NATIONAL LAW INSTITUTE

UNIVERSITY
BHOPAL,M.P.

A Project Of LBA –II On The Topic

“Corporate Social Responsibility”

Submitted to, Submitted by,

Dr.Kondaiah Jonnalagadda Ajita Nadkarni
M.L.Ph.D (Law) 2012 BA LLB 101
Assistant Professor

pg. 1
 Acknowledgement

With my highest respect and gratitude I would take this opportunity to acknowledge the role
played by the people who helped me compile this project.Firstly I would like to thank my
parents ,who have always supported me in all my endeavours.Then I would like to thank
Kondaiah Sir ,who guided me to make this project and who motivated me to research well on
my project topic.These people were instrumental in the framing of this project,without whose
guidance ,this project would be incomplete.

pg. 2
 Table Of Contents

Topic Page No:

1.Introduction...................................................................................................................4

2.Meaning........................................................................................................................4-8

A) CSR definitions and its global perceptions............................................................4-5

B) Importance and benefits of CSR............................................................................6-8

3.Entities covered by CSR obligations.............................................................................8

4.Required amount of CSR spending...............................................................................8

5.Permitted CSR activities............................................................................................... 9

6.CSR Committee and policy...........................................................................................9

7.Administration of CSR projects....................................................................................9

8.Reporting needs...........................................................................................................10

9.Failure to comply.........................................................................................................10

10.Implications for foreign companies located in India.................................................10

11.Conclusion................................................................................................................10-11

12.Bibliography...............................................................................................................11

pg. 3
 Introduction
In August 2013, the Indian parliament passed the Indian Companies Act, 2013 (the New
Act), which has replaced the Companies Act of 1956. The New Act has made far-reaching
changes affecting company formation, administration and governance, and it has increased
shareholder control over board decisions. The New Act is being implemented in stages, and
we have been monitoring its progression.One of the most startling changes introduced on 1st
April,2014 is the imposition of the Corporate Social Responsibility or the CSR in the
provisions of the new act.

Meaning

Definitions of CSR and its perceptions around the globe

Different organisations have framed different definitions - although there is considerable
common ground between them. On a general basis CSR is about how companies manage the
business processes to produce an overall positive impact on society.

Companies need to answer to two aspects of their operations in CSR which are as follows:
1. The quality of their management,which are both in terms of people and processes.
2. The nature of, and quantity of their impact on society in the various areas.
Outside stakeholders are taking an increasing interest in the activity of the company. Most
look to the outer circle - what the company has actually done, good or bad, in terms of its
products and services, in terms of its impact on the environment and on local communities, or
in how it treats and develops its workforce. Out of the various stakeholders, it is financial
analysts who are predominantly focused - as well as past financial performance - on quality
of management as an indicator of likely future performance.

The World Business Council for Sustainable Development in its publicationMaking Good
Business Sense by Lord Holme and Richard Watts, used the following definition:

“Corporate Social Responsibility is the continuing commitment by business to behave

ethically and contribute to economic development while improving the quality of life of the
workforce and their families as well as of the local community and society at large.”

The same report gave some evidence of the different perceptions of what this should mean
from a number of different societies across the world. Definitions as different as CSR is about
capacity building for sustainable livelihoods. It respects cultural differences and finds the
business opportunities in building the skills of employees, the community and the

pg. 4
government from Ghana, through to CSR is about business giving back to society from the
Phillippines.
Traditionally in the United States, CSR has been defined much more in terms of a
philanpthropic model. Companies make profits, unhindered except by fulfilling their duty to
pay taxes. Then they donate a certain share of the profits to charitable causes. It is seen as
tainting the act for the company to receive any benefit from the giving.

The European model is much more focused on operating the core business in a socially
responsible way, complemented by investment in communities for solid business case
reasons.This model is more sustainable because of the following reasons:

1. Social responsibility becomes an integral part of the wealth creation process - which if
managed properly should enhance the competitiveness of business and maximise the value
of wealth creation to society.
2. When times get hard, there is the incentive to practice CSR more and better .If it is a
philanphropic exercise which is peripheral to the main business, it will always be the first
thing to go when push comes to shove.

But as with any process based on the collective activities of communities of human beings ,as
companies are, there is no 'one size fits all'. In different countries, there will be different
priorities, and values that will shape how businesses act. And even the observations above
are changing over time. The US has growing numbers of people looking towards core
business issues.

For instance, the CSR definition used by Business for Social Responsibility is:

“Operating a business in a manner that meets or exceeds the ethical, legal, commercial and
public expectations that society has of business.”

