Should Corporate

Social
Responsibility
Spending be a
Mandatory Legal
Requirement?
GROUP 6
AYUSH | KESHAV | SAKSHAM |
SANJEEV | SHYAM
 Corporate Social responsibility (CSR) refers to the
continuing commitment by businesses to integrate
social and environmental concerns in their business
operations.

Changes in the global environment increasingly

challenge business around the world to look beyond
What IS CSR ? financial performance, and to integrate social and
environmental concerns into their strategic
management.
It can also be seen as a corporate initiative to assess
and take responsibility for the company’s effects on
the environment and impact on social welfare.
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
History of CSR in India
Is CSR also
applicable to foreign
companies?

Is the amount spent on

CSR eligible for tax
deduction ?
 The ethical dimension behind
mandating charity are as follows-
Empowers the communities: ensuring accountability from the
corporates for their consumption of resources shared by the
communities.
Can help achieve sustainable development goals: CSR aligns
private enterprises to the goal of sustainable global development
by providing them with a more comprehensive set of working
objectives than just profit alone.

Why CSR ? Moral Responsibility: Corporate sector is dependent on wider

society for its business. Business managers have a moral
responsibility to protect the interests of society and look after the
welfare of their different stakeholders apart from providing goods
and services.
Attracts better human resources: CSR is seen to be a great way to
attract good talent and to retain them. Social initiatives are a good
way to satisfy the emotional and social needs of employees by
helping them contribute towards the good of society.
Engages Corporates in the Development process: Involving
corporate sector is an effective way to provide services,
especially in India where massive development work is required
to reach acceptable living standards.
CSR – Impact of Companies Act 2013
On 29th August 2013, India became first country to mandate CSR
spending through Section 135 of the Companies Act 2013 Is CSR also applicable to
foreign companies?
Applicability of Section 135:
• Net worth of Company Rs 500 Cr. or more
• Turnover of Company Rs 1000 Cr. or more
• Net Profit of Company Rs 5 Cr. or more

Provisions of CSR:
• At least 2% of net profit on CSR activities in 3 preceding Is the amount spent on
years or explain why they didn’t. CSR eligible for tax
• Company to constitute CSR committee of Board of deduction ?
Directors
CSR Committee – Formulation and Roles
Formulation:
• 3 or more directors with at least 1 independent
director.
• Unlisted company not reqd. to provide
independent director
• At least 2 persons in case of foreign company, 1
Indian resident and one foreign resident
Section 7:
• Mentions the activities that may be
adopted by companies in their CSR
Policy
Functions of CSR Committee
• Formulate the CSR activities to be taken by the
company and recommend the board
• Institute a monitoring mechanism for CSR activities
and monitor them from time to time
• Estimate the amount of expenditure needed for the
CSR activities.
Functions of Board
• Approve the policy and ensure its
specified implementation
• Publicize the policy and disclose the
contents on its report.
Other Provisions
ACTIVITIES NOT UNDER CSR
Activities only benefiting company
employees & their families
One time events like awards, charity or
marathons
Any amount paid directly or indirectly to a
political party
Expenses occurred due to Regulatory
compliances
IMMEDIATE RESPONSE
Estimated 8,000 companies will spend
a total of Rs. 150 Billion Annually
Some companies looked at it as a
financial burden
Companies spending more than 2%
previously, reduced their expenditure
on CSR
Caveats of Section 135
The Act does not prescribe any penal provision if a company fails to spend the stated
amount on CSR activities. The current regime follows a “comply or explain” model,
where the Board will have to explain reason for its non-compliance in its report
Companies subject to Section 135 that fail to make mandated CSR contributions only
are required to explain in their annual board report the reasons for non-compliance.
There currently are no financial penalties for non-compliance.
Hence, companies started bypassing this regulation and evading CSR spends.
As per data available for FY 2019 Out of the total CSR prescribed of Rs 23,247 crores
in FY18, the companies spent only Rs 13,326 crores, which is only 57 per cent of the
required expenditure. 46% companies did not report any CSR spends or their progress.
 Amendments to Section 135 (2019)
• Prior to amendment act, if a company had not spent the earmarked CSR expenditure, it had to disclose the reasons in its board report at
the annual general meeting of the company. In this regard, Amendment Act provides that:-
“Unspent amount  at the end of Financial Year which is not related to ongoing project: –the Company has
to transfer such unspent amount to a Fund specified in Schedule VII, within a period of 6 (six) months of
the expiry of that financial year.”
• The funds specified under Schedule VII are: 1) Prime Minister’s National Relief Fund. 2) Any other fund set up by the central govt.
for socio – economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women

• The new law prescribes for a monetary penalty as well as imprisonment in case of non-compliance. The penalty ranges from INR
50,000 (US$700)  to INR 2.5 million (US$35,000) whereas the defaulting officer of the company may be liable to imprisonment for up
to three years, or a fine up to INR 500,000 (US $7,023), or both.

