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Published : February 23, 2015 | Author : Gayathrisankaran
Category : Company Law | Total Views : 3720 | Rating :

3rd year School of excellence in Law

Corporate Social Responsibility And Sustainable Development

The concept of Corporate Social responsibility (CSR) is an old concept, which existed for a long period .In India, CSR got its legal backing by virtue of Section 135 of companies Act 2013. Section 135 of the companies Act is from financial year 2014. This article will explore the role of CSR in attaining sustainable development with reference to section 135 of the Companies Act.
Meaning of Corporate Social Development:

The term corporate social responsibility is very wide and complex and it has different meanings. Generally, corporate social responsibility means, those activities taken by corporate with aim of welfare of the society.
According to UNIDO “CSR is a management concept where by companies integrate Social and environmental concerns in their business operations and interactions with their stakeholder” CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives.
From the above definitions it is clear that, CSR need to address the well being of all stakeholders and not just company’s shareholders.

Concept of sustainable development:
Sustainable development was defined by Brundtland Commission as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”
The Supreme Court in Vellore Citizen’s Welfare Forum V Union of India and others held sustainable development is the balancing concept between ecology and development. In

Indian council enviro. – Legal Action V Union of India , the court held emphasized on sustainable development and held that development and environment must go hand in hand.
In N.D Jayal and anr V Union of India ,the supreme Court held that, Concept of Sustainable development is to treated as an integral part of ‘life’ under Article 21.Public trust doctrine and precautionary principle could be nurtured by ensuring sustainable development

International Perspective of CSR:

Johannesburg Convention 2002

In Johannesburg ,States reaffirmed their commitment to the Rio declaration principles ,the full implementation of the Agenda 21 and program for the implementation of agenda 21.One of the key commitment of Johannesburg plan of implementation is to actively promote Corporate responsibility and accountability through the full development and effective implementation of inter –governmental agreements and measures, international initiatives and public and private partnership and appropriate national regulations.
It was emphasized, that both large and small companies, have a duty to contribute to evolution of equitable and sustainable communities and societies and there is a need for private sector corporations to enforce corporate accountability

World summit 2005

In this summit the importance of full respect for existing labor, human rights and environmental commitments was reiterated and encouraged responsible business practices, such as those promoted by Global Compact. Global Compact, deals with ten principles, which a company need to follow. Principle 7 to 10, deals about environment measures that need to be undertaken by the company.

Danish Law

Various countries in the world have started formulating rules and regulations for the implementation of corporate social responsibility. Denmark has amended Danish financial Statement act 2008 that requires mandatory reporting of corporate social responsibility in their companies’ policy.
The report about CSR covers the following Information’s:
• implementation of CSR polices
• result of implementation of CSR policies
• Management’s expectation for future with regard to CSR.

CSR in India got the legal backing by virtue of section 135 of companies Act 2013. Section 135 of companies Act 2013 came into force from April 2014.

Applicability of CSR:

The corporate social responsibility provision is applicable to companies with:
• Annual turnover of 1000 Crores or more or
• Net worth of 500 Crores or more or
• Net profit of 5 Crores or more
To spend two percent of their average profits in the previous three years on Corporate social responsibility activities.
The activities which can be undertaken by a company under CSR activities have been specified under Schedule VII of the Act .one of the activities specified under schedule VII is environment sustainability.

CSR Committee will be responsible for preparing a detailed plan on CSR activities, including expenditure, types of activities to be undertaken, role and responsibilities of various Stakeholder and monitoring mechanism for such activities.

CSR Reporting in India

The new act requires that the board of the company shall, after taking into account of recommendation made by CSR committee, approve the CSR policy for company and disclose its content in their report and also must publish the details on company’s official websites if any. If company fails to spend the prescribed amount, board in the report should specify the reason for not spending.

Penal provision for not reporting the reasons:
Section 134(8) of the Act provides for such penal provision stating in case the company does not disclose the reasons in the Board‘s report, the company shall be punishable with fine minimum of fifty thousand rupees but which may extend to twenty-five lakhs rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with minimum fine of fifty thousand rupees but which may extend to five lakh rupees, or with both. Hence reporting of CSR activities is made mandatory. Companies act deals with Corporate Social Responsibility of Voluntary spending Mandatory reporting.

Role played by CSR in attaining Sustainable development

CSR plays a vital role in attaining sustainable development .The Company has a social and moral responsibility towards protecting the environment. Recently this social and moral responsibility is been backed by rules and regulations. Many companies is focusing on environmental issues for their CSR activities .Sony, Panasonic and orchard hotels are focusing on issues related to environment such as toxic gases, waste production and water contamination etc

• In India, by Virtue of section 135 Companies Act 2013, which is dealing Corporate Social Responsibility in a structured or in an organized manner
• Section 135 of Companies Act 2013 is enacted to give effect to various commitment
• CSR encourages private participation in development of society
• CSR helps both the company as well as society, it helps the company to build its brand image and society is also benefited by CSR activity, thereby promoting holistic development.
• Section 135 of Companies Act 2013 encourages voluntary compliance.
• No sanction is imposed for not spending the amount.

• There is no sanction for not spending CSR amount .Punishment is imposed only for not reporting CSR expenditure .Hence law lack its teeth
• The object clause of CSR is not defined properly.
• Maximum limit of CSR expenditure is not been mentioned in the Act
• CSR expenditure is not deductable expenditure under income tax Act
• CSR add additional burden on the companies

Section 135 of the companies Act, giving legal backing to Corporate Social responsibility is a welcomed step towards holistic development. Corporate social responsibility play a Important role in attaining the goal of sustainable development It has its advantages and it also suffers from certain demerits. If the following suggestions are adopted it will help in better implementation of Corporate Social responsibility.

• Maximum limit of CSR funding must be mentioned in Act
• Object of CSR need clarity
• CSR expenditure which are of revenue in nature also must be made deductable expenditure under Income Tax Act
• Additional deductions must be allowed ,CSR expenditure relates to research relates to mitigate the environmental pollution
• Out of CSR Spending fund ,a minimum percentage must be spend towards protection of environment
• Companies who voluntarily undertake CSR activities must be recognized and must be given some exemptions
• Better monitoring mechanism must be developed to check proper implementation of CSR activities.
If these suggestions are adopted it will help in better implementation of section 135.As small drops of water makes huge ocean .Section 135 is small step towards achieving the goal of sustainable development .if every organization takes a small step, towards protecting the environment it will help in attaining the goal of sustainable development and makes Mother Earth a better place of living for future generations.

1. NeelaKrishnan, Environmental law in India, 2008Butter worth Publication, 2008
2. HN. Tiwari “Environmental law”. Allahabad law agency, Faridabad1999
3. AK Ghosh, JK Ghosh, Barun Mukhopadhyay, “Sustainable developments a statistical analysis”, Oxford university press, New York, 2003
4. Ramaiya guide to companies act ,lexisnexis,2014
5. Avatar Singh ,company law eastern book company,2014
6. Pwc,handbook on corporate social responsibility, available at www.pwc.in

[1] Brundtland Commission’s Report 1987
[2] [(1996)5 SCC 650]
[3] AIR 1996 sc 1466
[4] (2004) 9 SCC
[5] Section 135 of companies Act 2013

The author can be reached at: Gayathrisankaran@legalserviceindia.com


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