Author : Swetha M Manohar, student at Veltech School of Law
CSR – “Corporate Social Responsibility” was an imperative notion incorporated under the Companies Act, 2013 to fortify the corporate sectors to oil the wheels of environmental and social factors rather than only focusing on the monetary policies. India has mandated the laws of CSR since 2013, which called for companies with particular turnover to donate a minimum of 2% of the companies annual profit on the activities constituted under the CSR rules.
BUSINESS ETHICS AND VOLUNTARY CSR:
A business or a company is not a one man show, for the smooth sailing of a company there needs to be a genuine and personal relationship between the employees, employers, shareholders and other behind the door workers. A business shall not only entail monetary motive but also guided by the virtues of morality and ethics. Business ethics shall incorporate the impertinent standards of honesty, trust, integrity, transparency and respect.
The concept of CSR contributes to the business ethics by committing the companies to conduce to the social and environmental development, which soars above the profit motive principles of the companies. The activities of CSR can positively range from community services and philanthropy to environmental ethics. An ethical leader shall prioritise the initiatives of CSR as he beholds the impending consequences of his decision. Business ethics and CSR policies are intertwined with each other, complementing and reinforcing one another. The activities of the organisations towards a greater cause tends to greatly inspire the workers and raise their ethical responsibilities towards the society. The CSR activities of a company shall also amplify the trust and the reputation of such companies.
CSR LEGISLATIONS IN INDIA:
- The Companies Act,2013 and CSR policy rules of 2014 together administers the CSR activities of eligible companies.
- “Corporate Social Responsibility (CSR”) : A company’s voluntary input towards the environmental and societal well being.
- Company : a legal entity, where one or more individuals come together to conduct business and earn profit.
- Section 135 of the Companies Act,2013 has mandated particular companies to make particular contributions towards the CSR activities. “Corporate Social Responsibility” includes;
- Acts specified in the Schedule VII of the Companies Act,2013.
- Any policies or implementations assumed by the “Board Of Directors” of a company in ensuring the CSR of the said company.
- Board of directors : The are a class of people elected particularly for the management and supervision of a company.
- As per section 135(1), only the companies having a net worth that equals or is more than ₹500 crores or companies having a turnover that equals or is more than,₹1000 crores or any company that encounters a net profit that equals or is more than ₹5 crores during any fiscal year shall only constitute a committee specifically to handle CSR activities and the committee shall compose 3 or more directors with not less than an independent director.
- Independent directors : They are one of the members of the board of directors of a company with no material association with the said company.
- Section 135(3) provides with the roles and responsibilities of the CSR committee;
- Develop a CSR policy and recommend them to the board of the company regarding the activities that shall be implemented by the company as mentioned under Schedule VII.
- Formulate the appropriate expenses for carrying out the above mentioned activities.
- Monitor the CSR policies of the company.
- Section 135(5) provides that the appropriate companies shall make a contribution of 2% of their “average net profit” of the last three fiscal years and in case the company has not yet finished the three fiscal years since incorporation, then a proportionate average will considered for contribution.
- Average net profit : The overall income of a company after removing the expenses.
- The average net profit of a company is computed as provided under section 198 of the Act which includes, what totals shall be added, what totals shall not be added, what totals shall be deducted and what totals shall not deducted while calculation the average net profit of a company.
- Schedule VII of the Act constitutes CSR activities;
- Eradication of starvation and poverty;
- Promote education;
- Encourage gender equality and empowerment of women;
- Deduction in the child mortality rate and ameliorate maternity care and health;
- Combat against HIV, AIDS and other ailments;
- Ensuring the sustainable development of environment;
- Developing the vocational skills of the workers;
- Any social development projects;
- Contribution to any fund implemented by the central or the state government for the well being of society and economy as well as for the welfare of the women and minorities;
- Contributions towards rural development plans;
- Contributions to disaster management activities;
- Other provided matters.
CSR AND ENVIRONMENTAL ETHICS:
The concept of CSR was implemented to harness a constructive societal and environmental Protection. However between the financial year 2015, which was the first circle of year after the implementation of the CSR legislations in India, which mandated particular companies to contribute 2% of their average net profit in the preceding 3 financial years for the causes specified under the Schedule VII of the Act and the financial year 2021, the contributions of the companies toward their CSR activities increased to a massive 111%, that is from Rs.6839 crores to a whopping Rs. 14,459 crores. Nevertheless, the amount spent for the conservation of environment increased only a mere 15%, that is from Rs.623 crores to Rs.716 crores.
During this period, the cumulative expenses over the environmental development was a mere 8% out of the total contributions of the companies towards the CSR activities, which is arguably a meagre raise compared to the raise in total contributions. The specific declination in the financial years 2020 and 2021 can be imputed towards the contingency of the pandemic. Nonetheless the contributions towards the environmental conservation never transcended 10% out of the overall budget allocated for the CSR activities. The main reason for this is that the department of health, education and sanitation have always monopolised the predominance in the CSR budget with various plans and policies involving NGOs.
In the recent years various companies have made a significant contribution to the environmental protection and conservation in their CSR budget, including;
- The Vedanta Group has assigned a whopping $5 billion for the next ten years to expand the transformation to “net – zero” operation and has formulated a strategical plan to deduct the carbon emissions by 2050 or earlier.
