LUCKNOW
CORPORATE LAW-I
SUBMITTED BY SUBMITTED TO
Sec-A,
Semester- 5
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ACKOWLEDGEMENT
I owe a great many thanks to a great many people who helped and supported me during the
writing of this research project.
I wish to express my deep appreciation to my teacher Dr. Manish Singh, Associate Professor
of Law, for his guidance and persistent help without which completing this research would
not be possible. He continuously and convincingly conveyed his knowledge on the subject
and the right spirit and excitement for teaching. He has taken pain to go through the project
and make necessary correction as and when needed.
I would also thank my Institution and my faculty members without whom this project would
have been a distant reality. I also extend my heartfelt thanks to my family, seniors and friends
for their continuous support and advice helping me to complete my project.
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CONTENTS
ACKOWLEDGEMENT ........................................................................................................ 2
INTRODUCTION.................................................................................................................. 4
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INTRODUCTION
Promoting the uptake of CSR amongst SMEs requires approaches that fit the respective needs
and capacities of these businesses, and do not adversely affect their economic viability.
UNIDO based its CSR programme on the Triple Bottom Line (TBL) Approach, which has
proven to be a successful tool for SMEs in the developing countries to assist them in meeting
social and environmental standards without compromising their competitiveness. The TBL
approach is used as a framework for measuring and reporting corporate performance against
economic, social and environmental performance. It is an attempt to align private enterprises
to the goal of sustainable global development by providing them with a more comprehensive
set of working objectives than just profit alone2. The perspective taken is that for an
organization to be sustainable, it must be financially secure, minimize (or ideally eliminate)
its negative environmental impacts and act in conformity with societal expectations.
While there may be no single universally accepted definition of CSR, each definition that
currently exists underpins the impact that businesses have on society at large and the societal
expectations of them. Although the roots of CSR lie in philanthropic activities (such as
donations, charity, relief work, etc.) of corporations, globally, the concept of CSR has
evolved and now encompasses all related concepts such as triple bottom line, corporate
citizenship, philanthropy, strategic philanthropy, shared value, corporate sustainability and
business responsibility. This is evident in some of the definitions presented below:
1
Radu Mares, The Dynamics of Corporate Social Responsibilities(Martinus Nijhoff Publishers, Leidon
Boston, 2008).
2
http://www.unido.org/en/what-we-do/trade/csr/what-is-csr.html last visited on 02-10-2016.
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The EC3 defines CSR as the responsibility of enterprises for their impacts on society. To
completely meet their social responsibility, enterprises should have in place a process to
integrate social, environmental, ethical human rights and consumer concerns into their
business operations and core strategy in close collaboration with their stakeholders
The WBCSD defines CSR as4 the continuing commitment by business to contribute to
economic development while improving the quality of life of the workforce and their families
as well as of the community and society at large.
3
http://ec.europa.eu/enterprise/policies/sustainablebusiness/corporate-social-responsibility/index_en.htm last
visited on 01-10-2016.
4
http://www.wbcsd.org/work-program/businessrole/previous-work/corporate-social-responsibility.aspx last
visited on 01-10-2016.
5
http://www.unido.org/what-we-do/trade/csr/whatis-csr.html#pp1[g1]/0/ last visited on 01-10-2016.
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CORPORATE SOCIAL RESPONSIBILITY IN INDIA
This approach also reaffirms the view that businesses are an integral part of society, and have
a critical and active role to play in the sustenance and improvement of healthy ecosystems, in
fostering social inclusiveness and equity, and in upholding the essentials of ethical practices
and good governance7. This also makes business sense as companies with effective CSR,
have image of socially responsible companies, achieve sustainable growth in their operations
in the long run and their products and services are preferred by the customers.
Indian entrepreneurs and business enterprises have a long tradition of working within the
values that have defined our nation's character for millennia. India's ancient wisdom, which is
still relevant today, inspires people to work for the larger objective of the well-being of all
stakeholders. These sound and all-encompassing values are even more relevant in current
times, as organizations grapple with the challenges of modern-day enterprise, the aspirations
of stakeholders and of citizens eager to be active participants in economic growth and
development8.