• Change from ‘Comply or explain’ to ‘Comply or be penalized’

• The amendments to section 135 of the Act have not yet come into force. The Central Government by notification in
Official Gazette shall appoint the effective date
Corporate Social
Responsibility: In
Global Context
The meaning of CSR not only differs from
sector to sector but it also differs quite
substantially from country to country. To put
CSR in global perspective it is very important
to understand the specific regional and national
contexts in which companies actually practice
CSR. Hence we will discuss some basic
characteristics of CSR in different regions of
the globe.
CSR in Developed Countries
CSR is essentially a US idea. It was in US where the practice of CSR first emerged. American society
is characterized by fairly unregulated markets for labor and capital, low levels of welfare state
provision, and a high appreciation of individual freedom and responsibility. Consequently, many social
issues, such as education, healthcare, or community investment have traditionally been at the core of
CSR.
Philanthropy is high on the agenda with, for instance, corporate community contributions by US
companies being something like than ten times higher than those of their British counterparts.
In other parts of the developed world, mostly Europe the onus on addressing the social issues has
always been through govt. policies and collective action. The corporate responsibility for social issues
has been the object of codified and mandatory regulation.
The US-Europe difference is likely to persist and the way the corporations issues CSR issues such as
Global warming and provision for affordable medicine will be markedly different on both sides of the
Atlantic.
 Corporate Social
Responsibility: In
Global Context
The idea of CSR has been begun to shift from
understanding CSR as aid to CSR as a responsible
behaviour towards development. Implementing CSR
in this sense would therefore require MNCs to
conduct business and bring FDI to developing
countries in the first place, and then ensure that the
wealth created is locked into development.
However, the role of MNC’s is not uncontested, as
many argue that profit maximizing corporations
have very limited interest in social development and
many picture of many MNC’s contributing
positively to the developing world is somewhat
sketchy.
CSR in Transitional Economies:

Apart from the developing and developed world some transitional economies also deserves
attention from CSR perspectives. Most countries of the former communist bloc have
changed from a planned and government run economy to a capitalist market system. While
there may be many various approaches to CSR, Russia and China however represents
extreme cases.
Russia has seen privatization and also capitalism accompanied by rather weak and corrupt
governmental institutions resulting in what some would refer to as a ‘cowboy economy’. It is
therefore little wonder that CSR is still a largely unknown concept in Russia.
China on the other hand has maintained a strong hold of the state in controlling and
regulating the economy and while the roles and responsibilities might not resemble to that of
western concept of CSR but still we can see considerable involvement of companies in this
area. With socio-economic development in China the CSR activities is expected to rise in
time to come.
Trend of CSR in India
India Inc. is doing much more
than just lip service towards
Corporate Social Responsibility
(CSR) and it is evident from the
fact that 1,132 companies listed
on the NSE witnessed an annual
increase of 17.5% in CSR spends
at ₹11,961 crore in FY19.
Trend till now, and Opinion
The CSR initiative is a progressive policy. The right role and the right
balance between corporate profits, government taxes, and individual
charity will promote social welfare.

Since CSR focusses on long term prospects, it is way too early to

either hail or condemn it, but there are a few critiques

While most of the benefits and aims of CSR programs have been
discussed at length above, We’d like to play the devil’s advocate and
court against the CSR being mandated by law
 • Companies have a fundamental social
responsibility to generate wealth for their
shareholders in a law-abiding, ethical and
sustainable way. Philanthropy should be voluntary
than mandated.

• In process, they generate surpluses for society,

provide consumers with goods and services, create
Opinion employment, and strengthen the nation.

• To the extent that they do this, they have

completely discharged their corporate social
responsibility.

• In effect, a profitable, well-run corporation does

more for India and its people than any charity could
possibly do.
Opinion
• If CSR involves providing public goods like education, public health, environmental protection, what
are taxes for?
• Philanthropy should be a private matter. The government can encourage this but has no business
intervening in those decisions.
• CSR is an ill-formed idea, born out of the distrust and misunderstanding of markets and capitalism.
• Forced expropriation of unspent funds and the introduction of jail terms for non-compliance makes it
worse.
• The correct thing to do would have been to do away with mandatory CSR, and instead lower corporate
taxes, and if need be, introduce tax deductions for certain activities that the government wishes to
promote.
Opinion
Take a look at India Inc.’s CSR
allocations ->

The point is not that this money doesn’t

help — it does make a difference to the
lives of the beneficiaries — but that it
is like a flea riding on the back of the
elephant.
A few thousand crores of CSR money
over and above hundreds of lakhs of
crores of government expenditure for
the same purposes. Does an extra one-
tenth of a decimal point make a
difference to the big picture?
Opinion – Way Forward
While I do think CSR would be better
done away with, there are still a few
suggestions which can strengthen the
argument for the CSR
Revisiting some of the unnecessary
rules of the Act may help in better
compliance.
Companies taking up genuine projects
should be given time to thrash out the
most cost-efficient mode of delivering
social impact.
The global wave towards
Environmental, social and governance
(ESG) investing is mounting pressure
for companies to be more socially
responsible; the government must do its
best to encourage this trend in India