- One of the leading companies in the cement industry, the Ambuja Cement has strategised to optimise the energy consumption and has lowered the emission of green house gases, which resulted in a specific 38% deduction in the emission of carbon dioxide since 1990 and has proposed to make a further 21% deduction before 2030.
- India’s one of the leading companies in the consumer goods industry, Marico has proportioned a clear vision to vigorously be a factor in economic and societal growth. Kalpavriksha is one of their imperative plan incorporated to support the coconut farmers and the project Jalashay was implemented to conserve water resources along with other programmes.
- The Godrej Industries has also exhibited their rigorous commitment towards the environmental development by implementing various green projects.
ABSTRACT:
The Corporate Social Responsibility of a company has developed an unbeknownst but a well fortified relationship between the economic and the societal and environmental development. This article focuses on unearthing the magnanimous potential of a business organisation in promoting the welfare of environment and become the leaders in guiding people towards sustainable development goals. This article deals with the concept of CSR and how it can be used to harness environmental conservation and the enthusiasm of various conglomerates to work towards the same. This article has also found that the judiciary from time to time stamps its stand in the importance of carrying out the CSR activities by the appropriate companies to contribute towards the welfare of the society.
Keywords: Corporate Social Responsibility, company, business, environment, economy.
CASE LAWS:
1.Parikh Enterprises Private Ltd., In Re
Between the financial year 2013 and 2014, the company profited Rs. 5,35,44,880/- which automatically made the company eligible to contribute towards the CSR activities and constitute a CSR committee as provided under section 135 of the Companies Act, 2013. However the company made no such initiative and also failed in furnishing the report stating the reason for such failure in the board meeting as constituted under section 134(3) of the Companies Act,2013. Owing to this failure, two of the managing directors of the company filed a complaint against the violation. Where the court ordered the company to immediately constitute the CSR committee as it was well eligible to make CSR contributions as per the section 135 of the Act.
2.Technicolor India (P) Ltd. v. Registrar of Companies
The company fell under the eligibility ambit to contribute towards CSR activities as provided under section 135 of the Companies Act, 2013. Accordingly, the company set up a CSR committee and also made contributions towards the CSR activities. However, the budget allocated and spent for the CSR activities by the company was marginally lower than the standard mentioned under section 135(5) of the Act during the financial year of 2017 to 2018. Nevertheless the company submitted the report stating the reasons in their board meeting as per section 134(3) of the Act. But, later on it was asserted that the expenses of CSR activities and the details of the same was incorrectly quoted and so the company submitted the application to the NCLT in Bangalore. The tribunal permitted the company to submit a revised report as soon as possible.
3.Alps Remedies Pvt Ltd. v. N/A
In this case the company made a suo moto application to the Registrar of Companies on the grounds of violation of section 134(3) of the Act which was then forwarded to the court. The company in this case claimed that they do not fall under the ambit of section 135(1) of the Act and so they are not obligated to make contributions specified under section 135(5) of the Act as a response to the notice sent to the company. Later on the company claimed to be unaware of the clarification made regarding the term financial year, to calculate the CSR eligibility. The company then paid Rs. 3,50,000/- as a fine to the “Ministry of Corporate Affairs.”
CONCLUSION:
The Companies and business organisations serve as an effective source of economic development. However, no economic development should be accepted on the cost of environmental protection and conservation. These CSR activities of the Companies not only benefits the society but also the companies themselves by enhancing their credibility within the society and increasing their brand value. The CSR servers as an important tool to harness environmental development, but the contribution allotted for the same purpose is very low. Nevertheless, in the recent times many companies have demonstrated their vigorous enthusiasm in implementing sustainable development goals making them global leaders. Inspiring from them, it shall be aligned with the activities of every individuals in contributing towards the environmental sustainability.
FREQUENTLY ASKED QUESTIONS (FAQs) :
1.Is it mandatory for all the companies to carry out CSR activities?
No, only the companies that falls under the ambit of section 135(1) of the Companies Act, 2013 shall be eligible to carry out the CSR activities.
2.When happens when the eligible company refuses to set up the CSR committee?
The Companies that spend below Rs. 50,00,000 in CSR activities are not mandated to set up CSR committee. However, if a company spending more than that refuses to set up the committee, then it shall be held liable to pay fine and other penalties provided under section 134(8) of the Act.
3.How to determine the net profit in a financial year of a company?
The net profit of the company is determined as per the provisions of section 198 of the Companies Act, 2013.
4.What is section 134(3)(0) of the Companies Act, 2013?
Section 134(3)(0) of the Act provides that the company should furnish the detailed report on the expenditures of the plans and projects implemented on CSR activities for that financial year in the board of directors’ report.
RESOURCES:
- https://timesofindia.indiatimes.com/business/india-business/how-india-inc-can-harness-csr-for-effective-environmental-conservation/amp_articleshow/101514313.cms
- https://thecsrjournal.in/top-10-companies-for-csr-in-environment-conservation-in-2023/
- https://m.economictimes.com/jobs/c-suite/leadership-ethics-and-corporate-social-responsibility-ethical-and-impactful-leadership/amp_articleshow/103495720.cms
- The Companies Act, 2013
- https://indiankanoon.org/search/?formInput=corporate%20social%20responsibility+doctypes:judgments
- https://www.casemine.com/search/in/corporate%2Bsocial%2Bresponsibility