The idea of CSR first came up in 1953 when it became an academic topic in HR Bowens
Social Responsibilities of the Business. Since then, there has been continuous debate on the
concept and its implementation. Although the idea has been around for more than half a
century, there is still no clear consensus over its definition.
One of the most contemporary definitions is from the World Bank Group, stating, Corporate
social responsibility is the commitment of businesses to contribute to sustainable economic
6
Ramon Mullerat, Corporate Social Responsibility:The Corporate Governance of 21st Century(Kluwer Law
International The Hague, 2005).
7
http://www.udtltd.com/UDTL-_CSR_Policy.pdf last visited on 02-10-2016.
8
India, Ministry of Corporate Affairs, Corporate Social Responsibility Voluntary Guidelines 2009.
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development by working with employees, their families, the local community and society at
large, to improve their lives in ways that are good for business and for development.9
CSR in India has traditionally been seen as a philanthropic activity. And in keeping with the
Indian tradition, it was an activity that was performed but not deliberated. As a result, there is
limited documentation on specific activities related to this concept. However, what was
clearly evident that much of this had a national character encapsulated within it, whether it
was endowing institutions to actively participating in Indias freedom movement, and
embedded in the idea of trusteeship.
As some observers have pointed out, the practice of CSR in India still remains within the
philanthropic space, but has moved from institutional building (educational, research and
cultural) to community development through various projects. Also, with global influences
and with communities becoming more active and demanding, there appears to be a
discernible trend, that while CSR remains largely restricted to community development, it is
getting more strategic in nature (that is, getting linked with business) than philanthropic, and
a large number of companies are reporting the activities they are undertaking in this space in
their official websites, annual reports, sustainability reports and even publishing CSR reports.
The Companies Act, 2013 has introduced the idea of CSR to the forefront and through its
disclose-or-explain mandate, is promoting greater transparency and disclosure. Schedule VII
of the Act, which lists out the CSR activities, suggests communities to be the focal point. On
the other hand, by discussing a companys relationship to its stakeholders and integrating
CSR into its core operations, the draft rules suggest that CSR needs to go beyond
communities and beyond the concept of philanthropy10. It will be interesting to observe the
ways in which this will translate into action at the ground level, and how the understanding of
CSR is set to undergo a change.
9
The Challenges of Social Corporate Social Responsibility: Facts for You, May 2013, pp. 38-39.
10
Avtar Singh, Company Law (Eastern Book Company, Lucknow 2015).
11
http://www.unece.org/oes/nutshell/2004-2005/focus_sustainable_development.html last visited on 02-10-
2016.
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meeting the agenda of sustainable development and entails a balanced approach to economic
progress, social progress and environmental stewardship.
CSR in India tends to focus on what is done with profits after they are made. On the other
hand, sustainability is about factoring the social and environmental impacts of conducting
business, that is, how profits are made. Hence, much of the Indian practice of CSR is an
important component of sustainability or responsible business, which is a larger idea, a fact
that is evident from various sustainability frameworks. An interesting case in point is the
NVGs for social, environmental and economic responsibilities of business issued by the
Ministry of Corporate Affairs in June 2011.
Principle eight relating to inclusive development encompasses most of the aspects covered by
the CSR clause of the Companies Act, 2013. However, the remaining eight principles relate
to other aspects of the business. The UN Global Compact, a widely used sustainability
framework has 10 principles covering social, environmental, human rights and governance
issues, and what is described as CSR, is implicit rather than explicit in these principles.12
The history of CSR in India has its four phases which run parallel to India's historical
development and has resulted in different approaches towards CSR. However the phases are
not static and the features of each phase may overlap other phases.
12
Handbook on Corporate Social Responsibility,
file:///C:/Users/jha/Downloads/www.pwc.in_assets_pdfs_publications_2013_handbook-on-corporate-social-
responsibility-in-india.pdf last visited on 02-10-2016.
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development were not only driven by selfless and religious motives but also influenced by
caste groups and political objectives13.
The third phase of CSR (196080) had its relation to the element of "mixed economy",
emergence of Public Sector Undertakings (PSUs) and laws relating labour and environmental
standards. During this period the private sector was forced to take a backseat. The public
sector was seen as the prime mover of development.
Because of the stringent legal rules and regulations surrounding the activities of the private
sector, the period was described as an "era of command and control".
