The idea of Corporate Social Responsibility or CSR first came up in 1953 when it became an academic topic in HR Bowen's, "Social Responsibilities of the Business". According to the World Bank, CSR is the commitment of business to contribute to sustainable economic development by working with employees, their families, local community and society at large, to improve their lives in ways that are good for business and for development.1 Although the idea has been around for more than half a century, there is still no clear consensus over its definition.
In the period immediately after Independence, the role of the Indian State expanded greatly and the corporate sector took a backseat in development efforts. After some time, the failures of the State to end poverty and support economic growth led to dissatisfaction. The liberalisation of the Indian economy in 1991 ushered in a new globalised economic environment, with rapid growth in overall wealth and also in inequality2.
Although some companies in India had always been involved with social development, Section 135(1) of the Companies Act, 2013 mandated that every company having the specified net worth, turnover, or net profits must establish a CSR committee. According to German Jurist Savigny, corporations are recognised as persons and hence have the rights and obligations bestowed by law. Although the concept of giving back to society began as a voluntary return to society's sustainability, it evolved into a legal requirement that corporations return to society for whatever they consume from it.3 The CSR policy of the business entity should provide for an implementation strategy which should include identification of projects/activities, setting measurable physical targets with timeframe, organizational mechanism and responsibilities, time schedules and monitoring.
In M. C. Mehta v Union of India4, the Supreme Court formulated the doctrine of absolute liability for the harm caused by the hazardous and inherently dangerous industry by interpreting the scope of the power under article 32 to issue directions and orders, 'whichever may be appropriate' in 'appropriate proceedings'.
The Supreme court, in a plethora of judgements has emphasised that CSR efforts should serve as a stimulus for the auxiliary arm of the government to enforce fundamental rights, most notably Article 21 of the Constitution.
The expansion of right to life under Article 21 of the Indian Constitution inspired the judiciary to open the new vistas in this regard. However, it took a long time for the apex court to pronounce explicitly that the right to life under article 21 of the Indian constitution contains a right to healthy environment, although the high Courts had gone ahead much earlier. Imposition of damages on the defaulting industry for causing disturbance to the water is justified on the touchstone of right to life, and duty to protect and improve environment. The right to healthy environment is the product of judicial interpretations adding new dimensions to the right to life in Article 21 of the constitution of India. On the other hand, 42nd amendment to the constitution has imposed the duty on the state and the citizens to protect and improve environment, by adding article 48 A to the directive principle of state policy and 51 A (g) as a fundamental duty. These insertions have acted as the foundations for building up environmental jurisprudence in the country. Corporate sustainability essentially refers to the role that companies can play in meeting the agenda of sustainable development and entails a balanced approach to economic progress, social progress and environmental stewardship.
The Supreme Court in M. C. Mehta5, has held that the right to an unpolluted environment and the responsibility to maintain and protect nature's bounty has been interpreted to include the right to life. The right also protects wild animals, forests, lakes, historic sites, vegetation, ecological balance, and sustainable development. And several times, the legal right to environmental protection may take precedence over the economic concerns of society.
Business, therefore, cannot continue to operate only for profit, putting the environment, society, economy, consumers, and employees at risk; corporate entities have to formulate ways to give back to the community. Schedule VII, which contains a list of CSR activities to be handled by corporations, implies that all activities fall under Article 21 of the Indian Constitution. The court has repeated enough times that CSR efforts should serve as a stimulus for the auxiliary arm of the government to enforce fundamental rights, most notably Article 21 of the Constitution.
Apart from the Supreme Court, the National Company Law Tribunals have also been playing the role of a guardian of the CSR policy mandated in the Companies Act. The Government of India has reportedly sanctioned prosecution in 366 cases for non-compliance with CSR norms under the Indian Companies Act 2013 for the fiscal year 2014-15.
The NCLT in M/s. Hira Power and Steels Limited6 has observed that the determination of the Quantum of the CSR responsibility can only be ascertained after the finalization of accounts at the close of the Books of Accounts of a particular financial year. As a result, the amount to be contributed for charitable purpose as CSR responsibility can be intimated to the concerned authorities thereafter only i.e. after the finalization of accounts of a particular financial year.
The law also provides a penal provision for not adhering to Section 135 whereby, if any person being the director of the company fails to take all reasonable steps to comply with the provisions of the section 135 r/w 450 of the companies Act, 2013,the company and every officer of the company, who is in default, shall be liable to be punishable with fine which may extend to ten thousand rupees and where the contravention one, with a further fine which may extended to one thousand rupees for very day after first during which the contravention continues.
The Ministry of Corporate Affairs, in 2022, amended the CSR rules7 for calculating the cost of conducting social impact assessments of corporate social responsibility (CSR) activities and the procedure for dealing with unspent CSR funds of companies.
Under the CSR rules, amounts remaining unspent in a financial year relating to an ongoing project as well as any unutilised surplus arising from the CSR activities are required to be deposited by the company in a special bank account called the 'Unspent Corporate Social Responsibility Account.
The amended rules now provide that a company will have to comply with CSR related obligations, including constituting a CSR committee so long as there is any unspent amount in its Unspent Corporate Social Responsibility Account.
CSR rules capped the expenditure of impact assessment that could be counted towards CSR obligations of a company to 2 per cent of its CSR expenditure or Rs 50 lakh, which will enable companies to undertake comprehensive impact assessment for large scale CSR projects and account for the same towards their CSR obligation.
Apart from this, the government has released a new format for the annual report on CSR activities which is to be included in the board's report for the financial year commencing on or after April, 2020. Under the format, the composition of the CSR committee requires the companies to provide the executive summary along with the weblinks of impact assessment of CSR projects carried out. In addition, it requires the companies concerned to provide details about the CSR amount spent against ongoing projects and those other than ongoing projects. Other requirements include disclosure of composition of the CSR committee, CSR policy and CSR projects approved by the board on the company website, among others.
CSR in India has evolved through different phases, like community engagement, socially responsible production and socially responsible employee relations. The CSR activities also help companies to garner publicity and increase their brand value. With the courts and the legislature working continuously together to bring amendments and safeguard the policies, CSR has proved to be a great success for the companies and society at large.
Footnotes
1. The Challenges of Social Corporate Social Responsibility: Facts for You, May 2013, pp. 38-39
2. https://www.gatewayhouse.in/a-brief-history-of-indian-csr/
3. Castelo Branco, M. & Lima Rodriques, L.(2007). Positioning Stakeholder Theory within the Debate on Corporate Social Responsibility EJBO – Electronic Journal of Business Ethics and Organization Studies, Vol. 12 (1)
4. (1987) 1 SCC 395
5. (1997) 3 SCC 315
6. CP No.: 2707/441/NCLT/MB/MAH/2018
7. Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022
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