“DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY”

“NYAYAPRASTHA, SABBAVARAM,”

“VISAKHAPATNAM–531035, ANDHRA PRADESH”

CORPORATE SOCIAL RESPONSIBILITY ( CSR) :Role of CSR Committees

By

“Name of the Student”: P. Rohith

“Roll No”.: 2017061

“Semester”: IX

“Name of the Program”: 5 year (B.A., LL.B.)

“Name of the Faculty Member”: Prof. A. Rajendra Prasad

 CERTIFICATE

This“is to certify that Pathivada Rohith of Semester IX has successfully completed her Research
Project on the topic CORPORATE SOCIAL RESPONSIBILITY ( CSR) :Role of CSR
Committees as prescribed during this academic year 2021-2022.”
 ABSTRACT

Introduction

Corporate Social Responsibility (CSR), an almost new idea in India, is rapidly gaining speed.
CSR has become an important business practice and has received much attention in the
management of large global organizations. It works with the design of business activities with
social qualities. CSR is perceived as the convergence of different impulses aimed at ensuring the
financial development of the region. Recognizing how the integration of CSR in organizations
could contribute to imparting cultural value, especially in an agrarian nation like India, this paper
explicitly aims to provide an understanding of CSR and the enhancement of CSR in research of
India.

Aim

The object of this project is to understand the concept of Corporate Social Responsibility and
accordingly study its trends in India. The projects shall also deal with Section 135 of the
Companies Act, 2013 and understand the policies.

Research methodology

The researcher has used qualitative tools to empirically support the rationale of the project. The
Researcher has adopted doctrinal methods to study the context (historical and developmental) of
Corporate Social Responsibility in India. The research paper is an attempt of exploratory
research, based on the secondary data sourced from journals, magazines, articles, newspapers
and media reports.

Scope of the Research

The project will delineate the current status of advertising in India on their consistence to social
obligation and moral practices.

Conclusion

CSR knows no borders and is not imposed by race or religion. Tragically, concern for the region
is often mistaken for communism. In fact, each resident is a resource in the money market and
has the freedom to succeed. This undetectable culture can create more promising times for
countries. If employees do not see the location of the CSR units or do not understand the
message, the units are likely to be unsuccessful. Associations must understand that the
administration alone cannot make its effort to uplift the oppressed in society. The current idea of
cultural presentation of organizations is constantly evolving and has led to another idea of CSR.

A large number of the world's leading companies understood the importance of connecting with
socially relevant issues as a method to ensure generosity and awareness, repel attacks, and
increase business intensity. It arises from the desire to make admirable progress and,
consequently, to maintain the complacency and cultural commitment of the economy. The Indian
divisions intend to introduce CSR in the field of small and medium-sized enterprises (SMEs) in
order to expand its reach in remote regions. Also, some organizations have begun to use CSR
effectively as a technique that simultaneously focuses on the joint development of the
organization and the local sphere.
 INTRODUCTION

The deliberate consistence of organizations with social and environmental obligation is known as
Corporate Social Responsibility (CSR). Corporate social obligation is essentially an idea in
which organizations deliberately decide to add to a superior society and a cleaner climate.
Corporate social obligation is addressed by the commitments that organizations make to society
through their tasks and social ventures. It is likewise expected to connect the idea of feasible
improvement at the business level. Lately, an ever increasing number of organizations all
throughout the planet have started to propel their corporate social obligation systems since
clients, the general population and financial backers anticipate that they should act reasonably
and capably.

As a rule, CSR is the consequence of an assortment of social, natural and monetary tensions. The
term corporate social obligation is uncertain and is utilized in various ways. CSR can allude not
exclusively to consistence with common freedoms principles, work guidelines and federal
retirement aide, yet in addition to the battle against environmental change, the economical
administration of normal assets and purchaser security.

The idea of “Corporate Social Responsibility” was referenced without precedent for 1953 in the
distribution "Social Responsibilities of the Entrepreneur" by William J. Bowen. Nonetheless, the
term CSR didn't become famous until the 1990s when the German organization Betapharm, a
conventional organization, chosen to present CSR. The nonexclusive market is described by the
compatibility of items. In 1997, the stop in deals development prompted the end that
organizations in the conventional market couldn’t separate themselves either as far as cost or
quality. This was the start for the organization to take on CSR as a statement of corporate
qualities and as a component of its corporate procedure. Betapharm has utilized a competitive
edge through friendly and vital commitment for families with kids with persistent diseases.