The policy of industrial licensing, high taxes and restrictions on the private sector led to
corporate malpractices. This led to enactment of legislation regarding corporate governance,
labour and environmental issues. PSUs were set up by the state to ensure suitable distribution
of resources (wealth, food etc.) to the needy. However the public sector was effective only to
13
http://irft.org/pdf/CSR-Guidelines-Made-Simple.pdf last visited on 03-10-2016.
14
http://gifre.org/library/upload/volume/22-34-Corporate-vol-3-3-gjcmp.pdf last visited on 06-10-2016.
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a certain limited extent.15 This led to shift of expectation from the public to the private sector
and their active involvement in the socio-economic development of the country became
absolutely necessary. In 1965 Indian academicians, politicians and businessmen set up a
national workshop on CSR aimed at reconciliation. They emphasized upon transparency,
social accountability and regular stakeholder dialogues. In spite of such attempts the CSR
failed to catch steam.
In the fourth phase (1980 until the present) Indian companies started abandoning their
traditional engagement with CSR and integrated it into a sustainable business strategy. In the
1990s the first initiation towards globalization and economic liberalization were undertaken.
Controls and licensing system were partly done away with which gave a boost to the
economy the signs of which are very evident today. Increased growth momentum of the
economy helped Indian companies grow rapidly and this made them more willing and able
to contribute towards social cause. Globalization has transformed India into an important
destination in terms of production and manufacturing bases of TNCs are concerned, As
Western markets are becoming more and more concerned about labour and environmental
standards in the developing countries, Indian companies which export and produce goods for
the developed world need to pay a close attention to compliance with the international
standards.16
UNGC
UNGC is worlds largest corporate citizenship initiative with the objective to mainstream the
adoption of sustainable and socially responsible policies by businesses around the world. The
10 principles of the UN Global Compact have been derived from various UN conventions
such as the Universal Declaration of Human Rights, ILOs Declaration on Fundamental
15
Id.
16
P. Sivaranjini, T. Rekha , T.S. Nisha, Issues and Challenges Faced By Corporate Social Responsibility In
Community Development, India Human Resource Development( IOSR Journal of Business and Management),
http://iosrjournals.org/iosr-jbm/papers/ncibppte-volume-1/1059.pdf last visited on 06-10-2016.
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Principles and Rights at Work, the Rio Declaration on environment and development, and the
UN Convention Against Corruption. These principles cover four broad areas:
Human rights (support and respect the protection of international human rights and ensure
that business is not complicit with human rights abuses)
Labour rights (uphold the freedom of association
and effective recognition of the right to collective bargaining, elimination of all forms of
forced and compulsory labour, effective abolition of child labour and elimination of
description in respect of employment and occupation)
Environment (supports a precautionary approach to environmental challenges, undertake
initiatives to promote greater environmental responsibility and encourage the development of
environmental friendly technology)
Governance (work against corruption in all forms, including bribery and extortion).17
17
www.unglobalcompact.org/ last visited on 06-10-2016.
18
http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf last visited on 06-10-
2016.
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(ii) industrial relations (no trade union restrictions, regular discussions between
management and labour, and the provision of a forum to lodge complaints in case
of labour standard violation)
(iii) employment opportunities (creation of job security, improved living and working
conditions and ensuring that wages are on par with those of other enterprises in
the same country).19
19
http://www.ilo.org/empent/Publications/WCMS_094386/lang--en/index.htm last visited on 06-10-2016.
20
http://oecdwatch.org/about-oecd/guidelines last visited on 06-10-2016.
21
http://www.iso.org/iso/home/standards/iso26000.htm last visited on 06-10-2016.
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National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of
Business
These guidelines rolled-out by the Ministry of Corporate Affairs in India, were developed
through an extensive consultative process with the objective of providing a distinctive India
centric approach for Indian businesses to understand the nuances of responsible business,
applicable to large and small businesses alike.
They are easy to comprehend and implement, and encourage businesses to adopt the triple
bottom line approach. These guidelines consist of nine principles which relate to ethics and
transparency, product life cycle sustainability, employee well-being, stakeholder engagement,
human rights, environmental stewardship, responsible policy advocacy, inclusive
development and consumer well-being. Each principle consists of core elements that further
articulate the purpose and sense of each principle. It also provides an approach for adopting
these guidelines.22
The Act lists out a set of activities eligible under CSR. Companies may implement these
activities taking into account the local conditions after seeking board approval. The indicative
activities which can be undertaken by a company under CSR have been specified under
Schedule VII of the Act.
