Management Development Institute, Gurgaon

LEGAL ASPECTS OF BUSINESS

Corporate Social Responsibility

Submitted By: Group 1

Aabid Bains (15P001)
Arti Jain (15P011)
Gautam Bindlish (15P021)
Mayank Rajput (15P031)
Rohit Gupta (15P041)
Siddharth Gupta (15P051)

S.No

Introduction
KM Birla says The days are long past when the business of business was
just business. Idea that a corporation is merely a legal abstraction devoid
of heart and soul, no longer has legitimacy The corporation may be an
economic wunderkind but it falls short and often falls apart if it does not
meet the needs of society or if it does not act with a conscience. Today, no
stakeholder be it a shareholder, an employee, the community and the
government would accept a business whose rationale is limited to profits
at any cost, or only to compulsion of its immediate business.

Companies Act, 2013

The long-awaited Companies Bill 2013 got its assent in the Lok Sabha on 18
December 2012 and in the Rajya Sabha on 8 August 2013. After having obtained
the assent of the President of India on 29 August 2013, it has now become the
much awaited Companies Act, 2013 (2013 Act). An attempt has been made to
reduce the content of the substantive portion of the related law in the
Companies Act, 2013 as compared to the Companies Act, 1956 (1956 Act).
The 2013 Act introduces significant changes in the provisions related to
governance, e-management, compliance and enforcement, disclosure norms,
auditors and mergers and acquisitions. Also, new concepts such as one-person
company, small companies, dormant company, class action suits, registered
values and corporate social responsibility have been included
It has 470 sections, 7 schedules and 29 chapters.

Corporate Social Responsibility

The Ministry of Corporate Affairs (MCA) had introduced the Corporate Social
Responsibility Voluntary Guidelines in 2009. These guidelines have now been
incorporated within the 2013 Act and have obtained legal sanctity.
Section 135 [Companies Act, 2013]
1) 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 of the Board consisting of three or more
directors, out of which at least one director shall be an independent
director.
2) The Board's report under sub-section (3) of section 134 shall disclose the
composition of the Corporate Social Responsibility Committee.
3) The Corporate Social Responsibility Committee shall
a. Formulate and recommend to the Board, a Corporate Social
Responsibility Policy which shall indicate the activities to be
undertaken by the company as specified in Schedule VII;
b. recommend the amount of expenditure to be incurred on the
activities referred to in clause (a); and
c. Monitor the Corporate Social Responsibility Policy of the company
from time to time.
4) The Board of every company shall

a. after taking into account the recommendations made by the

Corporate Social Responsibility Committee, approve the Corporate
Social Responsibility Policy for the company and disclose contents of
such Policy in its report and also place it on the company's website,
if any, in such manner as may be prescribed; and
b. ensure that the activities as are included in Corporate Social
Responsibility Policy of the company are undertaken by the
company
5) The Board of every company referred to in sub-section (1), 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, in pursuance of its Corporate Social
Responsibility Policy:
Provided that the company shall give preference to the local area and
areas around it where it operates, for spending the amount earmarked for
Corporate Social Responsibility activities
It is further provided that if the company fails to spend such amount, the
Board shall, in its report presented in the general meeting to the
shareholders, made under, specify the reasons for not spending the
amount.
Schedule VII
Activities specified in Schedule VII, which can be undertaken by the company are
as follows:
1. eradicating hunger, poverty and malnutrition, promoting preventive health
care and 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
5. protection of national heritage, alt 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
7. training to promote rural sports, nationally recognised sports, paralympic
sports and Olympic sport
8. contribution to the P me Minister's National Relief Fund or any other fund
set up by the Central Government for socio-economic development and
relief and welfare of the Scheduled Caste$, the Scheduled Tribes, other
backward classes, minorities and women.
9. Contributions or funds provided to technology incubators located within
academic institutions which are approved by the Central Government.
10.rural development project

Assessment of feasibility of CSR

Major considerations required viz. a viz. Fiscal Law
Unless CSR spending is recognised as an additional amount eligible for deduction
under the income tax law, the spending may be nothing but an burden on profits
of the enterprises.
Presently the Income Tax Law provides for deduction under section 80G for
donations to certain funds and institutions with maximum limit of 10% of the
total income. Deduction for CSR spending should preferably be over and above
deduction under section 80G to give a direct motivation to companies to spend
for CSR activities. Alternatively CSR may be declared as a business expense and
deduction may be allowed under the Income Tax Law.
Apart from this capital and revenue expenditure on CSR activities require
separate tax treatment to avoid future litigations. The Income Tax Law has to
address these and various other issues which we hope that government would be
covering in the next Budget of 2014.
Like any other person, companies also pay various taxes to the government in
one form or the other. Direct taxes particularly are a major tax directly borne by
the companies which account for around 1/3rd of their profits every year. Apart
from this, companies also pay wealth tax of 1% of their taxable net wealth. In
one view the corporate responsibility should end there, it is for the government
now to use the money collected efficiently.

