CORPORATE SOCIAL RESPONSIBILITY:

DEVELOPMENTS AND CHALLENGES

Submitted By: Submitted to:

Name - Aditya Saurabh Ms. Hiral Mehta
Semester – IX ‘B' Assistant Professor, NUSRL.
Roll no. – 667

NATIONAL UNIVERSITY OF STUDY AND

RESEARCH IN LAW, RANCHI
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 INTRODUCTION
With an evolving nature of the triangular relationship between the state, the companies and
the society, Corporate Social Responsibility (“CSR”) has become increasingly prominent all
over the world, and India is no exception. Corporate social responsibility means a
commitment by the business to do the needful for the society and to contribute in the
balanced development of the society by giving services to the stakeholders (such as
employees, customers, shareholders, suppliers, etc.).
Corporate Social Responsibility also helps to produce an overall positive effect on society
through which the companies manage their business compliance and reputation. CSR has
become gradually more effective in the Indian corporate set-up as companies have
understood that besides growing their businesses it is also essential to make trustworthy and
sustainable relationships with the larger community. However, the stakeholders have
augmented the pressure on the companies to adhere to such social and environmental
standards, which has brought consequences that the businesses in India have to face.
CSR has evolved and has gone through many phases in India. In order to promote CSR in
India, the Ministry of Corporate Affairs undertook initial regulatory steps by drafting the
Corporate Social Responsibility Voluntary Guidelines, 2009, and National Voluntary
Guidelines Social, Environmental, and Economic on Responsibilities of Business, 2011. The
Guidelines basically rendered that the activities of companies should also be inclined towards
the economic and social development of communities and geographical areas, predominantly
in the surrounding area of their operations. However, the Guidelines were voluntary, and saw
limited implementation.
Subsequently, CSR was made a mandatory obligation under the Companies Act, 2013 (Act),
to make it an integral part of the business philosophy. The Companies had to invest their
profits in areas such as education, poverty, gender equality, and hunger or any other specified
areas as provided in Schedule VII of the Act as part of any CSR compliance. Further
tightening of the CSR compliance was done under the provisions of the Companies
(Amendment) Act, 2019 for the deployment of funds for the CSR activities.
This article aims to understand this shift of the CSR regime from being voluntary to
mandatory and now since the Companies (Amendment) Act, 2019 to also leading to penal
liabilities. The article also intends to understand the provisions under the Companies Act,
2013 that includes the legal arrangements related to CSR for the companies. This article
further seeks to identify significant problems with corporate social responsibility, which

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results in the failures of companies in meeting the expectations of the society. Companies
intend to carry out their business activities to pursue broader goals to enhance stakeholder
interests in addition to maximizing profits, which embraces voluntary CSR, but mandatory
CSR compels companies to direct a portion of their profits towards causes prescribed by law.
This article seeks to analyze these developments and problems pertaining to CSR and its
impact in India and also to provide certain suggestions to improve the CSR practices.

RESEARCH QUESTION
• How has the CSR regime shifted from voluntary to mandatory?
• What are the changes brought in the current regulation of CSR in India?
• What are the problems and challenges, the company is facing / will face in implementing
CSR?

RESEARCH OBJECTIVES
• To understand the role of companies in CSR initiatives in India.
• To understand the change in CSR regime from voluntary to mandatory.
• To study the legal arrangements related with CSR requirements for the companies.
• To examine the problems and challenges before the companies in implementing CSR.
• To study the misalignment between the principles of business and CSR strategies.
• To analyze the current regime regulating CSR in India.

RESEARCH METHODOLOGY
The doctrinal method of research was adopted in the processing of this work. For the purpose
of this study survey of textual materials, articles, newspapers and write-ups formed the basis
of preliminary study which was then expanded to cover a deeper survey of the literature.
Relevant statutes, newspaper articles and landmark decisions have been scanned and analysed
in a systematic manner. The present work is thus based on the above referred material and is
an original contribution to the topic studied.

