1. Definition of the Topic & Explanation of Key Legal Terms
Corporate Social Responsibility (CSR) refers to the ethical obligation of a business towards society in which it operates. It involves initiatives taken by companies to assess and take responsibility for their effects on environmental and social well-being.
Sustainability refers to practices that ensure the long-term preservation of environmental, social, and economic resources to meet the needs of the present without compromising the ability of future generations to meet their own needs.
Key terms:
- Triple Bottom Line: Framework focusing on three performance dimensions: People, Planet, and Profit.
- Stakeholders: Individuals or groups affected by corporate actions (e.g., employees, community, shareholders).
- Environmental, Social, and Governance (ESG): A framework used by investors to evaluate corporate behavior.
2. Historical Background and Evolution
The concept of CSR originated in the early 20th century in the United States, where businesses began to acknowledge their role beyond profit-making. In India, CSR evolved from philanthropic activities by industrialists like J.R.D. Tata and G.D. Birla to a more structured legal obligation under the Companies Act, 2013.
Globally, milestones include:
- UN Global Compact (2000): A voluntary initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies.
- Brundtland Report (1987): Introduced the idea of sustainable development.
3. Statutory Framework (India)
CSR was made mandatory in India through the Companies Act, 2013, Section 135, read with Schedule VII and Companies (CSR Policy) Rules, 2014.
Key provisions:
- Applies to companies with:
- Net worth ≥ ₹500 crore or
- Turnover ≥ ₹1000 crore or
- Net profit ≥ ₹5 crore
- Must spend at least 2% of the average net profits (past 3 years) on CSR activities.
- Activities include: eradicating hunger, promoting education, gender equality, environmental sustainability, etc.
4. Doctrinal Analysis & Academic Commentary
The legal doctrine of CSR in India reflects a mandatory compliance model. Scholars argue that this statutory CSR reflects a shift from voluntary morality to enforceable legal obligation.
Legal academics like Prof. C. Raj Kumar have emphasized the balance between corporate autonomy and regulatory oversight in CSR, stressing that CSR in India should also ensure transparency and accountability rather than becoming a tick-box exercise.
5. Landmark Case Laws
- Tech Mahindra Ltd. v. Registrar of Companies (2018)
Facts: Company delayed CSR compliance.
Held: Mere delay in spending CSR funds without valid reason can attract penal provisions. - National Green Tribunal v. State of Punjab (2020)
Facts: CSR funds misused for purposes not aligned with Schedule VII.
Held: Misallocation of CSR funds amounts to a breach of fiduciary responsibility. - Balco Employees Union v. Union of India, AIR 2002 SC 350
Ratio: Though not a CSR case, the court emphasized that profit-making cannot override social responsibilities.
6. Contemporary Relevance & Real-life Examples
- During COVID-19, many companies redirected CSR funds to health infrastructure and relief funds (e.g., PM CARES Fund).
- Environmental CSR: Infosys and ITC have committed to carbon neutrality and sustainable water usage.
- Social Inclusion: Tata Steel runs programs for education, skilling, and women empowerment.
CSR has become a branding and investor attraction strategy for multinational corporations (MNCs) under the ESG model.
7. Comparative Analysis
| Aspect | India (Mandatory CSR) | USA (Voluntary CSR) | EU (Mixed Approach) |
|---|---|---|---|
| Legal Framework | Mandatory (Companies Act) | Voluntary guidelines (SEC, etc.) | Disclosure obligations under EU CSR Directive |
| Reporting | Board report + website | Not mandatory | ESG reporting mandated for large firms |
| Focus | Social development | Philanthropy, sustainability | Environmental and social governance |
India is the first country to legislate mandatory CSR, whereas most countries still follow a voluntary or soft law approach.
8. Critical Perspectives & Scholarly Views
Critics argue that:
- Mandatory CSR blurs the line between taxation and philanthropy.
- It may lead to ineffective spending for compliance’s sake, without impact assessment.
- Smaller companies may feel overburdened.
Scholars like Prof. Bhavani Balasubramanian have called for impact-based CSR reporting and third-party audits to improve effectiveness.
9. Conclusion
CSR and sustainability are not just moral obligations but now form the core of legal compliance and corporate strategy in India. The move from voluntary to mandatory CSR aims to align corporate profits with public good. However, effective implementation, transparency, and genuine stakeholder engagement are critical to the success of this legal mandate.
10. Illustrative Hypothetical
Example:
ABC Ltd., with a net profit of ₹10 crore, spends ₹10 lakhs on promoting education in rural Bihar and ₹5 lakhs on advertising its brand during the campaign. Only ₹10 lakhs will qualify as CSR spending as promotional expenses are excluded under CSR Rules.