In July 2001, the European Commission chose to distribute a warning report on Corporate Social
Responsibility named “Advancement of a European structure for corporate social obligation”.
The target of this archive was to start a discussion on how the European Union could advance
corporate social obligation both at European and global level. The archive likewise planned to
advance CSR rehearses, guarantee the believability of CSR guarantees, and guarantee
consistency in open arrangements on CSR.

CSR IN INDIA – THE LEGAL FRAMEWORK

The main conventional endeavor by the Government of India to raise the issue of CSR was the
distribution of willful corporate social obligation rules in 2009 by the Department of Corporate
Affairs (MCA, 2009). Beforehand, the significance of CSR with regards to corporate
administration changes was examined, for instance in the report of the Working Group on
Corporate Excellence of the Ministry of Corporate Affairs (MCA, 2000). While the report
presented a business defense for CSR and featured the subsequent cultural advantages, the
conversation was fairly warning and there were not many noteworthy focuses. The 2009
Voluntary Guidelines set up the center components of a CSR strategy, which included worry for
all partners, moral conduct, regard for the freedoms and prosperity of laborers, regard for basic
liberties, regard for the climate and social and comprehensive advancement exercises
improvement.

The rules unequivocally separated among altruistic and CSR exercises and stressed the willful
idea of CSR exercises that go past any lawful or legal commitment. The 2009 rules were
continued in 2011 by the National Voluntary Guidelines for Corporate Social, Environmental
and Economic Responsibilities, likewise distributed by the (MCA, 2011). These rules
purportedly drew on input from “key partners” the nation over and set up nine standards for
organizations to act mindfully to advance comprehensive monetary development at the public
level.

The progress from a willful to a directed CSR system happened when the Securities Exchange
Board of India (SEBI) required the main 100 recorded organizations, as a component of
statement 55 of the posting arrangement, to obligately uncover their CSR exercises in a corporate
obligation report (BR Report) that go with the yearly report. This, as per SEBI, is in light of a
legitimate concern for more extensive public divulgence and is a stage towards incorporating
social obligation with corporate administration.

SECTION 135 OF THE COMPANIES ACT

The most ambitious attempt at mandatory CSR activities for companies came with the passage of
Section 135 of the Companies Act 2013 (MCA, 2013). As stated in the introduction, Section 135
requires the issuance and reporting of CSR in India for the first time, and brings the CSR
activities of Indian companies into the realm of corporate law.

The provisions of this section mandatorily put a Corporal entity to,

“have a net worth more than or equal to Rupees 5 Hundred Crore”,

“the turnover of Rupees 1,000 Crores or more”, and
“net profit of Rupees 5 crore or more”

Applicability of CSR Provisions: 

The provisions of CSR envisage such responsibility on the Corporates within the purview of
Section 135 as discussed above.
A foreign company with a subsidiary or project office in India, which meets the criteria specified
above. However, if the company no longer meets the above criteria for 3 consecutive financial
years, then it is not required to comply with the CSR Rules until it meets the specified criteria.

CSR Committee

All the corporate entities which are within the purview of section 135 of the Companies Act are
mandatorily required to constitute one “CSR Committee”. The Committee shall consist of three
or more directors wherein one of them if an independent director. The company shall, if do not
wish to appoint an independent director, appoint two or more directors accordingly.

When the company is a private company, then it must have only two directors on Board.
However, in the case of a foreign company, the board must have two persons, out of which one
has to be an Indian resident and other to be nominated by the foreign company.

Functions of CSR Committee

The CSR Committee has to devise certain policies. It recommends these policies to the board so
that the corporal entity undertakes the policies and certain activities based on the policies. The
committee further recommends the expenditure amount for the activities.

The committee shall also monitor the CSR policies and make sure to implement transparent
monitoring mechanism so as to implement the CSR activities which are undertaken by the
company.

Responsibility of Board of Directors (BoD)

The Board of directors of every corporal entity within the purview of section 135, shall consider
and approve the recommendations. It shall after such approval also disclose the contents of the
policy in the report. The board ensures that company undertakes all the activities and programs
mentioned in the policy.

The Board has the duty to disclose the composition of the Committee formed under the CSR.
Lastly, the board also ensures that the corporal entity in furtherance of the CSR Policy spends
minimum2 percent of its average ‘net’ profit

CSR Policy 

The CSR Policy includes the list of the activities and programs undertaken by the committee.
Further, a responsibility to monitor such activities is also casted upon the committee.

