INTRODUCTION
Corporate Social Responsibility (CSR) embodies the concept of mutual societal contribution, where businesses, while utilising societal resources for financial gain, are expected to set aside a portion of their profits for the betterment of society and the environment. Initially rooted in traditional Indian business practices, CSR has transformed into a legal requirement following its incorporation into the Companies Act of 2013 (2013 Act). The legislative intent was to involve businesses in societal advancement, strengthening their dedication to social causes. CSR functions as a governmental tool to promote corporate accountability and transparency, ensuring that companies prioritise social and environmental impacts alongside their financial performance and growth. Enforced by the Companies Act of 2013, CSR mandates companies to dedicate at least 2% of their average profits from the preceding three fiscal years[1] to CSR initiatives, embedding them into their operational and strategic frameworks.
CSR AND INTERNTIONAL PRACTICES
The liberalization and globalization wave facilitated the entry of major international corporations into India, accompanied by advanced CSR mechanisms. This transition from philanthropy-based to liberal CSR models, influenced by companies like Microsoft and IBM, emphasised on a multi-stakeholder approach. Such initiatives benefit external stakeholders like communities and investors, as well as internal stakeholders such as employees.[2]
These firms effectively integrate CSR into sustainable business strategies, distinguishing it from mere philanthropy and showcasing its role in gaining a competitive edge. International CSR guidelines include the OECD Guidelines for Multinational Enterprises, ISO 26000, UN Global Compact, and UN Guiding Principles on Business and Human Rights. Additionally, Environmental, Social & Governance (ESG) criteria are relevant for CSR, reflecting common societal expectations.
LAWS REGULATING CSR IN INDIA
The 2013 Act mandates CSR through the Companies (Corporate Social Responsibility Policy) Rules, 2014 (2014 Rules). Additionally, the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, and the National Guidelines on Responsible Business Conduct, 2018, further govern CSR practices.
Under the 2013 Act and 2014 Rules, companies meeting specific thresholds of turnover, net worth, or net profit must establish a CSR Committee. This Committee is responsible for formulating the CSR policy, recommending activities to the Board, estimating CSR expenditure, and monitoring policy implementation.
Section 135 of the 2013 Act defines CSR broadly, encompassing projects beyond those listed in Schedule VII. Rule 2(d) of the 2014 Rules clarifies that CSR activities are those undertaken by companies as statutory obligations under the Act and Rules.
The "double disallowance" rule prohibits CSR expenditure from being claimed as business expenditure for tax exemptions under Explanation 2 of Section 37 of the Income Tax Act. This rule aims to ensure that companies fulfil their social responsibility without burdening the government, while CSR donations remain eligible for deductions under Section 80G.
PROVISION OF SEBI REGULATION 2015
Regulation 34(2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 requires the top 1000 listed entities by market capitalisation to include a Business Responsibility Report in their annual report. This report, as per SEBI guidelines, highlights companies' environmental, social, and governance initiatives.
CONCLUSION
In conclusion, CSR, once voluntary in Indian business, became mandatory under the Companies Act, 2013, aiming to hold companies accountable for societal and environmental impact. Embracing CSR enhances corporate behaviour, aligning business with societal concerns. It is now seen as a strategic advantage, influencing investor decisions. Detailed provisions and Schedule VII of the Companies Act outline CSR activities, emphasising the need for liberal interpretation to fulfil its broad objectives.
[1] Section 135(5), The Companies Act, 2013.
[2] Ritu Kumar Et Al., Altered Tiags: The 2001 State of Corporate Responsibility In India Poll, 1, 1-2 (2001), available at http://www.terieurope.org/docs/CSR-ndia.pdf.
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