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Published : July 29, 2011 | Author : aniket1
Category : Tax Laws | Total Views : 12371 | Rating :

Aniket Pandey pursuing integrated BBA(llb)specialization in corporate and business laws from University of Petroleum and energy studies.Major interest in Intellectual Property Rights and business laws.

The Bhopal Gas Tragedy: On Whether and How the Indian Companies Act, 1956 can be used to make a case for imposing social responsibility on corporations?

'Every Corporate has a special continuing responsibility towards the people of the area in which it is located and in which its employees and their families live'. –JRD TATA

Its long time since that heart rending aftermath and havoc took place. Even heart trembles recapturing those memories of the past as 40 tons of the deadly methyl isocyanate (MIC) gas escaped from the pesticide factory into the early morning air and within hours, the streets of Bhopal were cluttered with human corpses and the carcasses of buffaloes, cows, dogs and birds. An approximate 3,800 people died instantaneously, predominantly in the poor slum colony adjacent to the UCC plant. It was on December 2nd 1984 at 11.00 PM while most of the one million population of Bhopal was asleep, loud grumbling reverberated around the Union Carbide Bhopal plant as a safety valve gave away huge quantity of deadly gas into the surroundings consequently resulting into one of the most tragic incidence that too cause of negligence on part of corporation. Now question arises about the responsibility of the corporation and to what extent, as the tragedy was a combination of human factor, incorrectly designed safety system and violation of labour laws.

India’s quest for industrialization and ambition to contest with the industrialized countries of the world pressed it to welcome the establishment of multinational corporations. The institution of these enterprises was expected to play an immense contribution to the planned economic development with the inflow of foreign exchange, generation of income and employment. In1979 in its quest to bring technology and economic bliss to the doorsteps of India, Union Carbide Company with Union Carbide India Limited, commissioned its pesticide factory, right next to the residential area. They were involved in the manufacture of pesticides, which had a rising demand in India, owing to the ‘Green Revolution’. Today in the public eye, Bhopal Gas Disaster is a symbol of corporate negligence and cold heartedness of US multi-national Union Carbide. It is also a glaring instance of the double standard on the part of multinationals with respect to consumer protection, environmental and employment practices in their home and host countries. Though after this tragedy some evolutionary laws have been formulated and introduced which determine the obligations and responsibilities on part of corporations which should be duly followed and in case of any breach of such laws results in consequences. But especially dealing with Companies act 1956 particularly for corporate social responsibility there is no such provision in the act which clearly specifies responsibility on part of corporations and imposing mandatory obligations to abide by. In case dealing with corporations’ social responsibility it is indispensable to get a brief understanding of what does corporate social responsibility actually stand for.

Introduction To Corporate Social Responsibility
The Corporate Social Responsibility (CSR) often referred as the Business responsibility, is about companies managing the business processes to produce an overall positive impact on society. It would be interesting to derive a meaning of the concept with the dissection of each of the words. CSR is not a difficult concept and can be explained as1:

• Corporate – means organized business;
• Social – means everything dealing with people, the society at large;
• Responsibility – means accountability between the two.

From the above, CSR could be defined as the process of business operations carried out while ensuring compliance with legal requirements, as also linked to ethical values, to an extent. ‘CSR means open and transparent business practices that are based on ethical values and respect for employees, communities and the environment. It is designed to deliver sustainable value to the society at large as well as to the shareholders’. The concept of CSR is based on the idea that besides public authorities, companies also should take on responsibilities of social issues. According to more recent approaches, CSR is seen as a concept whereby on a voluntary basis social and environmental concerns are integrated in the companies’ business operations and in the interaction with their stakeholders2. The idea of being a socially responsible company means to go beyond legal compliance and to invest in human resources and the environment. An external programme of good deeds will not protect a firm whose actual operations harm its surrounding society3. Thus, being purely philanthropic externally is not enough. Also, at the same time, complying with the law is the minimum behavior to legally stay in business and has nothing to do with the society’s expectations, which are essential for the word ‘social’ to have any meaning in CSR.

In recent years Corporate Social Responsibility (CSR) has benefitted growing recognition as a new and emerging form of governance in business. It is already established in a global context, with international reference standards set by the United Nations, Organization for Economic Co-operation and Development (OECD) guidelines and International Labour Organization (ILO) conventions. CSR is closely associated with the principle of sustainable development, which contends that enterprises should make decisions based not only on financial components such as profits or dividends but also based on immediate and long term social and environmental outcomes of its activities.