MAJOR COMPANIES CONTRIBUTING TO CSR IN INDIA

Tata Group
Tata Group in India undertakes various CSR projects. Most of these programs are aimed at
community improvement and poverty alleviation. She has been involved in various activities
such as women's empowerment, income generation, rural community development, and other
social assistance programs. Tata Group provides scholarships and grants to various educational
institutions. This group is also involved in health projects, viz. facilitation of children's
education, immunization and AIDS awareness creation. Other areas include economic
emancipation through agricultural programs, environmental protection, awarding sports
scholarships, and infrastructure development, such as hospitals, research centers, educational
institutions, sports academies, and cultural centers.

Ultratech Cement

Ultratech Cement is engaged in welfare work in 407 villages in the country, creating
sustainability and self-sufficiency. Highlights are family health and welfare programs, education,
infrastructure, environment, social welfare and sustainable livelihoods. The company has
organized health camps, immunization programs, sanitation programs, school registration,
plantation campaigns, conservation programs, industrial training and organic farming programs.

Mahindra & Mahindra

Mahindra & Mahindra (M&M) is an Indian automobile manufacturer. To advance education, he

founded the K. C. Mahindra Education Trust in 1954 and the Mahindra Foundation in 1969. His
aim is to help economically and socially disadvantaged communities in the education sector. Its
CSR programs invest in scholarships and grants, livelihood training, remote health care, water
conservation and disaster relief programs. M&M runs programs such as Nanhi Kali which
focuses on education for girls, Sekolah Kebanggaan Mahindra for industrial training, and
Lifeline Express for health services in remote areas

Hindustan Zinc Ltd

Hindustan Zinc Ltd. aims for harmonious and fair growth through its CSR activities. They have
internal committees and monitoring programs, which are set up to monitor their social
responsibility measures.

Bharat Petroleum Corporation Ltd

Bharat Petroleum Corporation contributes to the development of the country through its active
participation in the energy sector. Its ongoing involvement and activities are spread across urban,
semi-urban, rural and tribal areas.

Infosys

As part of its CSR activities, Infosys offers its citizens high-quality educational programs to
improve their IT skills and knowledge.

CASE LAWS
Numaligarh Refinery Limited vs. The Dy. Commissioner of Income Tax, Circle-31

The tribunal vide paragraph number 36 stated that,

“The CSR expenditure is always an expense to be reflected in the Statement of Profit and Loss
Account. Such treatment is considered in generally accepted principles of accounting. Regarding
preparation of budget of CSR expenditure based on Net Profit as per Guidelines of CSR issued
by the Government, it is submitted that a measuring rod has to be decided to finalise the
quantum of CSR expenses and net profit is the best measuring rod. In the Guidelines, loss
making Enterprises are exempted from incurring CSR expenses on the logic that the Enterprise
must survive on its own before contributing for the welfare to the State. The CSR expenses are
mandated to all profit making Central Public Sector enterprise. Hence, Gross Receipt or
Turnover of an enterprise is not considered to determine the quantum of CSR expenses. Thus,
simply because Net Profit is taken as base for determining the budget of CSR expenses, it need
not lead to the conclusion that the expenses are application of funds and not allowable expenses.
In accounting treatment of CSR expenditure, these are revenue in nature and the same should be
charged as expenses to the Statement of Profit and Loss Account. However, when an ‘asset’ is
created from such expenditure, the definition of the word ‘asset’ as per ‘Framework for
Preparation and Presentation of Final Statement’ issued by the Institute of Chartered
Accountants (ICAI) should be followed and when the control of the asset is transferred to others,
the same should be charged to Profit and Loss Account.”

Technicolor India (P.) Ltd. vs. Registrar of Companies (NCLT - Bengaluru)2

Facts

The Company met the net profit criteria, u/s 135 of the Companies Act, 2013, and had a
Corporate Social Responsibility (CSR) Committee. The Company has 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 Companies Act, 2013 r/w Companies Rules, 2014.

Due to human lapse, the concerned department mis-reported the amounts spent on CSR, which
mentioned in the CSR Annexure to the Directors’ report for the fiscal year ended Company 31st
March 2018 as against the amount reported in the audited financials. Therefore, the Board of
Directors of the Company, in their meeting held on 21st September 2018 approved the draft
Directors’ report for the year ended 31st March 2018 which mentioned the amount spent on CSR
and associated details incorrectly, due to receipt of an incorrect input from the relevant
department.

