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The Legal Department at UJA is delighted to impart certain legal knowledge as construed under the Legal Chronicle to keep the readers aware of the recent updates and developments that revolve around various aspects of the law. Our goal is to enable our readers to develop a sense of familiarity with the complexities of Indian as well as international law.
In this edition of Legal Chronicle, we examine the key legal, regulatory, and strategic considerations Indian businesses must navigate under the Corporate Social Responsibility (CSR) framework mandated in India. This article will help support businesses in managing complexities and leveraging CSR as a meaningful tool for sustainable and inclusive growth.
We hope that this edition creates a sense of enthusiasm for our readers and successfully delivers the plethora of legal knowledge as intended. In case you have any feedback or need us to include any information to make this issue more informative, please feel free to write to us at legal@uja.in
Corporate Social Responsibility (CSR) refers to the ethical obligation of businesses to contribute positively to society and the environment, beyond their legal and economic obligations. CSR involves integrating social, environmental, and ethical concerns into a company’s business operations and interactions with stakeholders.
CSR plays a crucial role in driving sustainable development, which focuses on meeting present needs without compromising the ability of future generations to meet theirs. By actively engaging in CSR, companies help address pressing global and local challenges such as poverty, inequality, climate change, education gaps, and public health concerns. In addition to legal compliance, CSR fosters responsible corporate citizenship, where businesses voluntarily align their values and operations with broader societal goals. Moreover, CSR enhances a company’s reputation and brand loyalty, attracting socially conscious consumers and investors.
Therefore, while the CSR framework in India aims to institutionalize corporate accountability and foster inclusive growth, its implementation is often hindered by regulatory complexity, thereby limiting its potential for genuine social impact
The philosophical underpinnings of CSR in India can be traced back to the concept of “lok-kalyan”, which emphasizes the duty of capable individuals to work for the collective upliftment of society. This principle has been a part of Indian ethos for centuries, reflecting a deep-rooted tradition of social responsibility. Hence, the judicial recognition of the broader principle of public welfare in various contexts laid the groundwork for the later development of CSR as a legal mandate.
The concept of Corporate Social Responsibility (CSR) was formally introduced in India by the Ministry of Corporate Affairs (MCA) through the Voluntary Guidelines on CSR, 2009. These guidelines marked the government’s initial effort to promote socially responsible business practices, encouraging companies to develop structured CSR policies, integrate them into their strategic planning, and establish a defined roadmap for implementing impactful CSR initiatives.
Further advancing the CSR agenda, Section 135 of the Companies Act, 2013 marked a historic shift by introducing CSR as a mandatory legal obligation for qualifying companies. As highlighted in the 21st Report of the Standing Committee on Finance on the Companies Bill, 2009, this was not only a pioneering step for India but also one of the first instances globally where CSR transitioned from a voluntary practice to a statutory corporate responsibility. Therefore, all the mandatory provisions of CSR under Section 135 of the Act, became effective from 1st April, 2014.
In addition to this, the National Voluntary Guidelines (NVGs) were revised as well and were reintroduced as the National Guidelines on Responsible Business Conduct (NGRBC), reflecting a progressive shift in India’s corporate responsibility framework. The updated guidelines are strategically aligned with key global frameworks such as the United Nations Guiding Principles on Business and Human Rights (UNGPs), the UN Sustainable Development Goals (SDGs), and the Paris Agreement on Climate Change, thereby reinforcing India’s commitment to promoting ethical, sustainable, and inclusive business practices.
In India, the primary regulator for Corporate Social Responsibility (CSR) is the Ministry of Corporate Affairs (MCA), which is responsible for formulating policies, issuing guidelines, and overseeing compliance with CSR provisions under the Companies Act, 2013. Further there are other relevant bodies like, Securities and Exchange Board of India (SEBI) that mandates companies in providing a report of their CSR activities. Further, The National Financial Reporting Authority (NFRA) is a body which provides supervision over Statutory Auditors which directly has an effect over CSR reporting’s.
Applicability:
Every company operating in India be it an Indian company, its holding or subsidiary, or even a foreign company (i.e., a body corporate incorporated outside India but having a place of business within the country, whether through physical presence, an agent, or digital operations) is obligated to constitute a Corporate Social Responsibility (CSR) Committee from among its Board members, provided it meets any one of the prescribed financial thresholds during the immediately preceding financial year.
In this manner, the core legal framework of the CSR in India is formed, wherein these requirements strengthen the role of businesses in contributing to social and environmental causes, while upholding corporate governance principles.
Management of CSR Funds:
Companies must have a robust system for managing CSR funds to ensure that the allocated funds are spent on the approved CSR activities. In addition to this, companies are required to maintain a record of CSR activities and expenditures to demonstrate compliance with legal requirements. An internal or external audit of CSR activities shall be carried out to verify the appropriate use of funds and ensure transparency.
Furthermore, The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, brought ahead significant changes like:
CSR Contributions:
This is where unspent amounts have to be transferred to a fund under 6 months from the expiry of the financial year.
Ongoing CSR Projects with Multi-Year Implementation:
This amendment shall now allow companies to extend ongoing projects for 48 months and accordingly will engage in even more meaningful CSR projects.
Adjustment of Excess CSR Spending:
The amended rules now allow companies to carry forward and set off any excess CSR expenditure against their future CSR activities for up to three immediately succeeding financial years, marking a significant shift from the earlier stance.
Mandatory Registration of CSR Implementation Agencies:
All CSR contributions from 1 April 2021 onwards, can only be executed through registered implementation agencies approved by the Ministry of Corporate Affairs (MCA). Entities must obtain registration to qualify. Additionally, the use of private trusts for CSR activities has been expressly disallowed, ensuring greater transparency and regulatory oversight.
Regulations on CSR Asset Ownership:
The amendment prohibits companies from using CSR funds to create assets for themselves, ensuring such assets remain in the public domain.
Further Obligations Over Companies:
The success of CSR hinges on its measurable impact on society. To ensure this, the Company Boards and CSR Committee bear greater responsibility for directing contributions to intended beneficiaries. In addition, the CSR committee must prepare a detailed annual action plan, while the Company Board must verify proper fund utilization, supported by certification from the financial heads of the company.
In conclusion, Corporate Social Responsibility in India represents a vital convergence of corporate ethics, legal mandates, and developmental priorities. While the legal framework under the Companies Act, 2013 has made CSR a statutory obligation, the real value lies in embedding social responsibility into the strategic fabric of businesses. To unlock the full potential of CSR, companies must go beyond compliance, embracing innovation, transparency, and stakeholder engagement. Streamlining regulatory processes, enhancing implementation capacity, and fostering collaborative efforts with society and government can further amplify impact. As India continues its journey toward sustainable and inclusive growth, CSR must evolve as a transformative tool bridging the gap between corporate success and social progress.
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