BRIEF BACKGROUND TO CSR

The CSR originated in 1953 with the publication of a book Social Responsibilities of The
Businessman by Le Livre d' Howard Bowen. He suggested that businessmen’s social
conscience must be placed above the business itself. Emergence of CSR is considered to be a
fall out of public hostility towards businesses at that point, as a matter of reform. Many
responsibilities that were considered to be corporate social responsibilities were incorporated

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into regulation in the UK and the US for instance, giving rise to a new approach: the public
policy approach.1
Since independence, the Indian government adopted a pro-socialist and planned economy
approach, which was a fortified version of the public policy approach where businesses were
treated as tools in government planning. This phase was marked by state monopolies,
subsidization of priority sectors (e.g. agriculture and related sectors such as dairy, fishery,
animal husbandry, poultry, bee-keeping and sericulture) and government companies as well
as forced nationalization of various industries. It was very clear to Indian business class that
companies have to abide by the law and most importantly government planning and policies.
Combined with high rates of taxation (at one point, India taxed income at 97% in the 1970s),
this left little room to develop a voluntary culture of CSR. Philanthropy was more individual
driven such as those done by the Tatas, Birlas, Godrej and other industrialists who were well
known for their social, charitable and educational projects.
This situation drastically changed in the 90’s as the economy liberalized and income tax rates
were reduced. Indian corporate sector has become much stronger and a growing number of
companies are integrating CSR as a part of their business strategy, as an important factor for
protecting the goodwill and reputation, defending attacks and increasing business
competitiveness. Corporate Social Responsibility (CSR) was then accepted as a means to
achieve sustainable development of an organization. Hence, it was required to be accepted as
an organizational objective.

DEVELOPMENT OF CSR IN INDIA

VOLUNTARY CSR
The first formal attempt by the Government of India to put the CSR issue on the table was in
the issuance of Corporate Social Responsibility Voluntary Guidelines in 2009 by the Ministry
of Corporate Affairs (MCA, 2009).2 Prior to this, the importance of CSR was discussed in the
context of corporate governance reforms, such as in the Report of the Task Force on
Corporate Excellence by the Ministry of Corporate Affairs (MCA, 2000). While the report
made a business case for CSR as well as highlighted the social benefits stemming from it, the
discussion was recommendatory in nature and there were little actionable points. It is in the

1
Albareda, L., Lozano, J.M. & Ysa, T. Public Policies on Corporate Social Responsibility: The Role of
Governments in Europe. J Bus Ethics 74, 391–407 (2007). https://doi.org/10.1007/s10551-007-9514-1.
2
Mca.gov.in (Dec 24, 2009). Corporate Social Responsibility Voluntary Guidelines 2009. Ministry of Corporate
Affairs, Government of India, New Delhi. Available at:
https://www.mca.gov.in/Ministry/latestnews/CSR_Voluntary_Guidelines_24dec2009.pdf.

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Voluntary Guidelines of 2009 that the core elements of a CSR policy was spelt out that
included care for all stakeholders, ethical functioning, respect for workers’ rights and welfare,
respect for human rights, respect for the environment and activities to promote social and
inclusive development. The Guidelines specifically drew a distinction between philanthropy
and CSR activities, and highlighted the voluntary nature of CSR activities that go beyond any
statutory or legal obligation.
The Guidelines of 2009 were followed in 2011 by the National Voluntary Guidelines on
Social, Environmental & Economic Responsibilities of Business, also issued by the MCA
(MCA, 2011).3 These guidelines were reportedly based on the inputs received from ‘vital
stakeholders’ across the country and laid down nine principles for businesses to function in a
responsible manner to promote inclusive economic growth at the national level. As in the
case of the 2009 Guidelines, the 2011 Guidelines were voluntary in scope wherein corporates
were urged to adopt all the nine principles, and to report their adherence to the guidelines
based on an ‘apply-or-explain’ principle. Interestingly, while one of the implementation
strategies suggested in the 2009 Guidelines was to earmark “specific amount related to profits
after tax, cost of planned CSR activities, or any other suitable parameter,” no such suggestion
was included in the 2011 Guidelines.