22
http://www.mca.gov.in/Ministry/latestnews/National_Voluntary_Guidelines_2011_12jul2011.pdf last visited
on 06-10-2016.
23
http://www.ey.com/Publication/vwLUAssets/EY-Advisory-CSR-Opportunities-and-Challenges-Tax-
Perspective/$FILE/EY-CSR-Opportunities-and-Challenges-Tax-Perspective.pdf last visited on 06-10-2016.
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The draft rules (as of September 2013) provide a number of clarifications and while these are
awaiting public comment before notification, some the highlights are as follows:
Surplus arising out of CSR activities will have to be reinvested into CSR initiatives, and this
will be over and above the 2% figure
The company can implement its CSR activities through the following methods:
-- Directly on its own
-- Through its own non-profit foundation set- up so as to facilitate this initiative
-- Through independently registered non-profit organisations that have a record of at least
three years in similar such related activities
-- Collaborating or pooling their resources with other companies
Only CSR activities undertaken in India will be taken into consideration
Activities meant exclusively for employees and their families will not qualify
A format for the board report on CSR has been provided which includes amongst others,
activity-wise , reasons for spends under 2% of the average net profits of the previous three
years and a responsibility statement that the CSR policy, implementation and monitoring
process is in compliance with the CSR objectives, in letter and in spirit. This has to be signed
by either the CEO, or the MD or a director of the company.
GOVERNANCE
Clause 135 of the Act lays down the guidelines to be followed by companies while
developing their CSR programme. The CSR committee will be responsible for preparing a
detailed plan on CSR activities, including the expenditure, the type of activities, roles and
responsibilities of various stakeholders and a monitoring mechanism for such activities. The
CSR committee can also ensure that all the kinds of income accrued to the company by way
of CSR activities should be credited back to the community or CSR corpus.
REPORTING
The new Act requires that the board of the company shall, after taking into account the
recommendations made by the CSR committee, approve the CSR policy for the company and
disclose its contents in their report and also publish the details on the companys official
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website, if any, in such manner as may be prescribed. If the company fails to spend the
prescribed amount, the board, in its report, shall specify the reasons.
As the business environment gets increasingly complex and stakeholders become vocal about
their expectations, good CSR practices can only bring in greater benefits, some of which are
as follows:
Communities provide the licence to operate: Apart from internal drivers such as values and
ethos, some of the key stakeholders that influence corporate behaviour include governments
(through laws and regulations), investors and customers. In India, a fourth and increasingly
important stakeholder is the community, and many companies have started realising that the
licence to operate is no longer given by governments alone, but communities that are
impacted by a companys business operations. Thus, a robust CSR programme that meets the
aspirations of these communities not only provides them with the licence to operate, but also
to maintain the licence, thereby precluding the trust deficit.
Attracting and retaining employees: Several human resource studies have linked a
companys ability to attract, retain and motivate employees with their CSR commitments.
Interventions that encourage and enable employees to participate are shown to increase
employee morale and a sense of belonging to the company.
Communities as suppliers: There are certain innovative CSR initiatives emerging, wherein
companies have invested in enhancing community livelihood by incorporating them into their
supply chain. This has benefitted communities and increased their income levels, while
providing these companies with an additional and secure supply chain.
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found that the scale of CSR initiatives of companies should depend upon their business
size and profile. In other words, the bigger the company, the bigger is its CSR program.
Lack of Consensus on Implementing CSR Issues: There is a lack of consensus amongst
local agencies regarding CSR projects. This lack of consensus often results in duplication
of activities by corporate houses in areas of their intervention. This results in a
competitive spirit between local implementing agencies rather than building collaborative
approaches on issues. This factor limits companys abilities to undertake impact
assessment of their initiatives from time to time.
CONCLUSION
A properly implemented CSR concept can bring along a variety of competitive advantages,
such as enhanced access to capital and markets, increased sales and profits, operational cost
savings, improved productivity and quality, efficient human resource base, improved brand
image and reputation, enhanced customer loyalty, better decision making and risk
management processes.
