Decriminalizing of Corporate social responsibility:

The government as a part of its earlier plan has proposed to decriminalise some
sections of companies law. The proposed plan has also proposed to decriminalize the
Corporate Social Initiative. Non compliance of sec 134 of companies act which says
that companies must spend at least 2% of their net profit on social welfare better
known as Corporate social responsibility is a criminal offence under sec 135 of
companies act.1

Why Decriminalise the CSR is a good idea?

CSR is an initiative which cannot be legally enforceable. India is the only country to
implement it legally. Let alone the enforceability, it has also criminalised it under sec
135 of companies act.2 There is not a single country except India which criminalised
corporate social responsibility. Even the UN guiding principle on Business and
Human rights guiding principle( UNGP) on business has also transnational tort
liability for third parties only.3 CSR was there as a voluntary obligation before
companies act made it compulsory in 2019. CSR is an act of philanthropy, an
aspirational initiative and to legislate such an act may not work.4 The US does not
have any legislation for CSR, yet 85% companies of the S & P index filed their
funds.allocated via CSR.5 Supreme court on a petition filed against criminalising the
triple talaq said that the govt should not criminalise the civil laws unnecessary. It was
in 2019 when sec 135 of Companies act was amended to make non compliance of
CSR a criminal act. When companies were performing their duty voluntarily, then
why criminalising it is thought to be appropriate. 
Decriminalising the companies is also not rooted deeply in logic. It is very difficult to
detect and also implement a criminal offense. Criminal offense requires a higher level
of satisfaction than civil law. Criminal justice is based on the maxim that it is more
important to save an innocent than to punish 100 criminals. This theory gives
criminals many ways to escape the legal system. In criminal offense, the degree of
proof required is reasonable beyond doubt. In Director of Enforcement v. MCTM
Corporation,6 The Court held that civil offenses only required a wrong committed to
third person, whereas criminal law required an guilty intention, for which one has to
prove the involvement of mala fide intention. Proving the mala fide is always a
difficult task to do. When we make the law too harsh or strict, which means making it
criminal, for a offence not so grave, the people will find their own way to bypass the
law. Same is the story of CSR. The major amount of money dispensed through the
CSR is in the field of education, more than 60%. These spending help the companies
in their brand advertising and also in providing the skill education. If we see the funds
in other fields, the picture is gloomy there. Hunger, Malnourishment and poverty
received only a meagre 6% of CSR. The states of Rajasthan, Maharashtra, Gujrat,
Andhra Pradesh had a quarter share of CSR  while the states of north east do not have
much share in CSR. The fact that the north east does not contribute much to the profit
of businesses, so they thought not to spend more on these states.7

1
 Sec 135, Companies act amendment, 2019
2
Id.
3
 https://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf
4
Why the CSR law is not a success
5
https://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf
6
AIR1996SC1100
7
 Why the CSR law is not a success
India is making every possible effort to take a leap in ease of doing business index.
India is one of the countries with the highest corporate tax in the world at 34.95 % as
per the KPMG reports8. When CSR is also made compulsory and criminalised, it
would certainly affect our ranking in ease of business list. South African’s supreme
court in S vs. Jordan and Others (Sex Workers Education and Advocacy Task Force
and Others as Amici Curiae9 on decriminalise the prostitution has said that
decriminalising must be planned and not arbitrary. Decriminalising the CSR is
absolutely in accordance with the principle.
Many committee over the period of time has suggested to decriminalise the CSR in
some way or another. Some of them are:
JJ Irani committee had said that authorities while imposing the penalties on the
companies must see the size of the company, public interest involved and also the
gravity of offence.10
The standing committee also said that transgression of technical and procedural things
must be seen in a broader perspective while offense involving fraud invites the
stringent punishment.11
The committee on companies law, 2019 also seconded the decriminalising of
companies laws.12
The offence committee has categorised the offence into 8 categories according to their
gravity. The 1st category is the non compliance of orders of the concerned authorities.
The CSR falls under the 4th category which means it is not such a grave offence.13

   
CSR is also the issue of grave concerns but it should be done voluntarily. The
example of the USA is perfect here. As already mentioned, CSR is not criminalised in
the USA but still, it is one of the countries where CSR played an important role. The
pressure of US citizens played a greater role than pressure of law.14 
The other solution is to give them incentives or publicly acknowledge them as to help
them in their brand image. Incentives like tax exemption for those companies which
are actively participating in their corporate social responsibility or reduction in
interest on loans.  

If legally enforceable is deemed important in countries like India, then also

decriminalising the companies act is the bare minimum we should have. There are
many alternatives given in the CLC report on companies itself. They could send it to
be resolved by the IAM framework or any alternative methods.15 
  

8
 Corporate tax rates table - KPMG Global
9
[2002] ZACC 22
10
http://www.primedirectors.com/pdf/JJ%20Irani%20Report-MCA.pdf
11
https://www.icsi.edu/media/webmodules/linksofweeks/21_Report_Companies_Bill.pdf
12
http://www.mca.gov.in/Ministry/pdf/CLCReport_18112019.pdf
13
http://www.mca.gov.in/Ministry/pdf/CLCReport_18112019.pdf
14
PDF) Corporate Social Responsibility In The United States And Europe: How Important Is
It? The Future Of Corporate Social Responsibility
15
https://www.mca.gov.in/Ministry/pdf/Report_Companies_Law_Committee_01022016.pdf