On the other hand, the European Commission hedges its bets with two definitions wrapped
into one:

“A concept whereby companies decide voluntarily to contribute to a better society and a

cleaner environment. A concept whereby companies integrate social and environmental
concerns in their business operations and in their interaction with their stakeholders on a
voluntary basis.”

pg. 5
 Importance and benefits of CSR
Current times don’t allow for companies to simply be in business for the sake of making a
profit anymore. While consumers may rely on corporations for goods and services, the level
of competition allows customers to make decisions based on several factors, including how
much good a corporation is also doing outside of the workplace. Many individuals today are
basing their corporate loyalties on how companies are positively impacting their
community.The following points enumerate the benefits and importance of following a
corporate social responsibility approach by an organisation:

1.A Better Public Image:

A corporation’s public image is at the mercy of it’s social responsibility programs and how
aware consumers are of them.According to a study by Cone Communications, 9 out of 10
consumers would refrain from doing business with a corporation if there existed no corporate
social responsibility plan.
For example, if a company is heavily involved in the practice of donating funds or goods to
local non profit organizations and schools, this increases the likelihood that a consumer will
use their product. Additionally, if a corporation takes great care to ensure the materials used
in its products are environmentally safe and the process is sustainable, this goes a long way in
the eye of the public.Consumers feel good shopping at institutions that help the
community.The concept of corporate social responsibility involves cleaning up your public
image.

2.Better and More Media Coverage:

Going along with how the public sees a corporation, the amount of positive media coverage a
corporation receives is extremely important for business. It doesn’t matter how much a
company is doing to save the environment if nobody knows about it. As they say, it’s okay to
toot your own horn every once in a while. It is of utmost importance to form relationships
with local media outlets so they’ll be more likely to cover the stories a company offers them.
How much good a company can do in the local communities, or even beyond that, is the
overall concept of corporate social responsibility. Where there are better benefits, then the
media coverage is also likely to be better.
On the other hand, however, if a corporation participates in production or activities that bring
upon negative community impacts, the media will also pick this up and its very unfortunate
that, bad news spreads quicker than good news. Media visibility is only so useful in that it
sheds a positive light to your organization.

pg. 6
3. Positive Workplace Environment:
It is an aspect of common sense that employees like working for a company that has a good
public image and is constantly in the media for positive reasons. Happy employees almost
always equals positive output.

4.Greater Funding Through Employee Matching Gift Programs:

Corporations that offer matching gift programs are essentially doubling donations that its
employees are giving to eligible nonprofit organisations. For example, if an employee
provides a $100 donation to a nonprofit of their choice, his or her employer ,if the company
offers a matching gift program,will write an additional $100 check, thereby increasing total
funds brought in.
A recurring theme here seems to be the education factor of . These are phenomenal socially
responsible programs that benefit both corporations and nonprofits.But if they are
underutilized because of a lack of awareness, then these programs do little good. As a
nonprofit, they should encourage corporations to promote these programs to employees and
thereby provide maximum possible offers. Social media outlets should be used as a way to
spread the word. Sometimes a simple Facebook post can make all the difference.
It should also come as no surprise that matching gift programs increase employee
engagement for companies that offer these kinds of socially responsible programs. But they
also help foster deeper non profit-donor relationships.

5.Greater Time Commitments through Employee Volunteer Grant Programs:

Corporations that offer volunteer grants, or even offer paid time off to volunteer at nonprofit
organizations, are bringing in helping hands to eligible non-profit organizations. A
corporation with this kind of program might offer ,for example a $250 check to a nonprofit
once an employee has volunteered at least 10 hours with the organization. There are also pay-
per-hour grants that many corporations offer, paying a certain dollar amount per hour
volunteered.
This kind of socially responsible program is a advantageous for both parties involved.
Employees of corporations are seen volunteering and donating their time to important causes
in the community, and non-profit organisations are receiving free time and volunteer work,
which is essential the success of so many of non-profit organisations.
Volunteer grant programs are another huge reason why corporate social responsibility is
important.

pg. 7
6.Forging Corporate Partnerships:
Another positive impact corporate social responsibility has on nonprofit organizations is the
possibility of corporate partnerships. These partnerships are vital to the positive impact a
corporation has on its local community, and important to a nonprofit that may not have the
resources for major marketing campaigns. Longterm corporate/nonprofit partnerships can
benefit everyone.
For a corporation, a partnership with a local or national nonprofit organization improves the
company’s image in the public eye, as consumers can clearly see the positive impact a
corporation is having on their community. A key benefit is that it makes it easier for
consumers to trust a company.
For a nonprofit organization, a partnership with a local or national corporation puts its name
on tons of marketing materials that otherwise could not have been afforded on tight budgets.
A key benefit is the partnership brings additional awareness to the nonprofit’s cause.