An application was forwarded to the Company Law Tribunal, 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.
1
MANU/GA/0032/2019
2
MANU/NC/8794/2020
It was held that “……we are inclined allow the application as sought for in the interest of
justice, and on the principle of ease of doing business, however, without prejudice to the right(s)
of Registrar of Companies to initiate appropriate proceedings, if the Company violate any
provisions of Companies Act, 2013 and the Rules made thereunder. And the Petitioner is also at
liberty to file Application suo motu seeking to compound of any violation if it thinks so.”

In Re: Alok Pharmaceuticals and Industrial Company Private Limited 3

Facts and Procedural background

The petition was filed under section 441 of the Companies Act.  it was regarding the
compounding of the offence under section 134 of the Companies Act.  as per the statutory
requirements, the company was required to disclose in its directors report, the details of the CSR
policy developed and implemented during that year. A CSR committee was also required to be
constituted for this purpose the appellant company was in default in adding to the statutory
requirement for the financial year 2014- 2015.

The Tribunal analysed the provisions of section 135(5) of the Companies Act 2013 and the
requirement stated under section 134 (3)(o). Additionally, the petitioners stated that these
provisions were applied in the financial year 2014-15 and accordingly one CSR committee was
also constituted in the board meeting however they failed to provide much clarity on it.

Held 

The Tribunal ordered for the compounding of the offence. 

WHAT DOES A CORPORATE SOCIAL RESPONSIBILITY INCLUDES?

Corporate social responsibility (CSR) is a self-regulating business model that helps a company
be socially accountable—to itself, its stakeholders, and the public. By practicing corporate social
responsibility, also called corporate citizenship, companies can be conscious of the kind of
impact they are having on all aspects of society, including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in
ways that enhance society and the environment, instead of contributing negatively to them.

3
C.P No. 396/441/ND/2018; In Re: Alok Pharmaceuticals and Industrial Company Private Limited,
MANU/ND/4812/2018; C.P No- 11/441/ND/2017, In Re: Rapid Estates Private Limited (15.01.2018 - NCLT - New
Delhi) : MANU/NC/0650/2018; CP No. 2710/441/NCLT/MB/MAH/2018, In Re: Avinash Developers Private
Limited (28.11.2018 - NCLT - Mumbai) : MANU/ND/8951/2018.
Corporate social responsibility is a broad concept that can take many forms depending on the
company and industry. Through CSR programs, philanthropy, and volunteer efforts, businesses
can benefit society while boosting their brands.

As important as CSR is for the community, it is equally valuable for a company. CSR activities
can help forge a stronger bond between employees and corporations, boost morale, and help both
employees and employers feel more connected with the world around them.

For a company to be socially responsible, it first needs to be accountable to itself and its
shareholders. Often, companies that adopt CSR programs have grown their business to the point
where they can give back to society. Thus, CSR is typically a strategy that's implemented by
large corporations. After all, the more visible and successful a corporation is, the more
responsibility it has to set standards of ethical behavior for its peers, competition, and industry.

Example of Corporate Social Responsibility

Starbucks has long been known for its keen sense of corporate social responsibility and
commitment to sustainability and community welfare. According to the company, Starbucks has
achieved many of its CSR milestones since it opened its doors. According to its 2020 Global
Social Impact Report, these milestones include reaching 100% of ethically sourced coffee,
creating a global network of farmers and providing them 100 million trees by 2025, pioneering
green building throughout its stores, contributing millions of hours of community service, and
creating a groundbreaking college program for its employees.

Starbucks' goals for 2021 and beyond include hiring 5,000 veterans and 10,000 refugees,
reducing the environmental impact of its cups, and engaging its employees in environmental
leadership.

The 2020 report also mentioned how Starbucks planned to help the world navigate the
coronavirus pandemic. The company's response to the pandemic focuses on three essential
elements: prioritizing the health of its customers and employees, supporting health and
government officials in their attempts to mitigate the effects of the pandemic, and showing up for
communities through responsible and positive actions.