MANDATORY CSR
The transition from a voluntary CSR regime to a regulated regime came when the Securities
Exchange Board of India (SEBI) required the top listed 100 companies, as part of Clause 55
of the Listing Agreement, to mandatorily disclose their CSR activities in the Business
Responsibility Reports (BR Reports) accompanying the Annual Reports. This, SEBI opined
was in the larger interest of public disclosure and represented a move towards integrating
social responsibility with corporate governance. The most ambitious attempt at mandated
CSR activities for companies came with the enactment of Section 135 of the Companies Act
2013 (MCA, 2013).
Section 135 made CSR spending as well as reporting mandatory for the very first time in
India and brought the CSR activities of Indian corporate under the purview of corporate law.
Specifically, the provisions under Section 135 requires applicable companies to appoint a
CSR Committee of at least 3 directors (one independent director), and under the guidance of
the CSR Committee, spend in every financial year, at least two per cent of the average net

3
Mca.gov.in (July 12, 2011). National Voluntary Guidelines on Social, Environmental & Economic
Responsibilities of Business. Ministry of Corporate Affairs, Government of India, New Delhi. Available at:
https://www.mca.gov.in/Ministry/latestnews/National_Voluntary_Guidelines_2011_12jul2011.pdf.

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profits of the company made during the three immediately preceding financial years, in
pursuance of its Corporate Social Responsibility Policy. While the quantum of CSR spending
along with reporting has been mandatorily set under Section 135, there is some inbuilt
flexibility in the law in terms of a company’s choice of its CSR activities broadly specified in
Schedule VII of the Act. So far as compliance to Section 135 is concerned, the law adopts a
“comply-or-explain approach”, with no explicit penalties for non-compliance.
Subsequent to the passage of the Act, the Ministry of Corporate Affairs notified the Rules
with respect to CSR on February 27, 2014. Apart from listing out specific activities on which
the companies are free to spend the amount earmarked under their CSR Policy. The Rules
guard against self-serving expenditure by companies by specifying that CSR activities that
benefit only the employees of the company and their families shall not be considered as CSR
spending under the provisions. However, companies may build CSR capacities of their own
employees through reputed institutions with the proviso that such expenditure cannot exceed
five percent of the total CSR expenditure made by the company in that financial year. The
Rules framed under Section 135 of the Act, came into force from April 1, 2014.
With the enactment of Section 135 of the Companies Act, 2013, as observed by the Ministry
of Corporate Affairs in the Report on the Standing Committee on Finance (2011),4 India
became the first country to include provisions on CSR in Company Law and make CSR
expenditure mandatory for corporates based on pre-specified criteria. In most of the countries
of the world, CSR is still a voluntary exercise left to the discretion of the corporates. What is
mandatory at most is the compulsory reporting of CSR activities undertaken by corporates in
a growing number of countries, although this too is not the case across all countries.5
The distinguishing feature of Section 135 is that it not only makes the reporting of CSR
activities mandatory, but goes a step further to mandate CSR activities in the first place.

CURRENT LEGAL FRAMEWORK GOVERNING CSR

In order to deal with the provisions relating to CSR, Ministry of Corporate Affairs notified
Section 135 and Schedule VII of the Companies Act, 2013 as well as the provisions of the
Companies (Corporate Social Responsibility Policy) Rules, 2014 (CSR Rules).

Applicability: Under Section 135 of the Companies Act, 2013, every company (including a
foreign company which has its branch or project office in India) which either has a net worth
4
FIFTY-SEVENTH REPORT STANDING COMMITTEE ON FINANCE (Nov 24, 2011). Ministry of Corporate
Affairs. Available at: http://164.100.47.193/lsscommittee/Finance/15_Finance_57.pdf.
5
Aneel Karnani, Mandatory CSR in India: A Bad Proposal, Standford Social Innovation Review (May 20,
2013), https://ssir.org/articles/entry/mandatory_csr_in_india_a_bad_proposal.

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of atleast Rs. 500 crores, or turnover of at least Rs. 1000 crores, or net profit of at least Rs. 5
crores during any financial year, is required to mandatorily allocate at least 2 percent of its
profits (calculated as per the average net profits for the past three financial years) to CSR
initiatives.

