Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially

accountable — to itself, its stakeholders, and the public. By practicing corporate social responsibility,
also called corporate citizenship, companies can be conscious of the kind of impact they are
having on all aspects of society including economic, social, and environmental. To engage in CSR means
that, in the normal course of business, a company is operating in ways that enhance society and the
environment, instead of contributing negatively to it

CSR provisions under companies act

2013
The term ‘Corporate Social Responsibility’ (CSR) literally means the responsibility of Corporate Entities
towards society. The origination of CSR was happened long back in ancient India which lasted till 1850
and Charity and Philanthropy were the main drivers of that time.
Evolutions of CSR are divided in four phases and to have an idea of these phases, please refer below
given link:

1. APPLICABILITY:
Section 135(1) of the Companies Act, 2013 (hereinafter to be referred as ‘the Act’) provides for the
trigger point for the applicability of CSR Provisions and constitution of CSR Committee. The constitution
of CSR committee is mandatory in company having:
Net Worth of Rs. 500 Crore
Turnover of Rs. 1000 Crore
Net Profit of Rs. 5 Crore
during any financial year.

2. NET WORTH:
As per Section 2(57), ‘NW’ = (Paid Up Share Capital + All Reserves Created Out of Profits + Securities
Premium Account) – (Accumulated Losses + Deferred Expenditure and Miscellaneous Expenditure not
Written Off)

3. TURNOVER:
As per Section 2(91), ‘Turnover’ means the aggregate value of the realisation of amount made from the
sale, supply or distribution of goods or on account of services rendered, or both, by the company during a
financial year

4. NET PROFIT:
As per Rule 2(f) of the Companies (CSR Policy) Rules, 2014,‘Net Profit’ means the net profit of a
company as per its financial statement prepared in accordance with the applicable provisions of the Act,
but shall not include the following namely:
i) any profit arising from any overseas branch or branches of the company, whether operated as a separate
company or otherwise; and
ii) any dividend received from other companies in India, which are covered under and complying; with
the provisions of section 135 of the Act;
Provided that net profit in respect of a financial year for which the relevant financial statements were
prepared in accordance with the provisions of the Companies Act, 1956, (1 of 1956) shall not be required
to be re-calculated in accordance with the provisions of the Act.
Provided further that in case of a foreign company covered under these rules, net profit means the net
profit of such company as per profit and loss account prepared in terms of clause (a) of sub-section (1) of
section 381 read with section 198 of the Act.

5. ANALYSIS OF THE TERM NET PROFIT:

The aforesaid definition of ‘net profit’ as per Rule 2(f)provides for ‘net profit as per the financial
statements prepared in accordance with the applicable provisions of the act’.
If we refer the provisions of the Companies Act, 2013, it is clear that Section 198 heading of which is
‘Calculation of Profits’ is the only provision which we need to consider for the interpretation of the
expression ‘net profit’.
However, Section 198 starts with ‘in computing the net profits of a company in any financial year for the
purpose of Section 197’. The inclusion of the words ‘for the purpose of Section 197’ created ambiguity
whether Section 198 can be referred for the purpose of interpreting the expression ‘net profit’ provided in
Section 135(1) and such inclusion of ‘reference to Section 197’, reflected that the intention of law maker
may not be so.
If we accept Section 198 for calculation of net profit, then wherever applicability is based on net profit,
we always need to look at section 198 which will not hold good in case of Section 181 & 182.
In addition to the above, there is another term namely, ‘average net profit’ which is used in Section 135(5)
of the Act for the purpose of computation of expenditure which is to be incurred under corporate social
responsibility.
However, good news is that a recent circular dated 12th January 2016, was issued by the Ministry, which
provided for ‘average net profit’ criteria as under:

6. THE MEANING OF EXPRESSION ‘ANY FINANCIAL YEAR’:

The expression ‘any financial year’ is used in Section 135(1) and to understand the meaning of this term,
kindly consider below given points:
♣ Rule 3(2) of the Companies (CSR Policy) Rules, 2014, provides as under:
Every company which ceases to be a company covered under sub-section (1) of section 135 of the Act for
three consecutive financial years shall not be required to:
a) constitute a CSR Committee; and
b) comply with the provisions contained in sub-sections (2) to (5) of the said section.
♣ Circular dated 18th June, 2014 provides as under:
‘Any financial year’ referred under Sub-Section (1) of Section 135 of the Act read with Rule 3(2) of
Companies (CSR Policy) Rules, 2014, implies ‘any of the three preceding financial years’.
♣ Circular dated 18th June, 2014 provides as under:
Q. What is meaning of ‘any financial year’ mentioned above?
A. ‘Any Financial year’ referred under Sub- Section (1) of Section 135 of the Act read with Rule 3(2)
of Companies (CSR Policy) Rules, 2014 implies any of the three preceding financial years.
Therefore, it is clear that if as per latest audited financial statements, a company hits the any of the
financial strengths, then it is required to constitute and have CSR Committee for three consecutive years
irrespective of the financial strength. And in case, in the fourth year, such company does not hit any of the
financial strengths, then such company does not need to have and constitute CSR Committee.”