The Johannesburg Declaration on Sustainable Development (2002) says that the private sector has “a duty to contribute to the evolution of equitable and sustainable communities and societies”, and that “there is a need for private sector corporations to enforce corporate accountability”. Its Plan of Implementation notes the need to “enhance corporate environmental and social responsibility and accountability”.4

CSR has a significant role to play in controlling the perils of uncontrolled development, satisfying the needs of the present generation and at the same time ensuring that the resources of future generations is not jeopardized. Besides the Corporate, other stake holders have also to act responsibly. In India, till very recently, the focus was on charity, which is not really CSR. Sustainable CSR programs mean a cohesive mix of economic, legal, ethical and philanthropic tenets. In today's changed business scenario, there is an increased focus on giving back to society and creating a model which works long term and is sustainable and it is imperative that the best practices for inclusive growth are shared with the stakeholders. The disaster at Bhopal indicates a need for enforceable international standards for environmental safety, preventative strategies to avoid similar accidents and industrial disaster preparedness.5

CSR In Context Of Bhopal Gas Tragedy
‘Corporate social responsibility’ is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large’. In the case of Union Carbide, at the outset the company denied that the gas had leaked from there unit though later they admitted that the gas leaked from there unit but took a stand that they were not at fault. The Corporation believes that the accident was the result of sabotage, stating that safety systems were in place and operative.6

Twenty Six years after the tragedy, large amounts of toxic material lying around the Union Carbide site continues to pollute the soil and water irreversibly and affects thousands residents of Bhopal who depend on it. In 2001, the US-based gigantic Dow Chemicals acquired Union Carbide, thereby acquiring its assets and liabilities. Dow maintains that being a USA company it is not subject to Government of India jurisdiction. Normally Dow Chemicals has the legal liability to clean up the Bhopal gas leak site on account of its acquisition of UCC on the basis that the polluters should pay. But the legal battle is still on to decide if the deal between the two companies has specified Dow owning all liabilities except those on account of Bhopal disaster. The Dow Chemical Company, with annual sales of $28 billion, says in its web site: it is “committed to the principles of Sustainable Development and its approximately 50,000 employees seek to balance economic, environmental and social responsibilities.” However it has been steadfastly refusing to clean up the site, provide safe drinking water or compensate the victims, or even disclose the composition of the gas leak, Dow like UCIL earlier, claims that it has no liability of the past. Corporate Social Responsibility (CSR) or ‘sustainability’ is not just obeying the law. It is not philanthropy. It is much beyond that. It implies serious business where organizations have to be seen as partners in their communities and not just as profit centers, promoting the interest of their shareholders but as businesses having obligation towards various stakeholders.7

The Corporate Dilemma: Profitability Vs Social Responsibility
“Too often the community views the businessmen’s aims as selfish gain rather than advancement of the general welfare. This impression can be removed only if business is fully alive to its social responsibilities and helps our society to function in harmony as one organic whole” …... Late Prime Minister Sri Lal Bahadur Shastri

We live in an industrial age, an age where the machine-processed articles supply most of our daily necessities. No doubt industry has enormously contributed to the material wealth of the world; but then if the industrial society has placed at man’s disposal many comforts, it has also created new threats to his physical, social and emotional security. It cannot be denied that profit making is the most important function of business, as all other accomplishments of business are impossible without it. The traditional way of doing business has been to produce and make profit at any cost, and by any means. What we conceptualize as purely corporate responsibilities stem from the economic goals of a corporation and the interests of those who own or work for it. The concept of business’ social responsibility was not considered when the factory system of production first came up, but of late the issue has come to the forefront due to various reasons. The shift in emphasis has primarily been due to the fact that the rapid rate of change in our industrial work has not only created new cultural and social attitudes but also underlined the need to redefine the relationships between the industry and the surrounding society. Today the demands are for industry to be more socially responsive and have a greater social conscience and social concern.8 The concept of business’ responsibility has been the subject of an ongoing debate since the 1950’s. “Should corporate stick to their traditional roles of producing goods and services, marketing them and making profits or should they venture into the arena of social services, welfare, rural and community development which is none of their business?” (Peter Drucker,1953).

Role Of Companies Act, 1956 In Imposing Responsibility On Corporations
Companies act, 1956 does not contain any provision regarding corporate social responsibility till recently as in Companies Bill 2009 twenty first report by ministry of corporate affairs contained special provision for corporate social responsibility as it clearly specifies that “There was no mention in the earlier Companies Act about corporate social responsibility. We are just mentioning that there will be a Corporate Social Responsibility Policy in each and every company beyond a certain limit, which are profitable companies and which are of certain size”9. It was felt that the Bill may include provisions to mandate that every company having net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more or a net profit of Rs. 5 crore or more during a year shall be required to formulate a CSR policy to ensure that every year at least 2% of its average net profits during the three immediately preceding financial years shall be spent on CSR activities as may be approved and specified by the company. The directors shall be required to make suitable disclosures in this regard in their report to members.10

If this companies bill takes shape of law it will eventually impose responsibility on corporation mandatory to abide by. Whether inclusion of this provision will make it mandatory for the owners of UCC to comply with the policies will certainly depend on what extent these policies are made mandatory imposing corporate social responsibility on corporations as Bhopal gas tragedy is already surrounded with legal complexities and addition of another liability on the part of corporation will further add to pandemonium.