CSR initiatives: The activities enumerated in Schedule VII of the 2013 Act qualify as CSR
initiatives, which can be done by the company to achieve its CSR obligations include
eradicating extreme hunger and poverty, promotion of education, promoting gender equality
and empowering women, ensuring environmental sustainability, employment enhancing
vocational skills, social business projects, contribution to the Prime Minister's National Relief
Fund or any other fund set up by the Central Government or the State Governments for socio-
economic development and relief and funds for the welfare of the Scheduled Castes, the
Scheduled Tribes, other backward classes, minorities and women and such other matters as
may be prescribed.
However, the activities benefiting the employees of the company or their family members
exclusively will not qualify as valid CSR activities under the act. But ancillary or incidental
benefits of a CSR activity can always ensue to the employees or their families.
For example, consider that a company has spent INR 2 crores of its CSR corpus towards
establishment or maintenance of a park in a city where its corporate office is situated. This
park may also benefit the employees or their families by giving them an opportunity for
recreation in the park, but it can be considered a CSR activity (since it benefits the
environment, which can also be enjoyed by other residents of the city).

Company’s compliance with its obligations under the law to make CSR contributions:
Firstly, the Company should establish a CSR Committee of the Board of directors. The
Committee must recommend the amount to be spent on CSR amount.
Secondly, The Company should create a CSR Policy6 specifying the following:
a) List of activities (from amongst those specified in Schedule VII of the Companies Act)
b) A monitoring process for such activities.
The above two requirements are mandatorily required under a CSR Policy as per the Rules.
In addition, further details may also be required.
Thirdly, The Company should prepare Annual Report on CSR activities and inclusion of the
CSR policy.

6
Rule 6 of The Companies (Corporate Social Responsibility Policy) Rules, 2014.

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Lastly, in case the company has a website, the CSR policy (and activities) of the company
should be disclosed on the website.

CSR Expenditure: The profits must be spent on CSR initiatives as per a CSR Policy framed
by a special committee of the board (called the Corporate Social Responsibility Committee)
comprising of at least 3 directors, of which at least 1 must be an independent director. A
private or an unlisted public company which is not required to appoint an independent
director is exempted from appointing an independent director, or if it is a private company
having only two directors, they are allowed to appoint only two such directors to the
Committee. Hence, it is possible for different companies to have different CSR policies. As
per the 2013 Act, a company should give preference to the local area and areas around it
where it operates for spending Social Responsibility activities. The CSR Policy must be
approved by the Board. The CSR Committee of the Board must monitor implementation of
the policy, which must be executed by the Board.

CSR Activities: Note that as per the Companies Act, it is not necessary for a company to
actively participate in CSR initiatives by itself - it is only required to make a financial
contribution of 2 percent profits to CSR initiatives. The initiatives could have been started by
other entities as well. It can even collaborate with other companies while running its
initiatives.
A project will be considered a CSR project only when it is undertaken through a registered
society, a registered trust or a section 8 company (non-profit company). Such entities can be
created by the company itself or its parent / sister companies or along with other companies
or their sister companies. The entity must exclusively be created for the purpose of
undertaking CSR activities or a special corpus has been created for executing a CSR initiative
(as mentioned earlier). Moreover, companies can undertake such CSR activities through a
section 8 company, society or trust created by the government or any entity created by the
government. In case the vehicle is not established by the company or its parent/ sister
concerns but is an unrelated entity, it must have an established track record of undertaking
similar projects for at least three years.
Note – As per the rules, the surplus from any CSR activities cannot be part of business profits
of the company - therefore, they must be kept separate.

Transparency about CSR Policies: The annual report of the Board of Directors (presented
to the shareholders at the AGM of the company along with other financial statements) must

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disclose the composition of the Corporate Social Responsibility Committee, CSR Policy,
activities undertaken and expenditure made on such activities in a specified format. The CSR
Policy must also be placed on the company's website.

Consequences of non-compliance: The Companies Act, 2013 imposes an obligation on the