Today, there are many socially responsible companies whose brands are known for their CSR
programs, such as Ben & Jerry's ice cream.
Coastal Gujarat Power Limited vs. Gujarat Urja Vikas Nigam Ltd. and Ors.4

In this case, the tribunal held that,

“[…..] Thus corporate social responsibility also includes expenditure on ensuring

environmental sustainability, ecological balance and conservation of natural resources and
maintaining quality of soil, air and water. MoEF has prescribed that the CSR cost should be
Rs. 5 per Tonne of Coal produced which should be adjusted as per annual inflation. As per sub-
section (5) of section 135 of the Companies Act, 2013, the Board of the Company shall ensure
that the Company spends, in every financial year, at least two per cent of the average net profits
of the company made during the three immediately preceding financial years, in pursuance of its
Corporate Social Responsibility Policy. Therefore, the Corporate Social Responsibility
Committee of the Petitioner’s company should consider and include the expenditure on account
of condition (xxiii) of the environmental clearance in the Corporate Social Responsibility Policy
of the company and meet the expenditure out of the net profits of the company. In our view, this
expenditure cannot be allowed under Change in Law as the environment clearance has
specifically classified as CSR cost for which provisions have been made in the Companies Act,
2013 to be met out of the net profit of the company.”

CSR Legal Framework COVID

Since the onset of COVID-19 and the subsequent lockdown in India, there has been constant
public demand for increased spending by the Government to address shortage of medical
supplies in hospitals, food and monetary allowance to urban and rural poor, shelter and food for
homeless people, funding to small businesses, and other relief measures. Even though the
Government has, at all levels, taken active efforts, it has failed to dispense relief measures like in
other countries, primarily due to lack of funds and other fiscal constraints. In such circumstances,
corporate social responsibility (CSR) contributions from companies assumes significant
importance, as they could be utilized as a possible avenue for addressing the shortage of funds.

4
MANU/CR/0050/2017
Companies in India appear to have acknowledged the need for such financial and social support
in the fight against COVID-19. The past month has witnessed active support from companies in
India not only in monetary terms, but also in non-monetary forms. The news media is filled with
stories of companies making significant donations to government funds for COVID-19,
providing access to preventive healthcare, providing meals to economically weaker sections, and
the like. In view thereof, given CSR is a legal requirement in India, I examine whether the
existing CSR legal framework (including the recently introduced government directions and
FAQs) is adequate to facilitate the optimum utilization of CSR for COVID-19, especially in view
of the need for immediate funds.

Existing CSR Framework

The existing CSR legal framework under the Companies Act, 2013 provides that companies with
net worth of INR 500 crore or more, or turnover of INR 1000 crore or more, or net profit of 5
crore or more, during the immediately preceding financial year (FY), are inter alia required to
formulate a CSR policy in consonance with schedule VII of the Companies Act. Schedule VII
specifies the permitted CSR activities, divided under twelve broad categories, including hunger
eradication, environmental protection and contribution to the Prime Minister’s national relief
fund or any other fund set up by the Central Government for purposes specified therein. Every
eligible company is mandated to spend on its CSR activities, in every FY, at least two per cent of
the average net profits made by the company in the preceding three FYs. A failure to do the same
is required to be disclosed in the board report of the company. However, this ‘comply or explain’
framework is expected to undergo a modification as and when amendments to section 135 of the
Companies Act, introduced by way of the Companies (Amendment) Act, 2019, are notified by
the Central Government.

In view of COVID-19, as there was some confusion surrounding the treatment of expenditure
made in relation to CSR activities, the Ministry of Corporate Affairs (MCA) promptly clarified
this through various circulars. By way of its circular dated 23 March 2020, the MCA clarified
that items under schedule VII of the Act are to include any funds spent in relation to COVID-19.
This was followed by another circular dated 28 March 2020, which specifically clarified that
contribution to Prime Minister’s Citizen Assistance and Relief in Emergency Situation Fund (PM
CARES Fund) falls within the ambit of item (viii) of schedule VII of the Act and accordingly
qualifies as CSR expenditure. However, uncertainty continued to prevail regarding contribution
made to state relief funds and employees/ labours /workers’ payment during lockdown. The
MCA released a set of FAQs through a circular dated 10 April 2020, which clarified the
following:

● Contributions made to ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-
19’, not being a part of schedule VII of the Act, will not qualify as CSR expenditure.
However, contributions made to State Disaster Management Authority will qualify as
 CSR expenditure.

● Payment of salary or wages to employees, workers, temporary or daily wage workers

during the lockdown period (including imposition of other social distancing
requirements) will not qualify as CSR expenditure.

