The Legal Framework of Corporate Social Responsibility (CSR) in India: Analysis Post-Companies Act, 2013

Corporate Social Responsibility (CSR) has transitioned from a philanthropic concept to a legal obligation in India following the enactment of the Companies Act, 2013. This article by Poddar Group of Institutions, a top BBA college in Rajasthan, examines the legal framework governing CSR under the Act. We will focus on key provisions, implementation challenges, and the evolving judicial and policy landscape. The study highlights the progressive shift towards mandatory CSR contributions, the role of the board and CSR committees, and the effectiveness of regulatory mechanisms. Through a critical analysis, the article underscores the need for a balanced approach that aligns corporate accountability with societal development.

1. Corporate Social Responsibility (CSR)

Corporate social responsibility reflects a company's commitment to contribute positively to the community and the environment. Historically voluntary, CSR became a statutory obligation in India with the introduction of Section 135 of the Companies Act, 2013. This legislative move that you will study in a BBA course in Jaipur marked a global first, making India the pioneer in mandating CSR spending for eligible companies. The legal framework under this Act has significantly redefined the relationship between corporations and social responsibility.

2. Legal Framework Under Companies Act, 2013

2.1 Applicability of CSR Provisions

According to Section 135 of the Companies Act, 2013, CSR provisions apply to companies meeting any of the following criteria during the immediately preceding financial year:

• Net worth of Rs. 500 crore or more, or
• Turnover of Rs. 1,000 crore or more, or
• Net profit of Rs. 5 crore or more.

2.2 CSR Committee and Policy

Companies falling under the CSR criteria must:

• Constitute a CSR Committee of the Board comprising at least three directors, one of whom must be an independent director.
• Formulate and recommend a CSR Policy, indicating the activities to be undertaken.
• Monitor implementation and ensure disclosure in the Board’s report and on the company website.

2.3 CSR Expenditure Requirement

• Companies are required to spend at least 2% of their average net profits (of the last three years) on CSR activities.
• Unspent CSR amounts (except ongoing projects) must be transferred to the Fund specified under Schedule VII (such as the PM CARES Fund) within six months from the end of the financial year.

2.4 Permissible Activities

Schedule VII of the Act outlines permissible CSR activities, including:

• Eradicating hunger and poverty,
• Promoting education and gender equality,
• Ensuring environmental sustainability,
• Supporting rural development, and more.

3. Amendments and Regulatory Updates

With a PGDM course in Jaipur, management students learn about significant changes that were introduced through:

• Companies (Amendment) Act, 2019: Made CSR spending mandatory and non-compliance penalizable.
• Companies (Corporate Social Responsibility Policy) Rules, 2021: Provided clarity on definitions, reporting formats, and registration of implementing agencies.

4. Implementation Challenges

Despite the robust legal framework, companies face several practical issues:

• Lack of clarity in identifying measurable outcomes and impact assessment.
• Administrative burden in forming CSR committees and policy compliance.
• Difficulty in selecting appropriate projects or partners, especially in remote areas.
• Risk of tokenism, where companies treat CSR as a legal obligation rather than a strategic initiative.

5. Judicial and Regulatory Oversight

Though there is limited litigation, courts and regulatory bodies, namely the Ministry of Corporate Affairs (MCA), have periodically issued clarifications and show-cause notices to ensure compliance. MCA's portal also mandates the disclosure of CSR expenditure and project details, enhancing transparency and accountability.

6. Critical Analysis and Global Perspective

India’s mandatory CSR regime is unique compared to other jurisdictions like the UK or the US, where CSR is largely voluntary but encouraged through public reporting. While the Indian model promotes corporate accountability, critics argue that forced philanthropy may dilute the spirit of voluntarism. There is also concern about the uneven distribution of CSR spending, favoring urban over rural regions. Poddar Business School’s Global Immersion Program offers international exposure to students for them to gain an in-depth understanding of a global perspective on CSR.

7. Conclusion and Recommendations

The Companies Act, 2013, has institutionalized CSR in India, reinforcing the idea that businesses must play a constructive role in social development. However, to enhance its effectiveness:

• CSR initiatives should be strategically aligned with business goals and local needs.
• Impact assessment mechanisms must be strengthened.
• Companies should be incentivized for innovative and sustainable CSR practices beyond the legal mandate.

As India continues its journey toward inclusive growth, CSR must evolve from a compliance requirement to a value-driven corporate philosophy.

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