This article is written by Gowra Manogna, Mahatma Gandhi Law College, B.B.A. LL.B. (4^th Year) during her internship at LeDroit India.

Scope of article

1. Introduction
2. Legal frame work (companies act, 2013)

• Applicability of act
• CSR Committee and policy
• Activities of CSR 
• CSR Reporting 

3. Case laws and judicial interpretation
4. Conclusion 
5. References 

Key words 

Corporate social responsibility, The Companies act 2013, Case laws, CSR Committee, CSR Expenditure, Obligations, CSR activities, CSR Reporting  

Abstract

CSR is a contribution that is made by the company for betterment of surroundings and civilization. Corporate social responsibility (CSR) emerged in India by the Companies act, 2013 under section 135. This statuary made CSR mandatory for certain categories of companies. This act ensures that companies integrate the social concepts into their business making social responsibility an obligation for companies and encouraging business to extent their impact beyond their profits and engage actively in community development. This article explores about the framework, applicability, committees, resent amendments, expenditure obligations, activities under schedule VII.

Introduction  

The Companies Act, 2013, introduced corporate social responsibility (CSR) as mandatory for capable companies. Under section 135, companies are held accountable and responsible for integrating social responsibility into their business operations by mandating them to allocate at least two percent of their average net profit towards approved activities, thereby ensuring that corporate growth contributes meaningfully to societal progress. Corporate social responsibility in India is governed by Section 135 of the Companies Act, 2013; it lays down the provisions that were passed by both houses of parliament and by the president of India in August 2013. 

In India, CSR evolved from being a voluntary philanthropic practice to a statutory obligation with the enactment of the Companies Act, 2013. Through Section 135, India became one of the first countries in the world to mandate CSR spending by eligible companies, ensuring that corporate entities contribute directly to society’s betterment. This act transforms the business from profit-making to accountability and responsibility. The evolution of CSR provisions under the Companies Act, 2013, reflects a dynamic response to changing societal expectations. Since its inception, there have been amendments aimed at refining and strengthening CSR regulations. These changes underscore a commitment to ensuring that businesses adapt to emerging social and environmental challenges.

This article examines the legal provision, rules, and implementation framework of CSR under the Companies Act, 2013; analyses its significance, functions of board and prohibited activities. 

Legal frame work of CSR (The Companies Act, 2013)

The Companies Act, 2013 came into force on 12 September 2013 with only 98 provisions of the act notified. Another 184 sections came into force from 1 April 2014. At present all the sections are notified. This act regulates incorporation of a company, responsibilities of company, directors, dissolution of a company. The changes in the 2013 act have far reaching implications that are set to significant change the manner in which corporate operates in India. 

This act came up with so many new concepts like one person company (OPC), Women Directors, Corporate Social Responsibility, Registered Valuers, Rotation of Auditors, Class Action, Dormant Company, Fast Track Mergers, Serious Fraud Investigation Office. 

Section 135 corporate social responsibility 

 This act mandates the incorporated companies to take initiative in social, environmental and economic betterment. 

Applicability of the act: – 

• Every company having net worth of rupees five hundred crore or more,
• or turnover of rupees one thousand crore or more
• or a net profit of rupees five crore or more

During any financial year shall constitute a Corporate Social Responsibility Committee.

The Board of every company shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding three financial years, in pursuance of its Corporate Social Responsibility Policy.

Functions of the Board of Company: 

The following are the functions of the Board in ensuring Corporate Social Responsibility (CSR) compliance: 

1. Approval of CSR Policy: The Board must approve a formal CSR policy outlining the company’s goals and objectives for social responsibility. 
2. Public Disclosure: The Board is required to disclose the CSR policy in the company’s annual report and ensure that it is available on the company’s website.
3. Implementation of CSR Activities: The Board must ensure that the activities outlined in the CSR policy are effectively undertaken by the company. 
4. CSR Expenditure: The Board must ensure the company spends at least 2% of its average net profits from the past three financial years on CSR initiatives
5. Monitoring Fund Utilization: The Board must satisfy itself that the CSR funds disbursed are being properly utilized for their intended purposes.
6. Reporting and Transfer of Unspent CSR Funds: If the company fails to spend the requisite 2% on CSR, the Board must include an explanation in its annual report and transfer the unspent funds according to the legal provisions in the Companies Act (Sections 135(5) and 135(6)). (Mizoram.gov)

CSR committee: –

• Every company which fit under eligible criteria of Section 135(1) shall constitute a corporate social responsibility committee. 
• The committee should consist of three or more directors, out of which at least one director shall be an independent director.
• Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.
• In the case of foreign companies, committee shall consist of minimum two persons out of which one must be a person resident in India, who is authorised to receive notices and other official documents on behalf of the foreign company. That person shall be nominated by the foreign company. 
• If company consist any unspent amount in CSR account, it must form a CSR Committee and adhere to application CSR regulations.