● Any ex-gratia payment made to temporary or casual workers or daily wage workers, over
and above the disbursement of wages, specifically for the purpose of fighting COVID-19,
will be admissible towards CSR expenditure as a onetime exception.

Inadequacy of the existing CSR framework and resultant recommendations

The aforesaid circulars issued by MCA, although prompt and timely, are only clarificatory in
nature, since any change to the Companies Act requires an amendment approved by Parliament.
Given the urgency of the situation, the circulars are a step in the right direction, as the time
spent in waiting for parliamentary approval would have been counter-productive. However, in
order to ensure a greater CSR contribution and address criticism towards on-ground
implementation hurdles, certain other changes also become imperative. In view thereof, set out
below are suggested amendments to the Companies Act, which may be considered by the MCA
in view of the pandemic:

Mandatory utilization of previous financial years’ unspent CSR allocation for COVID-19

As stated above, CSR in India is currently governed by a ‘comply or explain’ framework.

However, this enabled an exponential increase in unspent CSR amount over the years, possibly
due to the lack of enforcement provision in the Companies Act. To address this shortfall, section
135 of the Act was amended by way of the Companies (Amendment) Act, 2019 to provide that
any unspent CSR expenditure in a particular FY should be transferred to a fund under schedule
VII of the Act. An exception is that the unspent amounts which pertain to an ongoing CSR
project, shall be transferred to a special account and utilized within a specified timeline.
However, owing to widespread criticism, such as for taking away the spirit of CSR and
attributing a flavor of tax (wherein the companies are expected to comply with the minimum
threshold in each FY, failing which penal liabilities are proposed to be imposed), amendments to
section 135 have not been notified by the MCA.

The current framework provides companies with complete discretionary and temporal liberties
in utilization of previous FYs’ unspent CSR expenditure, and grants no power to MCA to either
direct utilization of the said unspent CSR contribution towards action against COVID-19, or
mandate its transfer to a fund under schedule VII. Only an amendment to the Act could enable
MCA to direct companies to choose from either depositing unspent contribution to the
government funds or utilizing it for COVID-19. However, since introducing a new amendment to
the Act requires approval of Parliament, it might not be practically feasible especially in view of
the current state of affairs involving social distancing and lockdown.

In view thereof, even though the current amendment to section 135 (awaiting notification) only
provides for transfer of unspent contribution to PM CARES fund or the State Disaster
Management Authority (SDMA), it might be the only feasible option and should accordingly be
notified by the MCA at the earliest. Notification of the said amendment would although not allow
self-deployment of unspent funds by the companies in fight against COVID-19, but will at least
help the Government immediately raise funds and will also provide companies with the
autonomy to choose the recipients of their unspent CSR contribution, i.e., State Government or
the Central Government. As for the companies still seeking to deploy the funds by themselves
towards fight against COVID-19, the CSR allocation for this FY may be utilized.

This is not to forget that the criticism leveled against the amendment to section 135 of the Act
raises legitimate concerns, and the same must be assessed by the Government for the longer
haul. This cannot however be the reason to not notify amendment to Section 135 to harness
urgent and much needed funds for the pandemic. Once notified, the MCA may thereafter
continue re-assessment of the modified section 135 of the Act on the policy front and make
appropriate decisions for the long-term.

Carrying forward funds spent in CSR contribution towards COVID-19, in excess of the minimum
threshold, for set off against the obligations under subsequent FYs

The existing CSR framework only stipulates the minimum threshold that a company is required
to fulfill each FY, and does not provide any favorable treatment to a company that makes CSR
contribution in excess of the minimum threshold. Thus, any spending in excess of the minimum
threshold in any given FY is left unaccounted for in the CSR calculation of a company. This
framework, therefore, is not conducive for many companies seeking to spend an amount higher
than the minimum threshold in a particular FY, particularly in view of the fund requirement of a
project or the overall beneficial impact of such increased spending on the concerned social
enterprise. It prevents companies from undertaking many CSR projects which, although
extremely valuable, require high investment in one particular phase or year, be it at the start
(initial investment) or at the end (closing investment). As a consequence, companies abstain
from spending over the minimum threshold and the CSR project suffers in the process.
It appears that this shortfall has already been recognized in the Companies (Amendment) Bill,
2020 which inter alia proposes that CSR expenditure made in excess of the minimum threshold
in a given FY may be set-off by the company for such number of subsequent FYs as may be
prescribed. This amendment assumes high importance in the context of COVID-19, since CSR
contribution from companies is urgently needed. As apparent from the recent trend, companies
are willing to actively partake in the fight against COVID-19; however, they are likely to
exercise restraint in their CSR contributions, as is there no recognition for contributions beyond
the minimum threshold.

