Corporate Social Responsibility Under the Companies Act, 2013: A Legal and Social Perspective

In a rapidly globalizing world, the focus of business is no longer confined solely to generating profits. Increasingly, companies are being called upon to demonstrate accountability not only to their shareholders but also to the communities in which they operate. This transition from "shareholder capitalism" to "stakeholder capitalism" finds legal expression in India through Section 135 of the Companies Act, 2013, which institutionalized Corporate Social Responsibility (CSR) for the first time in Indian law.

Jasleen, 3rd Year BA. LLB(Hons.)

4/22/20254 min read

What is Corporate Social Responsibility (CSR)?

Corporate Social Responsibility refers to a company's commitment to manage the social, environmental, and economic effects of its operations responsibly and in alignment with public expectations. It implies that businesses should not only be concerned with profitability but also with the social and environmental consequences of their actions.

CSR is both a philosophy and a practice. It bridges the gap between corporations and communities by involving businesses in developmental work ranging from education and health to rural development and environmental sustainability.

Legal Framework: CSR Under the Companies Act, 2013

The legal foundation for CSR in India is found in Section 135 of the Companies Act, 2013, read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, and Schedule VII of the Act. This legislative mandate marked a watershed moment, making India the first country in the world to legislate CSR obligations.

Applicability of CSR Provisions

CSR provisions are applicable to every company (including its holding or subsidiary, and foreign companies having a branch office in India) that meets any of the following financial criteria during the immediately preceding financial year:

Net Worth of ₹500 crore or more, or
Turnover of ₹1,000 crore or more, or
Net Profit of ₹5 crore or more.

If a company meets any of these thresholds, it must comply with the CSR provisions laid out in the Act.

Key Legal Obligations under CSR

Once a company becomes liable under Section 135, it must:

1. Constitute a CSR Committee

The Board of Directors must form a CSR Committee consisting of at least three directors, including at least one independent director. For private companies with only two directors, both can form the committee.

2. Formulate a CSR Policy

The CSR Committee is tasked with formulating and recommending a CSR policy that outlines the types of activities the company will undertake in accordance with Schedule VII.

3. Allocate and Spend CSR Funds

The company must spend at least 2% of the average net profits (calculated under Section 198) of the preceding three financial years on CSR activities.

4. Board’s Role in Oversight The Board must:

Approve the CSR policy.
Disclose its contents in the Board Report and on the company’s website.
Monitor the implementation of the CSR projects.

CSR Activities Allowed Under Schedule VII

Schedule VII provides a wide and inclusive list of activities that qualify as CSR.

These include:

Eradication of hunger, poverty and malnutrition
Promotion of education, including special education and employment enhancing vocational skills
Promoting gender equality, women empowerment and setting up homes and hostels for women and orphans
Ensuring environmental sustainability and ecological balance l Protection of national heritage, art and culture l Measures for the benefit of armed forces veterans, war widows and their dependents l Contribution to Prime Minister’s National Relief Fund or other funds set up by the Central or State Government l Rural and slum area development projects
Disaster management, including relief, rehabilitation and reconstruction activities
Promotion of sports, including training and rural sports

Amendments and Compliance Mechanism

Unspent CSR Amount

The Companies (Amendment) Act, 2019 and subsequent rules (effective January 22, 2021) introduced stricter compliance requirements. If companies fail to spend the allocated CSR amount:

For ongoing projects, the unspent amount must be transferred to a separate Unspent CSR Account within 30 days of the end of the financial year and utilized within the next 3 years.
For non-ongoing projects, the unspent amount must be transferred to a fund specified in Schedule VII (like the PM National Relief Fund) within 6 months.

Penalties for Non-Compliance

Failure to comply can lead to monetary penalties:

The company may face a fine ranging from ₹50,000 to ₹25 lakh.
Every officer in default may be penalized with a fine between ₹50,000 and ₹5 lakh.

Case Studies: CSR in Action

1. Tata Group

The Tata Group has long been a pioneer in CSR. Tata Trusts and Tata companies have invested in education, livelihood, and healthcare projects, even before the CSR mandate.

2. Infosys

Infosys Foundation has focused on promoting education, healthcare, and rural development. The company goes beyond minimum legal obligations and maintains transparent reporting standards.

3. Reliance Industries

Reliance Foundation works in rural transformation, disaster response, urban renewal, and healthcare, aligning its programs closely with Schedule VII.

Challenges in CSR Implementation

While CSR compliance is growing, several challenges persist:

Superficial Engagement: Some companies treat CSR as a formality rather than a genuine effort to drive change.
Lack of Skilled NGOs: Many rural NGOs lack the capacity to implement largescale CSR programs effectively.
Measuring Impact: Companies often find it difficult to measure the long-term social impact of their initiatives.
Duplication of Efforts: Lack of coordination among companies working in the same geographical areas leads to inefficiencies.

Future of CSR in India

The CSR framework in India is maturing. New trends such as impact investing, ESG (Environmental, Social, and Governance) integration, and CSR-tech platforms are evolving. There's also a growing emphasis on impact assessment and data driven reporting.

In the future, CSR is expected to:

Move towards strategic philanthropy, aligning social impact with business goals.
Embrace sustainability as a long-term objective.
Use technology for better monitoring and evaluation.

Conclusion

Corporate Social Responsibility under the Companies Act, 2013, represents a bold and progressive approach to involving businesses in nation-building. It underscores the idea that economic growth and social development must go hand in hand. With proper intent, planning, and execution, CSR can serve as a bridge between corporate prosperity and community well-being.

As Indian companies continue to grow on the global stage, integrating CSR not just as a legal obligation but as a core value will determine their legacy—not just in boardrooms, but in the lives of people they touch.