Board that it should disclose the reasons for not spending the amount in case of any non-
compliance in the report of directors presented to the shareholders of the company at an
AGM. However, in case of failure to provide details of CSR policies developed and
implemented by the company (or in case of misstatements) in the report of the Board of
Directors, the company and its officers who are responsible for the omission will also be
liable under Section 134(3)(o) and Section 134(8) to pay fine ranging from INR 50,000 to
INR 25,00,000. In addition, they may face imprisonment of upto 3 years.
Though there is no specific penalty provided for non-compliance with the spending
requirement on CSR under Companies Act, 2013. However, Section 450 of the Companies
Act, 2013 which is an overarching provision for punishing a company or its officers in case
no specific punishment is provided for a particular offence in the Act states, any company or
the every officer of the company who are responsible for the omission will be liable to pay a
fine of INR 10,000 along with INR 1,000 per day after the first day of non-compliance. This
provision can be applicable for not spending the mandatory contribution to be made for CSR
under Companies Act, 2013. Though the applicable penalty is quite low in comparison with
the liability under the Act; non-spending of mandatory contribution might lead to reputational
risks for an organisation.
In the recent case of Technicolor India Pvt. Ltd. v. Registrar Of Companies,7 the Company
met the net profit criteria, u/ s 135 of the Companies Act, 2013, and had a CSR committee
but it spent some amount as per the CSR Policy of the Company during the fiscal year 2017-
18, which remain below the threshold mentioned in Section 135 (5) of the Act for which a
reason was duly provided by the company in its Director’s Report. However it was found that
the amount spent on the CSR and associated detail is incorrectly captured in the Director’s
report hence the company forwarded an application to NCLT Bangalore. The tribunal
allowed the application of the company to revise its report giving liberty to the company to
file for compounding under section 441 of the Act.

7
2020 (7) TMI 423.

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 KEY CONCERNS UNDER THE COMPANIES ACT, 2013
Although CSR has gained emphasis in India, there are several issues before the companies
challenging its effectiveness under the Companies Act, 2013:
• The threshold limit of Rs. 5 crores net profit for applicability of CSR requirements seems,
in comparative terms, to be on the lower side vis-à-vis net worth and turnover thresholds
of Rs. 500 crores and Rs. 1,000 crores respectively. This may result in companies getting
covered under CSR even when they do not meet net worth/turnover criteria.
• It is not absolutely clear whether a company will need to create a provision in its financial
statements for the unspent amount if it fails to spend 2% on CSR activities in a particular
year.
• CSR is strictly about contributing and giving back to the society. A multi-stakeholder
approach involves all of the company's stakeholders in the development and
implementation of its CSR initiatives. However, under the Companies Act, 2013 CSR
initiatives are mainly focused on external stakeholders, such as the community; internal
stakeholders, such as employees, are mostly ignored. It is important for companies to
realize that CSR initiatives cannot be successful in piecemeal, and that all stakeholders
are equally important.
• Further, there is no incentive if any company pays more than 2% of net profit.

CHANGE IN CSR REGIME: “COMPLY OR IMPRISONMENT”

On 31 July 2019, the Companies (Amendment) Act, 2019 (hereinafter referred to as the
“Amendment”) received the assent of the President of India. This amendment has brought
many changes but the crackdown provision is the revision of Corporate Social Responsibility
framework, thus causing a shift from “comply or explain” to “comply or imprisonment”
which has invoked debate regarding its consequences.
Under the Companies Act, 2013, if the company failed to meet its CSR obligations, the
reasons for not spending the CSR amounts were required to be disclosed in the directors'
report. Thus, the erstwhile CSR framework followed “comply or explain concept”, giving
flexibility in its compliance. But with this Amendment, CSR framework is no longer flexible
and has rather become rigid in its compliance thus adding to many hardships being faced by
the companies.8

8
Umakanth Varottil, New CSR Rules: The Risks of Greater Rigidity (Aug 01, 2019),
https://www.bloombergquint.com/amp/opinion/new-csr-rules-the-risks-of-greater-rigidity.

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According to this Amendment, companies are mandatorily required to undertake CSR
spending. If a company fails to comply with above mentioned obligations, the Amendment
provides for imposition of penalty of not less than INR 50,000 which may extend to INR
25,00,000. Additionally, the Amendment also provides for imprisonment of every officer of
the company who is in default for up to 3 (three) years and a fine of not be less than INR
50,000 which may extend up to INR 5,00,000 or with both. Additionally, separate penalty for
continuing offences has also been prescribed.