Accordingly, in these testing times, where CSR spending from companies is stemming not only
from the legal requirement of meeting the minimum threshold but also from a range of
motivations including inter alia sustainability, corporate strategy, brand building and other
projected long term interests, permitting the set-off of excess CSR spend against the minimum
threshold for the subsequent FYs is expected to incentivize the companies and aid its outreach
actually being employed. Further, as section 135 of the Act provides emphasis on giving
preference to local areas where they operate, recognition of excess spending for the purpose of
set off is most likely to give impetus to the local efforts. In view of the above, the Government
should aim to get this proposed amendment passed at the earliest.

Eligibility of COVID-19 related state-level government funds for receiving CSR expenditure

As clarified by the MCA, only the contributions to SDMA have been classified as eligible CSR
expenditure, and all other state-level funds have been excluded. State governments have opposed
this and sought that funds set up by them to combat COVID-19 including the Chief Minister’s
Relief Fund (CMRF) and State Relief Funds (SRF) also be recognized as eligible CSR
expenditure. They have argued that they are at the forefront of fighting the pandemic at the local
level, and require significant funds for the same.

However, unlike the inclusion of PM CARES Fund or the SDMA, basis for which can be found
under items (viii) and (xii) respectively of Schedule VII of the Act, CMRF or SRF cannot be
categorized as being eligible for receiving CSR expenditure. The reason for exclusion of CMRF
or SRF is that it does not qualify under any other item schedule VII, particularly item (viii)
which is limited to “any other fund set up by the central government”. However, since CMRF
and SRF serve the same specific purpose as PM CARES Fund, albeit at the local level, it may be
useful to classify contributions received therein as eligible CSR expenditure. However, the legal
framework consisting of section 135 and schedule VII of the Act does not legally permit such
classification.
In view of the present legal framework, an innovative approach has been undertaken by certain
State Governments such as Tamil Nadu and Telangana, which have allocated all the funds
received in the CMRF and SRF, starting from 24 March 2020, to the SDMA. Such funds, despite
being made to the CMRF or SRF will be classified as CSR expenditure. Other State
Governments are likely to follow suit. Although in the shorter term, this arrangement could work
in gathering the resources, but in the longer run the MCA needs to recognize that purpose of law
is enablement of efficient working and not creation of obstacle which requires maneuvering
around by the stakeholders. Therefore, schedule VII of the Act should be amended to include
funds set up by the State Government within the ambit of item (viii).

remarks

COVID-19 presents an unprecedented and urgent task for the Indian economy, thereby
demanding display of collective efforts, be it between companies inter-se or between companies
and the government. In view of the crisis, failure by corporate sector to initiate efforts would
supplement crippling of the economy. Similarly, the Government also needs to recognize the
invaluable prowess of expertise, innovation and deep networks possessed by companies, and the
role CSR efforts can play in easing the situation. Given CSR is a statutory requirement in India,
any optimum utilization of CSR efforts for COVID-19 require requisite enablement from the
legal framework. In view thereof, even though the existing CSR legal framework is fairly robust,
certain legal reinforcements as set out above become imperative to ensure immediate infusion of
additional CSR contribution, its more cohesive utilization and addressing criticism relating to
on-ground implementation.
 CONCLUSION

The concept of corporate social responsibility is as old as crafts and business in India. The only
thing is that it was never written. The CSR was mainly associated with institutional buildings,
before going through various community development projects

CSR was introduced by the Companies Act 2013 under section 135. The provision requires
companies with an annual turnover of Rs 1 billion and above or a net worth Rs 500 million and
above or net profit of Rs 5 crore and above contribute at least 2% of the average net profit to the
development of the company. Small and medium-sized enterprises (SMEs) can collaborate with
other organizations to do their part at optimum cost. SMEs contribute significantly to India’s
economic growth. Mahindra and Mahindra, Infosys, Tata Group, etc. are about 4,444 of the
many companies that successfully implement CSR activities in various fields such as education,
health, women's empowerment, community development, environment, etc.