Roles of CSR committee: –

• Formulate the policy and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company
• Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
• Monitor the Corporate Social Responsibility Policy of the company from time to time.

CSR Policy

CSR policy formulated by the board must provide framework for the company’s approach to CSR activities, specifying the plans and programs. The committee must ensure that CSR activities are distinct from its natural routine business operations. Contents of CSR policy should be placed on the company’s website by the board. CSR policy shall monitor the projects or programs.

CSR Activities

List of activities under schedule VII of the Companies Act, 2013 (India code)

1. Eradicating hunger, poverty and malnutrition, promoting health care including preventive health and sanitation, contribution to the Swatch Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.
2. Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects.
3. Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
4. Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.
5. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts.
6. Measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces (CAPE) and Central Para Military Forces (CPMF) veterans, and their dependents including windows.
7. Training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports.
8. Contribution to the Prime Minister’s National Relief Fund or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.
9. Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government.
10. Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defence Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs)]
11. Rural development projects.
12. Slum area development. Explanation — For the purposes of this item, the term ‘slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.
13. Disaster management, including relief, rehabilitation and reconstruction activities. 

Prohibited activities 

List of prohibited activities under schedule VII of the Companies Act, 2013

• Activities that benefit any particular political party, front or ideology.
• The activities that benefit particular religion, religious belief or religious sect. 
• Sole benefit of employees of the company. 
• Activities that take place at normal course of business.  
• CSR Activities that take place outside Indian borders. 

CSR Expenditure 

Under section 135 (5), the board of every company shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years. if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

CSR Reporting 

As per Rule 8(1) of the Companies (CSR Policy) Rules, 2014, the Board’s Report for any financial year of a CSR-eligible company must include an annual CSR report with the details outlined in Annexure I or Annexure II of the Companies (CSR Policy) Rules, 2014, as applicable. (Mizoram.gov)

Judicial interpretation and case studies 

Here are some of the key judicial decisions that have shaped the jurisprudence of CSR in India, 

• Tata power company Ltd. V. state of Maharashtra (2007) – the court emphasised the social responsibility of corporations, court reinforced CSR as duty affirming that idea that companies should not only focus on the profits but also contribute to social welfare.
• Vivek Ranjan Sriram v. insurance regulatory and development authority of India (IRDAI) (2019), The ruling examined CSR compliance in highly regulated fields like insurance. The court highlighted that CSR forms on essentials components of a company’s ethical responsibilities and clarified that CSR requirements apply uniformly across all industries, including those already subject to strict regulation. The judgment affirmed that CSR duties are not independent of business functions they are closely linked to corporate governance and overall regulatory adherence. 
• Binani Cement Ltd. v. Srei Equipment Finance Ltd. & Ors (2018), The case dealt with the application of CSR requirements during corporate insolvency. The Supreme Court emphasized that CSR is an integral aspect of corporate governance and that CSR responsibilities remain tied to the company, even in situations of financial crisis. The court held that insolvency does not excuse a company from its CSR commitments, affirming that its obligations towards society continue regardless of economic distress. Collectively, these judgements reflect a shifting judicial perspective, establishing CSR as a mandatory and inherent component of a company’s identity in India.

Amendments Companies (corporate social responsibility policy) Amendment Rules,2022 

• There was a clarification that CSR activities are to be undertaken by the company itself or through the specified entities. 
• If there is any unspent amount in CSR account, provision for constitution of CSR committee should be given. 
• The limit of CSR expenditure has been decreased to 2% to 5%.
• A new format of CSR annexure-II (format for the annual report on CSR activities to be included in the board’s report for financial) 

Conclusion

CSR is a legal framework that ensures that companies are held accountable for their actions and conduct ethical business code in India. It was historically evolved from voluntary exercise to a statutory mandate action. This has provided guidelines on how companies organizations must meet certain obligations towards the society in the form of CSR activities. It ensures that companies not only chase around the profits but also involve in activities that are sustainable in nature which leads to environment betterment. 

CSR forces the organizations to take reasonability for their action and hold them liable for any damage caused by their deeds. In India, CSR laws significantly impact social and economic development, fostering responsible corporate citizenship and contributing meaningfully to India’s growth narrative.