.
  5. Greater sustainability: Planning effectively and working towards achieving sustainable development goals can definitely put a positive impact on companies. Sustainable methods can also be cheaper to operate in the long run.

ISSUES AND CHALLENGES WHILE CONTRIBUTING TOWARDS CSR

Certain issues and challenges are faced by the companies while running a business and contributing towards corporate social responsibility. Issues such as lack of strategic planning and non-implementation of plans can be faced by companies. Proper planning and implementation must be done for effective contribution towards corporate social responsibility. The employees must be motivated and rewarded regularly to enable them to cooperate in the tasks. This will boosts the productivity level of the employees and will also prevent lack of participation of the employees. Awareness programmes on corporate social responsibility must be increased among the communities to increase their participation. Lack of transparency can be another issue faced by the companies. The companies must try to disclose relevant information to the concerned authorities which will further lead to trust building between the company and the communities. Transparency plays a crucial role in the success of corporate social responsibility initiative. Lack of financial resources and infrastructure can be a major challenge faced by small companies. These companies must make effective planning for investments in corporate social responsibility. [6]

CONCLUSION AND SUGGESTIONS

Till now, the companies have contributed towards corporate social responsibility which have created a positive impact in India. The inclusion of laws has made the companies to work for the betterment of the stakeholders and general public. However, companies still need to make efforts in some areas. Companies must constitute a committee consisting of competent members as stated in the provisions of the Companies Act, 2013 and allot tasks for effective performance. Further, companies must focus on areas where CSR is required, especially in rural areas. Contributing to the development of rural areas and people by making them available to facilities will reduce migration of rural people into urban areas which will help maintain the balance. Companies must cooperate with NGOs and other organizations to help achieve the sustainable development goals by 2030. Long-term goals must be broken into small goals and must be delegated to the assigned team to achieve the target. Annual Reports must be made to track the progress made and the improvements needed. India can definitely achieve its Sustainable Development Goals by 2030 if companies and organizations work consistently towards corporate social responsibility.

[1] Corporate Social Responsibility under Section 135 of Companies Act 2013, India, available at: https://cleartax.in/s/corporate-social-responsibility (Last Modified September 22, 2023).

[2] Corporate Social Responsibility under Section 135 of Companies Act 2013, India, available at: https://cleartax.in/s/corporate-social-responsibility (Last Modified September 22, 2023).

[3] Types of Corporate Social Responsibility, India, available at: https://www.goodera.com/blog/types-of-corporate-social-responsibility (Last Modified May 23, 2023)

[4] CSR202223, India, available at: https://www.ril.com/sites/default/files/2023-08/CSR202223.pdf (last visited on February 20, 2024)

[5] Complete CSR Report of Tata Consultancy Services (TCS) in India FY 2022-23, India, available at: https://thecsrjournal.in/csr-report-tcs-india-tata-consultancy-services/ (Last Modified February 15, 2024)

[6]  Samantara, R. and Dhawan, S. (2020) ‘Corporate Social Responsibility in India: Issues and Challenges’,IIMS Journal of Management Science, Vol. 11, No. 2, pp. 91-103

Author: Juilee Yerramshetty

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