As Dow Chemical has taken over the assets and liabilities of Union carbide it becomes its legal obligation as well as social responsibility to clean up the gas leak site. But it could lead to disarray as Dow Chemicals is US based company and whether it is subject to Indian jurisdiction is dubious.11

As of now, India is still not ready for a substantive law for the enforcement of CSR. However, certain judicial pronouncements are a positive indication that the country is slowly getting ready for such a law. India is coming out of the traditional view of ‘doing for the sake of it’ and coming forward and realizing their responsibilities. When the concept of CSR begins to be understood as a business oriented concept, without which the business would become difficult, it will be the time when India may be ready for statutory backing to the CSR. Notwithstanding the above and any amount of sermonizing on the CSR platform, ultimately we have to remember Milton Friedman’s famous quote that “the business of business is business”. It reinforces the view that all CSR is driven by business interests and it is best left to the judgment of a corporate as to what makes good business.

Corporations are powerful social institutions with enormous potential as levers of public policy.11 The implementation of corporate social responsibility would aid in ensuring minimal harm to the society. Much has been written and talked about this concept. If this concept is followed systematically, it can be helpful to the society in its development and safety. The need to avoid another Bhopal gas tragedy is our responsibility and requirement. To implement such measures that would help in progress as well as a safe world is the need of not only the hour but also the future.

Social responsibility is a financial calculation for executives, just like any other aspect of their business. The only sure way to influence corporate decision making is to impose an unacceptable cost regulatory mandates, taxes, punitive fines, public embarrassment on socially unacceptable behavior. Pleas for corporate social responsibility will be truly embraced only by those executives who are smart enough to see that doing the right thing is a byproduct of their pursuit of profit. And that renders such pleas pointless.12

Such arguments, often adopted by opponents of the social responsibility movement, tend to take a pure economic approach. That approach does not call for voluntary CSR, let alone mandatory CSR. Such an extreme stance may not be beyond question, because both regulation and practice are beginning to recognize the existence of interests other than shareholders that corporate managers must cater to. In India, the Corporate Social Responsibility Voluntary Guidelines 2009 exhort companies to act in a socially responsible manner, while there are plenty of instances where reputable Indian companies have already embarked on serious CSR initiatives.13

The companies should understand this and implement CSR voluntarily. The companies must realize that for them “Customer is the king”. So they should do everything possible to serve their king. But still if the companies do not take up CSR, there is no other option but to impose it on them. Every country should now start becoming aware of the advantages of CSR and how it can help in reduction of harm to society because of the activities of the companies and industries. Therefore, they should now make laws which would ensure that CSR is mandatorily taken up by all companies and industries so that the prime agenda of corporate houses will not be concentrated in profit earning only. They will gradually realize that they have a responsibility towards the society in which they operate. Even if they do not realize this fact still they will be bound to take up CSR because the strict laws will make them do so.

As far question of corporate social responsibility in case of Bhopal gas tragedy arises only speculation can be made of what will happen in future till then we have to wait and watch as there is no existing provision in company law which enforces such obligation of social responsibility.

Winston Churchill said – “Responsibility is the price of greatness”. Let our corporate world work towards maximum welfare of the maximum people – “Samasta Janaanaam Sukhino Bhavantu”.

1. ICSI, “Corporate Governance”, 4th ed., 2006, p. 299 .
2. Tatjana Chahoud, Johannes Emmerling, (et. al), ‘Corporate Social and Environmental Responsibility in India- Assessing the UN Global Compact’s Role” May, 2006, p.12
3. UNCTAD’S 1999 report on The Social Responsibility of Transnational Corporations .
4. http://www.legalserviceindia.com/article/l362-Corporate-Social-Responsibility.html
5. Ibid
6. http://www.mallenbaker.net/csr/definition.php
7. Supra; footnote 4
8. Sehgal, Ranjana (2004) ‘Social Work and Industry: Dilemma of Partnership’, Contemporary Journal of Social Work, Lucknow
9. Companies bill 2009, twenty first report by ministry of corporate affairs
10. Ibid
11. Supra; footnote 7
11. Gerald F. Davis et al, The Responsibility Paradox: Multinational Firms and Global Corporate Social Responsibility
12. http://indiacorplaw.blogspot.com/2010/08/bits-of-interest.html
13. Ibid

Authors contact info - articles The  author can be reached at: aniketpandey@legalserviceindia.com

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