The issues to be dealt by the CSR in India are diverse education, water and sanitation,
financial inclusion, hunger, poverty and malnutrition amongst others but the main intent of
the Act is clear: to achieve significant impact at the grassroots level.
The new law is a gift to India. The law thoughtfully sets out key infrastructure
requirements that have taken decades to develop as critical elements in the creation of
strategic and impactful public-private partnerships for social good. It also formally introduces
CSR to the Boards of thousands of companies who may not have understood nor practiced
the concept. Among the key actions the law requires is the establishment of a governing CSR
committee of three senior members (one independent from the company) with responsibilities
to oversee CSR policy setting, its framework, implementation, measurement and reporting
The new law holds the potential for what is estimated to involve 8,000 companies, investing
more than $2 billion in social programs. India already has leading companies taking
innovative actions toward social issues. One of the most notable is the Hindustan Unilevers
Lifebuoy hand washing initiative. This program aims to change the behaviour of children,
especially under the age of five, by showing them how to wash their hands properly. This
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small behaviour change has the potential to prevent life threatening diseases that often lead to
tens of thousands of early childhood deaths.24
The Mahindra Group stimulates social innovation through its Spark the Rise Fund, a digital
platform for individuals or groups to submit concepts to develop innovations. Project ideas
are considered in technology, energy, agriculture and rural development, infrastructure,
transportation and social entrepreneurship. Those selected for funding are aptly called
sparks.
With a population of 1.2 billion and more than 700 million living on $1 per day, the CSR
mandate under the Companies Act should stimulate strategic engagement with social issues.
Corporations can comply at the very basic level of the law or use this historic moment to
innovate for the betterment of India, its people and economy.
BIBLIOGRAPHY
Books and Journal
24
Carol L. Cone , Indias Mandatory CSR Law Inspires Innovation
http://www.triplepundit.com/2014/10/indias-mandatory-csr-law-inspires-innovative-communication/ last visited
on 06-10-2016.
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http://www.unido.org/en/what-we-do/trade/csr/what-is-csr.html.
http://ec.europa.eu/enterprise/policies/sustainablebusiness/corporate-social-
responsibility/index_en.htm.
http://www.wbcsd.org/work-program/businessrole/previous-work/corporate-social-
responsibility.aspx last visited on 13-10-2015
http://www.unido.org/what-we-do/trade/csr/whatis-csr.html#pp1[g1]/0.
http://www.udtltd.com/UDTL-_CSR_Policy.pdf.
http://www.unece.org/oes/nutshell/2004-2005/focus_sustainable_development.html.
Handbook on Corporate Social Responsibility,
file:///C:/Users/jha/Downloads/www.pwc.in_assets_pdfs_publications_2013_handboo
k-on-corporate-social-responsibility-in-india.pdf.
http://irft.org/pdf/CSR-Guidelines-Made-Simple.pdf.
http://gifre.org/library/upload/volume/22-34-Corporate-vol-3-3-gjcmp.pdf.
P. Sivaranjini, T. Rekha , T.S. Nisha, Issues and Challenges Faced By Corporate
Social Responsibility In Community Development, India Human Resource
Development( IOSR Journal of Business and Management),
http://iosrjournals.org/iosr-jbm/papers/ncibppte-volume-1/1059.pdf.
www.unglobalcompact.org/.
http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pd
f.
http://www.ilo.org/empent/Publications/WCMS_094386/lang--en/index.htm.
http://oecdwatch.org/about-oecd/guidelines.
http://www.iso.org/iso/home/standards/iso26000.htm.
http://www.mca.gov.in/Ministry/latestnews/National_Voluntary_Guidelines_2011_12
jul2011.pdf.
http://www.ey.com/Publication/vwLUAssets/EY-Advisory-CSR-Opportunities-and-
Challenges-Tax-Perspective/$FILE/EY-CSR-Opportunities-and-Challenges-Tax-
Perspective.pdf.
Carol L. Cone , Indias Mandatory CSR Law Inspires Innovation
http://www.triplepundit.com/2014/10/indias-mandatory-csr-law-inspires-innovative-
communication/.
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