An Brief Overview on Corporate Social Responsibility
🔹 What is Corporate Social Responsibility (CSR)?
Corporate Social Responsibility (CSR) refers to the responsibility of companies to contribute positively to society beyond their profit-making activities. It involves ethical business practices, environmental sustainability, social welfare, and community development.
🔹 Legal Framework of CSR in India
India is among the first countries to mandate CSR through legislation. The primary legal provisions are found under the Companies Act, 2013, specifically:
Section 135 of the Companies Act, 2013
Applicability:
Companies meeting any of the following thresholds in the immediately preceding financial year must comply:
Net worth of ₹500 crore or more, OR
Turnover of ₹1000 crore or more, OR
Net profit of ₹5 crore or more
CSR Committee:
Such companies must form a CSR Committee of the Board consisting of at least three directors (including at least one independent director for listed companies).
CSR Policy:
The company must formulate and approve a CSR Policy outlining activities to be undertaken.
Expenditure:
Companies must spend at least 2% of their average net profits of the last three financial years on CSR activities.
Schedule VII Activities:
CSR activities must fall under specified categories, including:
Eradicating hunger, poverty, and malnutrition
Promoting education
Promoting gender equality and women empowerment
Environmental sustainability
Social business projects
Contributions to Prime Minister's Relief Fund, etc.
🔹 Objectives of CSR
Foster sustainable development
Enhance stakeholder trust and brand value
Promote ethical and responsible business practices
Address social, environmental, and economic challenges
🔹 Enforcement and Compliance
Non-compliance requires disclosure of reasons in the Board’s Report.
No criminal penalties but reputational and regulatory risks.
SEBI requires listed companies to comply and report CSR activities.
🔹 Judicial Interpretations and Case Law on CSR
1. Tata Steel Ltd. v. State of Jharkhand (2015)
Issue: Role of companies in social welfare and CSR obligations.
Held: Court recognized CSR as an essential part of corporate governance and sustainable development, emphasizing voluntary ethical obligations and legal mandates.
Significance: Affirmed that companies have duties towards community welfare under the Companies Act and public interest.
2. Sterlite Industries (India) Ltd. v. Union of India (2013)
Context: Environmental violations and corporate responsibility.
Held: The court highlighted that environmental sustainability is a key CSR component, and companies must ensure compliance with environmental laws.
Principle: CSR cannot be separated from legal compliance and environmental stewardship.
3. Centre for Environmental Law, WWF-India v. Union of India (2013)
The court acknowledged the importance of CSR in environmental protection and urged companies to integrate CSR in their core business strategies.
4. Nandlal Kilachand & Co. Ltd. v. Union of India (1961) (pre-CSR but relevant on social obligations)
Discussed social responsibility of industries to maintain harmony with society beyond profit-making.
🔹 CSR Reporting Requirements
Companies must include a detailed CSR report in their Annual Report.
The report must disclose:
CSR policy
Composition of CSR Committee
CSR projects undertaken
Amount spent on CSR
🔹 Criticism and Challenges
Some critics argue CSR mandated by law can reduce voluntary goodwill.
Challenges in measuring impact and ensuring transparency.
Risks of companies treating CSR as mere "box-ticking" exercise.
🔹 Recent Developments
The Ministry of Corporate Affairs has issued clarifications and guidance to enhance CSR effectiveness.
Push towards integrating Sustainable Development Goals (SDGs) in CSR.
Increased scrutiny by investors and regulators on CSR impact.
🔹 Summary
| Aspect | Details |
|---|---|
| Legal Basis | Section 135, Companies Act 2013 |
| Applicability | Companies with ₹500 Cr net worth, ₹1000 Cr turnover, or ₹5 Cr net profit |
| Mandatory Spend | 2% of average net profits of last 3 years |
| Activities Allowed | As per Schedule VII (education, environment, health, etc.) |
| Governance | CSR Committee of Board, CSR Policy formulation |
| Reporting | Annual Report mandatory disclosure |
| Judicial Views | CSR integral to sustainable development and compliance |
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