Apart from this every company is contributing to the welfare of the society in one
form or the other for instance creating employment, harnessing investing in
technology and converting people's pooled savings into productive capital. They
create wealth for shareholders and also pay taxes. In any case it will be a greater
challenge for the giant companies to manage the total burden of income tax,
wealth tax and CSR spending.

Why the need to make CSR mandatory?

It should be mandatory because a part of the activities of large corporate houses
create problems for the affected populations. Business managers are ill equipped
and inadequately trained to handle issues related to society and its problems.
They better leave it to the administrative services officials who are trained to.
Although economic considerations constitutes the main driving factors in any
business activity, there is growing resistance against the conventional view that
business is merely a means of improving the economic condition of an individual
or group. The concept of CSR is qualitatively different from the traditional
concept of philanthropy. Traditional concept of philanthropy dates back to the
19th century and emerged from factors such as concern for the immediate
member of the corporate body including employees and their families, the
aspiration to create several trust and similar bodies to hold and cross the
owners holdings which would do charitable works as the face of the owner
Attract and retain employees. An employee feels pride in being associated with
good corporate citizens. CSR leads to reduce activists and regulatory oversights.
"Why should corporates have social responsibility? The reason is that corporates
have immense resources and tremendous potential to impact their surrounding
through the policies and their business conduct," Justice Lokur said.

How is it different from Corporate Philanthropy?

CSR is an active and voluntary contribution with social, economic and
environmental ideas, which if integrated to meet the mission of the organization

aim to improve its competitive position, bring value to the company, benefit
workers and the communities within their area of influence. CSR has now
become a part of corporate strategy of creating competitive advantage through
creation of goodwill & image which help in sustainable growth & development .
CSR takes care of all the stakeholders and promotes ethical corporate
governance and displays special concern for society & environment.
Corporate Philanthropy is the act of a corporation or business promoting the
welfare of others, generally via charitable donations of funds or time. It includes
the charitable
donations of profits and resources given
by corporations to nonprofit organizations. Corporate philanthropy generally
consists of cash donations but can also be in the form of use of
their facilities or volunteer time offered by the company's employees. Donations
are generally handled directly by the corporation or by a foundation created by
the
firm
Corporate Philanthropy, hence, can be seen as a part of the Corporate Social
Responsibility.

Conclusions and Recommendations

Amid various practical difficulties which may have to be encountered at least in
the initial phases of implementation of the new CSR provisions, the initiative of

the government is no doubt appreciable. The new provisions may be viewed as

the result of the changing corporate philosophy in India and worldwide which
entrusts the responsibilities on giant corporates towards social welfare of the
population which comprise of their present or prospective employees, customers
or other stakeholders in varied roles. In order to ensure meeting the true spirits
of the new CSR law, a well organized, professionally capable and independent
team needs to be formed. It is possible only when companies come forward and
join together for this common good goal. Building an expert and trained team of
professionals is needed for managing funds earmarked for CSR purposes is
required. One step forward has been put forward by Indian Institute of Corporate
Affairs (IICA) in this regard. The Institute is planning to initiate a certificate
programme on Corporate Social Responsibilities activities for working executives.
As the thousands of giant corporates may be involved with funds amounting to
thousands of crores of rupees, it will a better idea for the government that rather
than fixing responsibility of spending by individual companies, the government
should encourage making a common corpus to be managed collectively by
experienced professionals to be nominated by the participating corporates. The
funds of the corpus may be invested in risk free securities and the income from
such investments may be used for gigantic social welfare projects which are
capable of covering a large number of populations by raising their income and
standards of living who in turn would become the part of growth story of varied
industries in India. The new CSR law, being a Rule Ruled by Rules (called so
because section 135 on CSR spending require detailed and comprehensive
guidelines towards implementation of new CSR law), since the rules are under
finalisation, once the rules are in place, we hope to have a better picture of the
various aspects of new CSR provisions

References
[1] Chapter IX of the Draft Rules (First Phase) under Companies Act, 2013,
Ministry of Corporate Affairs.
[2] Hindustan Times , CSR spending may pump in Rs. 27,000 Cr a year, New
Delhi, September 21, 2013 First Published: 00:39 IST(21/9/2013) | Last Updated:
02:37 IST(21/9/2013).
[3] Economic Times Cos. to spend Rs 15-20k Cr a year on CSR, PTI Sep 10,
2013, 01.27PM IST New Delhi [4] Business Standard, Press Trust of India | New
Delhi September 10, 2013 Last Updated at 13:38 IST