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Why review the (CSR)?

A few Members of Parliament recently wanted CSR funds to be available to maintain historical monuments. There was an intense debate. The positive outcome was that many new areas that were either uncovered to receive CSR funds or low exposure were highlighted.  The Upper House discussed the Companies (Amendment) Bill, 2019, which BJP MP Vinay Sahasrabuddhe introduced on July 12, 2019. He had championed a cause that said the Archaeological Survey of India (ASI), the National Monuments Authority (NMA), and other agencies responsible for managing the monuments do not have adequate resources for the sites’ upkeep.

His Bill proposed an amendment to the Companies Act, making it mandatory for corporates to spend 25% of the CSR amount on monuments’ upkeep.  Perhaps India has the most elaborated CSR mechanism and implementation strategy and has started its journey to set a benchmark in attaining sustainability goals and stakeholder activism in nation-building. India is the first nation in the world to make CSR mandatory for the large corporates, and that shows our collective commitment as a country towards giving back to society. The enactment by law – is a giant step by the Govt in making it a way of life…It becomes even more significant in our case when every single contribution from us impacts the ‘bottom of the pyramid’ of this country,” says Srinivas Vudumula, Chief People Officer and Head – CSR, Bharat Financial Inclusion Ltd., which is a 100% wholly-owned subsidiary of IndusInd Bank. 

According to CSR experts, CSR and its features were envisioned around the 1950s in a research paper “Social Responsibilities of the Business”. Over the years, debates, discussions on various platforms, academic, political, social and corporate evolved the concept and its implementation, as it exists today. Although the idea has been around for more than half a century, there is still no clear consensus over its definition. One of the most accepted and wholesome definitions was perhaps constructed by the World Bank. The World Bank stated, “Corporate social responsibility is the commitment of businesses to contribute to sustainable economic development by working with employees, their families, the local community and society at large, to improve their lives in ways that are good for business and for development.”

The CSR concept in India is governed by Section 135 of the Companies Act, 2013 and Rules made thereunder wherein the criteria has been provided for assessing the CSR eligibility of a company, Implementation and Reporting of their CSR Policies. CSR was conceived as an instrument for integrating social, environmental and human development concerns in the entire value chain of corporate business. Ministry of Corporate Affairs had issued ‘Voluntary Guidelines on Corporate Social Responsibility, 2009’ as a first step towards mainstreaming the concept of Business Responsibilities. Subsequently, this was refined as ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011’.

The 21st Report of the Parliamentary Standing Committee on Finance is one of the prime movers for bringing the CSR provisions within the statute. The Standing Committee observed that annual statutory disclosures on CSR required by the companies under the Act would be a sufficient check on non-compliance. Section 135(4) of the Companies Act 2013 mandates every company qualifying under Section 135(1) to make a statutory disclosure of CSR in its Annual Report of the Board. Rule 9 of the Companies (Corporate Social Responsibility Policy), Rules, 2014 prescribes the format in which such disclosure is to be made.

The CSR ambit is getting bigger. It would turn into a unique knowledge base for analysing and achieving sustainability goals in upcoming years. Among various large economies, India is a country that has assured by mandating CSR through its legislative action. Whenever any violation of CSR provisions is reported, action against such non-compliant companies is initiated as per the Companies Act, 2013 after due examination of records following due process of law. Corporate Social Responsibility (CSR) is a boarddriven process. The Board of the company is empowered to plan, decide, execute, and monitor the company’s CSR activities based on the recommendation of its CSR Committee.

“There is so much unfinished agenda that needs immediate attention in the areas identified already – I believe the country needs 10 more years to bridge the divide to an extent. But I do recommend that the list can be reviewed periodically – and a way for the MoCA to receive suggestions from the industry bodies will help,” says Vudumula.

The amount under Corporate Social Responsibility (CSR) is allocated and utilised by various Companies in accordance with the broad framework provided by the government under section 135 of the Companies Act, 2013 (‘Act’) and Companies (CSR Policy) Rules, 2014, as amended from time to time. The Act, inter-alia, stipulates that companies exceeding the threshold limits, as specified in the Companies Act, 2013, have to allocate at least 2% of their average net profits of the company made during the three immediately preceding financial years for CSR activities.

The Board of a company is empowered to plan, decide, execute, and monitor the company’s CSR activities. Schedule VII of the Companies Act indicates the activities that can be undertaken by the companies, which, inter-alia, include Health care, Education and Rural Development Projects, etc. Further, the first proviso to section 135 (5) of the Act provides that the company shall preference local areas and the areas around it where it operates.

The government has changed the Corporate Social Responsibility (CSR) Rules, and the recent amendments in
the Companies (CSR Policy) Rules, 2014, were notified on January 22 2021.

To bring in greater transparency in reporting of financial statements, the Ministry of Corporate Affairs (MCA) vide notification dated 24.03.2021 has amended Schedule III to the Companies Act, 2013 effective from April 01 2021, to mandate various disclosures by companies in their financial statements.The Schedule VII of the Act enlists the activities that companies may include in their CSR policy. The entire CSR architecture is disclosure-based, and CSR mandated companies are required to file details of CSR initiatives annually in the MCA21 registry.

Under the Act, companies with net worth, turnover or profits above a specified amount must constitute CSR Committees and spend 2% of their average net profits in the last three financial years towards its CSR policy.