OTHER KEY HIGHLIGHTS:

Transfer of unspent funds: If there are any unspent CSR funds during a financial year (in
respect of an ongoing CSR Project), in accordance with its CSR policy, the company must
transfer such unspent CSR funds into a special account within a period of 30 (thirty) days
from the end of the financial year. Such account, to be opened with a scheduled bank by the
company, will be called an Unspent Corporate Social Responsibility Account (Unspent CSR
Account) and the proceeds of the Unspent CSR Account will have to be spent by the
company towards the CSR projects (under its CSR policy) within 3 (three) financial years
from the date of such transfer. If the company is unable to spend the sum in the Unspent CSR
Account within the prescribed period of 3 (three) financial years, then, such unspent amount
should be transferred to a fund specified under Schedule VII of the Companies Act (Schedule
VII Fund) within 6 (six) months from the end of the relevant financial year.
However, if there are any unspent CSR funds at the end of a financial year and there are no
ongoing CSR projects, the funds should be directly transferred to the Schedule VII Fund,
within 6 (six) months from the end of the relevant financial year.
In effect, the Schedule VII Fund means, Prime Minister's National Relief Fund or any other
fund set up by the central government for socio-economic development and relief and welfare
of the scheduled castes / tribes, other backward classes, minorities and women.
CSR in case of new companies: It has now been clarified in the Amendment that if the
company has not completed 3 (three) years from incorporation, the amount to be spent on a
CSR fund will be equivalent to 2 percent of the net profits made by the company in the
previous financial year (as against average net profits made by the company in 3 (three)
immediately preceding financial years).
Central government to have rule making power: Under the Amendment, the central
government has been empowered to make rules and issue directions to ensure compliance.

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In furtherance of the Amendment Act, the Government of India also recently issued the Draft
Companies (Corporate Social Responsibility Policy) Amendment Rules, 2020 which has not
been yet approved by the legislature.

CHALLENGES IN IMPLEMENTING CSR

The mandatory CSR legislations have ushered in strengthening the relationship between
business and society in India, but there are some issues and challenges that came up during
implementation of these legislations which will have to be addressed through the setting up of
appropriate mechanisms.9
Corporates are not experienced when it comes to social development. Since it is not a part of
their business and even if they are genuinely committed to the social upliftment, this is not an
activity they are trained to lead or manage; although they do hire resources to bridge the gap
so created, by this lack of experience. There are many entities that have a better
understanding of social issues and much more capable of distributing the CSR funds.
Section 135 relates to the linking of a company’s profit-making with the development of local
areas. Companies are required to spend 2% of their average net profits from the preceding
three years and focus on local areas around which they operate. This is an absurd proposition
as it will increase inter-state disparities in social indicators. For instance, states like Gujarat,
Maharashtra, Odisha (Orrisa) and Andhra Pradesh with their large number of industrial units,
are likely to see greater social development on account of higher CSR spend by the private
sector.10
The rules in the Companies Act, 2013 make it difficult for companies to pursue strategic CSR
aligned to business strategy since any expense that can be traced back to financial profits may
have to be set aside from CSR, as indicated by the law.
Companies while having enormous fiscal resources lack adequate knowledge of existing
public problems and policy measures. As a result, their CSR efforts are misguided and do not
help the public in the long run with sustaining benefits. For example- companies blinded with
carrying out their mandated CSR activities might employ contractual workers with extremely
low pay packages and virtually no other benefits. CSR activities carried out by companies

9
Tima Bansal, The unintended consequences of India’s CSR law, Business Today (Jan 13, 2015),
https://www.businesstoday.in/opinion/columns/corporate-social-responsibility-tax-in-india-hidden-
costs/story/214463.html.
10
Tulsi Jayakumar, A flaw in the CSR design, The Hindu (March 09, 2018),
https://www.thehindubusinessline.com/opinion/a-flaw-in-the-csr-design/article20801239.ece1.

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often clash with their commercial and other vested interest which are prioritized over serving
the society.11
Companies that were spending more than 2 percent before the said law have started spending
much less these days. According to available data, companies have engaged in selective CSR
tasks that ultimately benefit their brand value and help them prosper rather than activities that
genuinely help the society at large. According to some corporates, the mandated 2 percent
CSR on net profit is also a way of extracting higher profits illegitimately via a “back-door”
and force them to fill in areas where the government has not acted enough. Furthermore, the
government’s action was unilateral and the corporates were not consulted before the
government decided to implement this rule.12

