Corporate Social Responsibility (CSR) under New Company Law

Corporate Social Responsibility (CSR) is now accepted as a means to achieve sustainable development of an organization. Hence, it needs to be accepted as an organizational objective. The Companies Bill, 2012 will make Indian companies to consciously work towards that objective, as it requires a prescribed class of companies to spend a portion of their profits on CSR activities.

Businesses can no longer limit themselves to using resources to engage in activities that increase their profits. They have to be socially responsible corporate citizens and also contribute to the social good. Corporate Social Responsibility (CSR) is about integrating economic, environmental and social objectives with a company’s operations and growth. Many consider CSR philanthropy, but that is a limited definition. An organization can accomplish sustainable development if CSR becomes an integral part of its business process. 
New article on Notified CSR Rules and Modifications

CSR impacts almost every area of operations: governance and ethics; employee hiring, providing opportunity; stakeholders benefit sharing and energy usage and environment protection. The Companies Bill, 2012 intends to inculcate the philosophy of CSR among Indian companies.

STIPULATIONS OF THE COMPANIES BILL, 2012

  • Every company with net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more during any financial year to constitute a CSR Committee of the Board consisting of three or more directors, of which at least one director shall be an independent director. 
  • The Board’s report to disclose the composition of the CSR Committee. 
  • The main functions of the CSR Committee are to:
    1. Formulate and recommend to the board, a CSR policy indicating the activity or activities to be undertaken by the company as specified in Schedule VII of the Act; 
    2. Recommend the amount to be spent on these activities; and 
    3. Monitor the company's CSR policy periodically. 

  • After the CSR Committee makes it recommendations, Board of the company shall approve the CSR Policy and disclose contents of such policy in its report and also place it on the company's website. Further, details about the policy developed and implemented by the company on CSR initiatives during the year to be included in the Board's report every year.
  • Board to ensure that the activities listed in the CSR Policy are undertaken by the company.
  • Board to ensure that at least 2% of average net profits of the company in the three immediately preceding financial years are spent in every financial year on such activity.
  • Preference to be given to the local area and areas around the company operates for CSR spending. 
  • If a company fails to provide or spend such amount, Board to specify reasons in its report for that failure. 
  • Companies required to comply with CSR shall give additional Information by way of notes to the Statement of Profit and Loss about the aggregate expenditure on CSR activities. 
  • Schedule VII of the Companies Bill 2012 prescribes activities that may be included by companies in their CSR policies:
    1. Eradicating extreme hunger and poverty; 
    2. Promotion of education; 
    3. Promoting gender equality and empowering women 
    4. Reducing child mortality and improving maternal health; 
    5. Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; 
    6. Ensuring environmental sustainability; 
    7. Employment enhancing vocational skills; 
    8. Social business projects; 
    9. Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and;
    10. Other matters as may be prescribed.
EXISTING PROVISIONS: 
There are no provisions in The Companies Act, 1956 on CSR. 

Impact/Industry Response:
With CSR spending becoming mandatory for prescribed class of companies, there is bound to be increased engagement of companies with social and development projects. So far, there were only voluntary guidelines for companies to follow.

  • The rationale for CSR activity is that corporates earn their profit by exploiting different resources of the society, and so a portion of the benefit derived by them should be channeled for the betterment of society. 
  • Though compulsory CSR spending may seem burdensome for some class of companies, it will create of a sense of responsibility among Corporates, especially when they see benefits in the long term. 
  • Children, women, uneducated, and unemployed would be among the beneficiaries as CSR activities may be focused on them. 
  • The intention of policy makers is quite clear - to report business community's contribution for fulfillment of social, environmental and economic responsibilities. While contribution to the local community is a good objective, businesses should choose social, environmental and economic activities that contribute to society at large. 
  • CSR activities will also help improve the image of a company within the society as one that cares for the community. 
  • Significantly, there is no penalty for defaulting on CSR norms. Only an explanation is to be given by the board in its report for such non-compliance. So, it seems there is no real coercive factor. 
  • The Government has adopted a "Gandhi wad" with the provision - either contribute to society or inform to society why you are not contributing.
Existing CSR Activities of some companies-
Company NameMajor CSR Initiatives
ITC Limitede-Choupal, social & farm forestry, watershed development, women's empowerment, livestock development, primary education
InfosysEmployees take up social causes like education, rural rehabilitation and inclusive growth. energy conservation, water sustainability, afforestation, waste management, awareness on carbon footprint.
Jubiliant Work SciencesBasic healthcare facilities, supporting government rural primary education system, developing resource pool through vocational training programmes.
Reliance Industries LimitedHealth, education, infrastructure development (drinking water, improving village infrastructure, construction of schools etc.), environment (effluent treatment, tree plantation, treatment of hazardous waste), relief and assistance in the event of a natural disaster, and miscellaneous activities such as contribution to other social development organizations.

Expected contribution for CSR after the CSR provisions are enforced-
No.Name of the companiesAverage Profits(of the FY 2009-10, 2010-11, 2011-12)
(Amt in Rs. millions)
Proposed contribution in CSR 
(2% of the Average Profits) (Amt in Rs. millions)
1.GAIL (INDIA) LIMITED34,516.03690.32
2.HINDUSTAN UNILEVER LTD23,998.00479.96
3.Infosys69,053.331,381.07
4.Larsen & Tourbo Ltd42,633.03852.66
5.NTPC Ltd90,181.731,803.63




Contact for any related query:


Mr. Ankit Singhi
+9111406222208, +919910888952,
Email:- ankit@indiacp.com

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