Entities Covered By CSR Obligations

The threshold coverage levels for CSR are low.  Companies are subject to the CSR
requirements if they have, for any financial year: 

1.a net worth of at least Rs. 5 billion (approximately U.S.$80 million);

2.a turnover of at least Rs. 10 billion (approximately U.S.$160 million); or

3.net profits of at least Rs. 50 million (approximately U.S. $800,000).

Companies meeting these thresholds are required to develop a CSR policy, spend a minimum
amount on CSR activities and report on these activities, or prepare to explain why they didn't.

Required Amount of CSR Spending

An entity or business that meets these specified thresholds must spend on CSR activities no
less than two percent of its average net profit for its preceding three financial years. Net
profit means a company’s profits as per its profit and loss account prepared in accordance
with the New Act, but excludes profits from a company’s operations outside India or
dividends received from an Indian company that has itself met its CSR requirements. 

pg. 8
 Permitted CSR Activities
There is a long list of permissible areas for CSR funding. They include such purposes as
ending hunger and poverty; promoting public health; supporting education; addressing gender
inequality; protecting the environment; and funding cultural initiatives and the arts.

All CSR funds must be spent in India. The New Act encourages companies to spend their
CSR funds in the areas where they operate, but money cannot be spent on activities
undertaken that are part of the normal course of the company’s business or on projects for the
exclusive benefit of employees or their family members. 

Contributions of any amount to a political party are not a permitted CSR activity. However,
the New Act has an exception allowing companies to use their CSR funds to support
development projects initiated by the prime minister or central government. It is important to
note, as discussed further below, that such projects in India have had a troubling tendency to
become vehicles for political patronage, and they can raise legal issues in other jurisdictions
if they come to be seen as political payoffs.

CSR Committee And CSR Policy 

The New Act requires companies to appoint a Corporate Social Responsibility Committee
consisting of at least three directors. If a company is one that is required by the New Act to
appoint independent directors to its board, then the CSR committee must include at least one
independent director. The CSR committee is required to recommend a formal CSR Policy.
This document, which is to be submitted to the company’s board, should recommend
particular CSR activities, set forth a budget, describe how the company will implement the
project, and establish a transparent means to monitor progress. 

Administration of CSR Projects

A company can meet its CSR obligations by funneling its activities through a third party,
such as a society, trust, foundation or Section 8 company (i.e., a company with charitable
purposes) that has an established record of at least three years in CSR-like activities.
Companies may also collaborate and pool their resources, which could be especially useful
for small and medium-sized enterprises.

pg. 9
 Reporting Requirements
Unfortunately, the New Act imposes significant bureaucratic requirements. It requires
companies to prepare a detailed report, in a particular format, about the company’s CSR
policy, the composition of the CSR committee, the amount CSR expenditures, and the
specifics of individual CSR projects. A company’s board must include this report in its
annual report to shareholders and publish it on the company's website.

The report must also include a statement from the CSR committee that the implementation
and monitoring of the board’s CSR activities is, in letter and spirit, in compliance with its
CSR objectives and CSR Policy of the company. 

Failure To Comply
If the minimum CSR amount is not spent, the board is required to disclose this fact, with
reasons therefore, in its annual Director’s Report to the shareholders. 

It is still not clear whether failure to comply is an legal offense of any sort.  Thus, the new
Act may be the advent of a new regime in Indian corporation law of the concept of “comply
or explain.” What is clear, however, is that failure to explain non-compliance is a punishable
offence under the New Act. It is therefore likely that any company that fails to comply with
its CSR obligations will be subject to investigation by the Indian authorities.

Implications For Foreign Companies Located In India

For foreign companies present in India, the corporate social responsibility obligations become
directly relevant, because delegated legislation under the 2013 Act has mandated that the
provisions will also apply to foreign companies having a place of business in India or having
any business connection with India in any form. While it is unlikely that this would include
foreign companies other than those in which more than 50 percent of the total paid up share
capital is held by Indian citizens or Indian companies, in the absence of a clarification, all
foreign companies with any presence in India would be required to comply.

Conclusion

pg. 10
The New Act’s CSR requirements will increase the costs of doing business in India and add
to existing administrative and reporting burdens. 

Unfortunately, the sheer amounts of money that must now be spent on CSR in India have
increased substantially the dangers of violating U.S. and U.K. law, and we expect that there
will be close scrutiny of companies’ CSR payments by United States and U.K. authorities.
Because of these risks, foreign companies with operations in India should seek the advice of
counsel in structuring the CSR programs and establishing internal controls. 

Bibliography
1.www.business2community.com

2.www.forbes.com

3.www.investopedia.com

4.www.truist.com

pg. 11
pg. 12