SUGGESTIONS
CSR in India suffers from some serious debility - policy and procedure - wise. As a result, it
can be argued that some more measures are needed to help implement CSR activities better:13
• Companies should collaborate with the people on the ground those who are supposed to
receive their CSR aid. This will help them realize what people actually need, what their
actual problems are and accordingly they can humanize their CSR aid to help a number of
people with greater efficiency.
• Specialization of companies should be utilized better: CSR should not be simply seen as
the spending of fiscal resources, but the smart spending of CSR resources. For example: a
multi-national company engaged in the production of packaged food should provide those
below the poverty line with similar assets, telephone companies should set up telecom
services in remote areas lacking such services. Section 135 of the Companies Act should
be amended to include measures to allow companies to do CSR activities as per their
strengths and specialties.
• CSR activities should be based on expert data: Companies should not blindly spend fiscal
resources but rely on data and suggestions of research institutes so that their efforts result
in actual eradication of pre-existing social problems. Therefore companies should
collaborate with social enterprises and research institutes.

11
Supra 8.
12
Aneel Karnani, Why the CSR law is not a success, Live Mint (Dec 13, 2016),
http://www.livemint.com/Opinion/1wIQwFPRyRckBMg5IugW1K/Why-the-CSR-law-is-not-a-success.html.
13
Supra 8.

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• Creating awareness among the general public in CSR activities and improving
communication between the companies involved in CSR and the general public at the
grassroots.
• There is a need for capacity building of the local non-governmental organizations as
there is serious dearth of trained and efficient organizations that can effectively
contribute to the ongoing CSR activities initiated by companies.
• Broad perception towards CSR initiatives is essential, as non-governmental
organizations and Government agencies usually possess a narrow outlook towards
the CSR initiatives of companies, often defining CSR initiatives more as donor-driven.
• Consensus amongst implementing agencies regarding CSR projects is the need of the
hour, because lack of consensus often results in duplication of activities by corporate
houses in areas of their intervention.

CONCLUSION
CSR is all about ensuring that the company can grow on a sustainable basis, while ensuring
fairness to all stakeholders. In India CSR regime has seen paradigm shift from philanthropic
event to legal mandate under Section 135 of the Companies Act, 2013. Now, the Companies
(Amendment) Act, 2019 penalizes companies for not engaging in philanthropy, moving CSR
in India from a “comply or explain” to “comply or be penalized” regime. However, the
Amendment Act has not yet been brought into effect.
Under current laws, in spite of not meeting the CSR obligation, companies have merely
received notices from the Ministry of Corporate Affairs asking for reasons for not meeting
the CSR spend. Post the Amendment, not meeting the CSR obligation will carry penal
consequences. The intent of the legislature with this Amendment is clear to move towards a
more robust, mandatory Indian CSR regime. This ultimately will have compliance and
operational implications for the CSR programs of companies doing business in India.
The government's case for the Amendment is that this has been done to bring in more
effectiveness to the CSR regime and it is too early to assess the exact impact of the CSR
related Amendment. A substantial picture of compliance requirements will be clear only after
the publication of the amendments to the Companies (Corporate Social Responsibility Policy)
Rules, 2014 and other ancillary rules and regulations.
Further, CSR is understood as corporate philanthropy which is to be done voluntarily and
cannot be forcefully imposed on someone. If CSR spending is made compulsory and so
stringent then it will simply be considered as corporate tax after having penal provision

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attached to it which act as a coercive force, thus binding companies to mandatorily spend a
minimum specific amount for the social development which essentially forms part of main
responsibilities of government. The companies instead of thinking about where the fund is to
be spending, they will think of its proper compliance so as to get saved from its penal
provision. It would ultimately defeat the purpose of CSR as despite all good intentions, the
impact of CSR shall remain ineffective due to various policy and procedural inadequacies.
Therefore, instead of imposing penalty it would be better to incentivize the companies for
CSR spending which could lead to more fruitful results and thus helps in achieving desirable
results. The benefits of CSR will then extend to the economy and society; and the enterprises
will reflect the growing importance of CSR in contemporary society. To ensure this effective
application and positive results, proper measures and amendments must be adopted.

BIBLIOGRAPHY
ARTICLES
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WEBSITES REFERRED
• www.jstor.org
• www.scconline.com
• home.heinonline.org

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