Charity by Law: A Corporate Blessing or Bureaucratic Burden.

This historic shift has sparked a heated debate: Is mandatory CSR a progressive step towards inclusive growth, or has it turned corporate compassion into another compliance burden?

This blog delves into the implications of mandatory CSR, examines its global parallels, and explores the consequences of non-compliance after the 2021 legal amendments.

⚖️ Legal Framework: What Does the Law Say?

Section 135 of the Companies Act, 2013 lays down the legal foundation for CSR in India. It mandates that every company having:

• Net worth of ₹500 crore or more, or

• Turnover of ₹1,000 crore or more, or

• Net profit of ₹5 crore or more

…shall constitute a CSR Committee and spend at least 2% of the average net profits of the company made during the three immediately preceding financial years.

Additional Rules:

• CSR Policy must be disclosed in the Board Report.

• Funds must be used for activities listed in Schedule VII (which includes health, education, environment, etc.)

• CSR activities should preferably be undertaken in local areas where the company operates.

🔍 The Core Issue / Controversy

While the intention behind mandatory CSR is commendable — promoting equitable development — the very idea of forced charity has not sat well with many in the corporate world.

Critics argue that:

• CSR should reflect the conscience of a company, not a statutory obligation.

• Mandating it defeats the spirit of voluntarism.

• Many companies engage in CSR just to avoid penalties, leading to shallow projects with minimal real-world impact.

In several instances, companies have resorted to token donations, superficial tie-ups with NGOs, or last-minute fund transfers to meet the requirement — with little attention to sustainability, transparency, or community involvement.

📊 Current Trends and Industry Practices

According to the Ministry of Corporate Affairs, Indian companies spent over ₹26,000 crore on CSR in FY 2022-23. A majority of this went into sectors like:

• Education (37%)

• Healthcare (28%)

• Environment and rural development (15%)

However, a closer look reveals that:

• Spending is often concentrated in urban or high-visibility areas.

• Many companies reuse the same implementing partners or NGOs every year, without impact evaluation.

• Reports of funds being routed to founder-linked NGOs or politically aligned trusts raise questions about integrity.

🧑‍⚖️ Judicial & Regulatory View

Courts and regulators have generally upheld the validity of CSR law but have emphasized accountability and intent.

The Companies (Amendment) Act, 2021 significantly changed the landscape:

· Non-compliance with CSR obligations now invites penalties, no longer just a disclosure requirement.

· If the required CSR amount is not spent, the unspent amount must be transferred to specific government funds or a CSR account within prescribed timelines.

· Companies failing to comply face fines up to ₹1 crore, and officers in default may be fined up to ₹2 lakh.

This has made CSR not just a policy concern, but a legal risk for non-complying companies.

🧩 Challenges and Grey Areas

Despite a decade of implementation, several challenges persist:

• Lack of expertise: Not all companies understand how to design or execute CSR effectively.

• Impact measurement: There’s no standardized method to assess long-term outcomes.

• One-size-fits-all model: Uniform rules may not be suitable for diverse business models and sectors.

• Compliance-focused attitude: Many companies still prioritize form over substance.

🌍 Comparative Perspective: India vs the World

Globally, CSR is largely voluntary, allowing companies to define their own social goals:

Country CSR Framework Nature

USA No legal mandate, driven by ESG Voluntary

UK Encouraged under Companies Act 2006 Voluntary

Germany CSR part of corporate reporting Voluntary

India Mandated under Section 135 Mandatory (with penalties)

This puts India in a unique position. While other countries rely on market and stakeholder pressure, India uses statutory force to drive corporate philanthropy — raising concerns about whether the impact is genuine or simply procedural.

Recent Amendments / Updates

The Companies (CSR Policy) Amendment Rules, 2021 brought in the following major changes:

• Introduced CSR-2 Form for electronic reporting of CSR activities.

• Clarified treatment of ongoing projects.

• Made impact assessment mandatory for companies with CSR budgets over ₹10 crore.

These changes aim to shift CSR from a “write-the-cheque” model to a more strategic and monitored framework.

💬 Expert Opinions / Commentary

“Mandating CSR has made it visible, but not necessarily effective. We need companies to own it, not just comply with it,”
— Anjali Prakash, CSR & ESG Advisor, Mumbai

“The penalty-based model should be a last resort. Encouraging innovation in CSR initiatives will yield better outcomes.”
— Prof. Rajeev Sharma, NALSAR University of Law

Conclusion: The Way Forward

Mandatory CSR in India is both a boon and a burden. It has undeniably mobilized funds for social good, but it has also made corporate charity a mechanical act.

The key lies in striking a balance:

• Encourage impact-first approaches, not just fund transfers.

• Incentivize innovation in CSR delivery.

• Build robust mechanisms for monitoring, evaluation, and transparency.

• Introduce sector-specific CSR guidance for meaningful results.

India’s experiment with CSR law is bold and globally unique. Whether it will evolve into a model for the world — or remain a compliance checkbox — depends on how responsibly companies embrace the spirit behind the statute.

📚 References

1. Companies Act, 2013 – Section 135

2. Companies (CSR Policy) Amendment Rules, 2021

3. MCA CSR Portal Data (csr.gov.in)

4. “Mandatory CSR in India: Challenges and Opportunities” – Economic & Political Weekly

5. Ministry of Corporate Affairs – Annual CSR Report 2023

6. CAG Report on CSR Implementation in Public Sector Undertakings