Author: Anjali Bansal, LNCT University
Abstract
Corporate Social Responsibility (CSR) in India has evolved from a voluntary philanthropic concept into a legally enforceable mandate under the Companies Act, 2013. This article
explores the statutory framework, judicial interpretations, infrastructural impact, and future trajectories of CSR in India. It integrates legal jargon, spotlights pivotal case laws, and
concludes with an outlook on corporate accountability. A comprehensive FAQ section wraps up the discussion.
To the Point
Section 135 of the Companies Act of 2013 mandates CSR..
Corporates with certain thresholds must spend 2 % of average net profits on CSR annually.
Non-compliance attracts penalties, Board accountability, and reputational risk.
Key cases clarify “shall” vs “may,” permissible activities, and liability of directors.
CSR has improved infrastructure, education, health, and environmental sectors.
The future points toward ESG alignment, standardization, and enhanced accountability.
Legal Framework & Jargon Statutory Mandate
Section 135, Companies Act, 2013, mandates CSR committees for eligible companies—those with net worth ≥ INR 500 crore, turnover ≥ INR 1,000 crore, or net profit ≥ INR 5 crore.
These companies must:
Constitute a CSR Committee of the Board.
Devise a CSR policy with specified activities.
Ensure annual CSR expenditure equals 2 % of the preceding three-year average net profit.
Annually file Form CSR-2 and report under Board’s Report (§ 134).
Legal Terms
Ultra vires: Ultra vires: Actions that go beyond what is permitted by law. CSR activities must align with Schedule VII.
Actus reus vs. Mens rea: The inability of directors to report or spend enough money is more important than their mental state.
Quantum and Proportionality: Spending must align with actual profits; no offset is permitted.
Enforcement: Penalties under Section 450 – up to ₹25 lakhs for companies and
₹5 lakhs for officers.
Case Laws
Centre for Public Interest Litigation v. Union of India & Ors., W.P. (C) 860/2014 (Delhi HC)
The Delhi High Court clarified that CSR is binding (“shall”), not discretionary (“may”) under Section 135, rejecting the government’s interim guidance that deferred the obligation.
Tata Consultancy Services Ltd. v. Registrar of Companies (NCLT Mumbai, 2017)
TCS was scrutinized for unspent CSR funds after merging with another arm. NCLT held that merged entities inherit CSR obligations and unspent funds must be redirected, not waived.
Anilhas Dairy v. Registrar of Companies, Kerala High Court (2018)
Held no criminal liability for directors absent “mens rea.” The Court imposed only civil penalties for non-compliance.
Union of India v. Vodafone India Services Pvt. Ltd., Supreme Court (2022)
While indirectly touching CSR (mandated contributions under the National Digital Fund), the Court upheld that statutory obligations carry no discretion once thresholds are met.
Impact – Legal, Social, Infrastructural Governance & Accountability
Board-level oversight increases governance maturity. CSR policies must contain
guiding principles, approval protocols, and grievance redress mechanisms.
Third-party audits and Form CSR-2 filings provide transparency and regulatory oversight.
Socio-Economic Gains
2 % CSR corpus boosts infrastructure in rural India: sanitation units, skill training centers, and digital education labs.
Legal emphasis on programmes under Schedule VII catalyzed clean energy installations, healthcare camps, and girl-child education drives.
Environmental Stewardship
Reforestation, watershed management, and biodiversity projects became legally backed.
In State of Karnataka v. Hindustan Machine Tools Ltd., courts held companies liable for environmental damage where CSR funds were misused for adverse environmental impact—CSR must benefit ecology.
Litigation Risk & Compliance Pressure
Non-compliance cases: CISCO India, Star India, and Shapoorji Pallonji were arrested for delinquencies. High-profile litigations reinforce strict compliance.
Directors face penalties, debarring from holding directorships, and reputational damage.
Future Outlook Integrating ESG
Global investor demand aligns CSR with Environmental, Social, and Governance
(ESG) ratings.
Companies will need impact metrics, like GRI or IRIS+ standards, to satisfy both statutory and investor scrutiny.
Standardization & Third-party Assurance
Anticipated mandates for external assurance frameworks will parallel financial audit requirements.
Proposals for CSR spend to hit unregistered NGOs, SPVs, or incubation funds are under review.
Penalties & Good Samaritan Proposals
Law Commission reports suggest harsher officer-level deterrents and rules earmarking unspent CSR to a government-managed “National CSR Fund.”
The Supreme Court may rule on the viability of allocating unspent funds to charitable trusts vs direct state intervention.
Harmonizing with Public Policy
The Ministry of Corporate Affairs seeks CSR commitments to align with SDGs, Ayushman Bharat, Jal Jeevan Mission, and Swachh Bharat.
Future CSR provisions may mandate geographic destitute zone focus or partnerships with local governing bodies under Section 79(b).
Conclusion
India has codified corporate social responsibility (CSR) into hard law by making it a statutory requirement. The initiative improves social infrastructure, mandates governance, and
promotes environmental stewardship. Judicial precedents tighten the screws on discretionary spending. As ESG metrics rise in prominence, CSR architecture will pivot toward transparency, assurance, and strategic alignment with national priorities. The future promises a regulatory ecosystem where CSR is no longer an afterthought but a core pillar of corporate identity.
FAQs
What companies must undertake CSR in India?
Under Section 135 only businesses with a net worth of at least 500 crore, a turnover of at least 1,000 crore, or a net profit of at least 5 crore (averaged over three years) are subject to CSR obligations.
Can CSR funds be carried forward if unspent?
Yes—but only if specifically approved in Board resolutions and re-allocated within the same financial year. Unspent amounts should be transferred to a specified fund within six months of year-end.
What qualifies as CSR activity?
Activities under Schedule VII—education, gender equality, environmental sustainability, healthcare, vocational training, national heritage, disaster relief, etc. Excludes fund-raising, political contributions, and activities benefitting only employees or their families.
Do directors carry personal liability?
Only for non-expenditure and non-reporting. Courts have ruled mens rea is not required; penalties—for companies and directors—are civil, not criminal.
What if CSR isn’t done at all?
Penalties include up to ₹25 lakhs for companies and ₹5 lakhs for officers, plus disqualification of directors for default. Repeat defaulters may face imprisonment post latest amendments.
Will CSR law change soon?
Expect ESG-aligned regulations, mandatory external audit of CSR, and stricter penalties for officers. The government is reviewing quarterly disclosures and third-party evaluation systems.
Can foreign entities claim CSR expenses in India?
Only through Indian-registered companies. CSR obligations are local to operations in India and under Indian companies’ law.
