Concept of Mandatory Contribution towards CSR

India is taking on social responsibility more than ever since the government issued a new directive in January 2021 highlighting the key theme that Corporate Social Responsibility (CSR) is mandatory and a legal requirement. Section 135 of the Companies Act made it mandatory in 2014 for all companies with net assets of  Rs 50 billion or more, sales of Rs 1,000  or more, or net income of Rs 50 billion or more in the previous fiscal year.

Concept of CSR

“Corporate Social Responsibility (CSR)” is a self-regulating business strategy that helps businesses become socially responsible for themselves, their stakeholders and the wider community. By practising corporate social responsibility, also known as “Corporate Citizenship”, businesses could understand the nature of their impact on all sectors of society including the economy, society and the environment. Participation in CSR meant that under the normal course of business, the company would behave in a way that would benefit society and the environment and would not make negative contributions. 

Hence, the veil of Corporate Social Responsibility is wide enough to take a multitude of practices, benefiting everything around the business, depending upon the environment and industry the business operates in. Therefore, businesses could add value to society by promoting their brands through CSR initiatives, philanthropy and volunteer events.

The positive impact of CSR on businesses and communities could not be determined. The purpose of such initiatives is to nourish the nexus between employees and businesses, boost the spirits and make both employees and employers feel more connected to the world around them. 

Types of CSR

Many companies recognize the importance of socially responsible activities for their customers, employees and shareholders, and focus on several key CSR categories:

• Sustainable Initiatives: The environment is the primary goal of CSR. Corporations, regardless of their size and structure, have a significant carbon impact. Any initiative undertaken by the corporation to lessen its carbon footprint would be beneficial to both the business and society. Thereby, earning the respect of society and stakeholders.

• Humanitarianism: Businesses could contribute to social responsibility by offering monetary benefits, goods or other services to charities. Ace businesses often provide limitless resources to help local charities and community activities and in return earn goodwill. However, it is difficult for small business houses. But as a small corporation, they could contribute at individual levels. Even such small actions could make a big difference. If that person has a specific charitable organization or program in mind, contact that group to inquire about their unique needs. Therefore, it would be in their best interest to donate money, time or goods to the company.

• Ethical Labour Practices: Companies might exhibit CSR by treating their employees fairly and ethically. Acknowledging such responsibilities is of utmost importance in labour extensive nations like India, and other developing countries.

• Contributing: Participating in charitable projects or volunteering one’s time (and the time of one’s employees) at public events says volumes about a company’s genuineness. Companies could demonstrate concern (and support) for certain problems and social causes by performing good acts without expecting anything in return.

Mandatory Corporate Social Responsibility

The notion of mandated contribution to Corporate Social Responsibility (CSR) may be new to us, but the concept of ‘Social Responsibility is far older in India. When it comes to a person’s social responsibility, many faiths have their own ideologies and beliefs concerning social responsibilities in various contexts. In Hinduism, the notion of “dharma” (governance) encompasses a person’s obligation to society. Similarly, in Sikhism, the concept of “Vand Chakna” entails sharing one’s earnings with others. In Islam, “Zakat” is a type of required charity that involves giving a portion of your earnings for the benefit of society. 

All of these religious concepts have one thing in common “to give back to society what you have earned.” Because a person lives in a society, utilises the resources of the society for his own advantage and earns a livelihood with the support of society, it should be the individual’s responsibility to give back a portion of his earnings to society. Over the years there is a paradigm shift in said ideology. Earlier, Corporate social responsibility (CSR) would commonly be perceived as a voluntary rather than an obligatory activity. Nonetheless, during the last two decades, an increasing number of nations have passed legislation requiring firms to engage in CSR.

Corporate Social Responsibility Under Section 135 of Companies Act 2013

The amendments drawn upon the Corporations Act, 2013 (Companies Act) in 2014, makes India one of the first nations in the world to obligate the legal provisions attached to CSR. Under such provisions, the corporate houses are expected to invest their revenues in socially alarming areas like “encouraging rural development in terms of healthcare, sanitation, education, including skill development, environmental sustainability”, and so on.

Applicability

The requirements of CSR apply to the following:

• Every business
• Its parent business
• It’s subsidiary
• A foreign corporation

Having in the previous fiscal year:

• More than 500 crores in net value
• Over 1000 crores in revenue
• Net profit in excess of 5 crores

Usage of CSR Amount

• Companies are obligated to spend at least 2% of their average net earnings produced in the three prior fiscal years in each fiscal year.
• For firms that have not completed three fiscal years, the average net profits earned in the previous two fiscal years must be considered.

Unspent funds are handled as follows

• The unspent amount from CSR programmes must be transferred to the fund stipulated by the legal provision within thirty days before the end of the following financial year.
• Further, it is obligatory to utilize the uncashed sum for the specific CSR projects within three fiscal years from the date of transfer or else it shall  be moved to any of the funds maintained under “Schedule VII of the Companies Act”, including the “Clean Ganga Fund, Swachh Baharat Kosh, and the Prime Minister’s National Relief Fund.”
• Any unspent funds that would not correspond to an operational CSR initiative must be moved to a reserve specified in Schedule VII within 6 months of the end of the relevant fiscal year.

Fines and Imprisonment

Under the circumstance, when the corporation fails to adhere to Section 135, the legal provision looks after the punishment in the form of a fine on the organization and executives at fault. Such a fine would range between Rs 50,000 and Rs 25,00,000. Further, the official found to be guilty might be imprisoned for up to three years.

Conclusion

CSR is the practice of a company taking responsibility for the impact of its activities on stakeholders, the environment, consumers, employees, communities and all other participants, taking into account the interests of society and the environment as well as its own interests and growth. public domain. 

 Only in a stable society can a sound business prosper. As a result, it is in the company’s best interest to provide only goods and services that benefit society. For a business to prosper in the long run, it must be recognized or licensed to operate by the social actors affected by the business.