7. COMPOSITION OF CSR COMMITTEE:

As per Section 135(1), three or more Directors including at least one Independent Director shall form
CSR Committee.
However, for the companies which are not required to have Independent Director shall constitute CSR
Committee without Independent Director and the private companies having only two Directors shall
constitute CSR Committee only with two such Directors as provided in Rule 5(1) of the Companies (CSR
Policy) Rules, 2014.

8. DISCLOSURE IN BOARD REPORT:

As per Section 135(2)read with Rule 8, the Board’s Report prepared under Section 134 shall contain the
disclosures of the Composition of CSR Committee as per prescribed Annexure under Companies (CSR
Policy) Rules, 2014.
9. ROLE OF CSR COMMITTEE:
As per Section 135(3), following are the roles and responsibilities of CSR Committee:
Formulate a CSR Policy indicating the activities as per Schedule VII to the Act;
Recommend the policy to Board of the Company;
Recommend the amount of expenditure on the activities; and
Monitor CSR Policy by way of instituting a transparent monitoring mechanism for implementation of
CSR projects or programmes or activities undertaken by the company as provided in Rule 5(2).

10. ROLE OF BOARD OF DIRECTORS:

As per Section 135(4), following is the role of Board of Directors:
Approve the CSR Policy;
Disclose the contents of policy on the company’s website, if any; (Format in this regard has been annexed
as Annexure) [Also see Rule 9]
Ensure that activities as included in CSR Policy have been undertaken.

11. CSR EXPENDITURE:

As per Section 135(5), at least 2% of the average net profits of the company during three immediately
preceding financial years must be spent against CSR as provided in CSR Policy.”

12. FAILURE TO SPEND CSR FUND:

If a company fails to pay amount allocated for CSR, then such company shall make such disclosure in the
Board’s Report. Such company shall also specify the reason of failure to spend CSR Fund.

13. CSR Policy:

As per Rule4, following points must be considered while drafting the CSR Policy:
(1) CSR policy shall specifically provide activities which are to be undertaken by the Company during the
financial year;
(2) CSR Policy shall not include the activities which are in the normal course of the business of the
Company;
(3) CSR policy shall provide for the activities to be executed in India only to be covered under Section
135;
(4) CSR policy may provide for the activities which are for the benefit of the employees of the company.
However, such expenditure on such activity will not considered as CSR expenditure;
(5) The companies can build their own capacities of their own personnel as well as those of their
implementing agencies through Institutions with established track records of last three financial years.
However, administrative overhead in any case shall not exceed 5% of total CSR expenditure in one
financial year.
As per Rule 6, following shall be included in CSR Policy:
(1) The list of programmes or projects which finds its place in the purview of Schedule VII;
(2) The modalities for exaction of CSR projects;
(3) The schedules for implementation of CSR projects;
(4) Monitoring process of such projects;
(5) Specific declaration to the effect that surplus arising out of the CSR projectsshall not form part of the
business profit of a company.
14. CSR ACTIVITIES:
As per Rule 4, following points must be considered while taking decisions on the activities to be
undertaken by the Companies:
(1) CSR activities shall be undertaken as per its formalised CSR Policy;
(2) Any activity which is undertaken in the normal course of business cannot be termed as CSR activities
of the Company;
(3) Two or more companies can also come together and collaborate for the purpose of undertaking
projects or programmes under their CSR Policy in such a manner that the CSR Committees of respective
companies are in position to report separately;
(4) To term any activity as ‘CSR activity’, the same shall be undertaken in India only;
(5) The companies can have CSR activities which will benefit the employees of such company. However,
such activities will not be considered as CSR Activities pursuant to Section 135 of the Act;
(6) Political contribution shall not be considered as CSR activities.

15. CSR THROUGH TRUST, SOCIETY AND SECTION 8 COMPANY:

As per Rule 4(2), the Companies can spend its CSR expenditure through registered trust, society or
section 8 companies.
1. The law has granted companies to come together to form a trust, society or section 8 company for this
purpose. Such companies coming together not necessarily required having some relations with each other
such as associate, holding-subsidiary relation, etc. and hence, even unrelated companies can come
together for this purpose.
2. The Companies can also undertake CSR activities through a company established under section 8 of
the Act or a registered trust or a registered society established by the Central Government or State
Government or any entity established under an Act of Parliament or a State Legislature.
However, if a company doesn’t opt for any of the aforesaid options for undertaking CSR activities and
decide to undertake CSR activities through a company established under section 8 of the Act or a
registered trust or a registered society other than those specified above then:
1. Such company or trust or society shall have an established track record of three years in undertaking
similar programs or projects;
2. The Companies have specified the projects or programs which shall be undertaken with their funds;
3. Modalities of utilization of funds; and
4. Monitoring and reporting mechanism.
Evolution of corporate social
responsibility in India
The evolution of corporate social responsibility in India refers to changes over time in India of the
cultural norms of corporations' engagement of corporate social responsibility (CSR), with CSR referring
to way that businesses are managed to bring about an overall positive impact on the communities,
cultures, societies and environments in which they operate.[1] The fundamentals of CSR rest on the fact
that not only public policy but even corporates should be responsible enough to address social issues.
Thus companies should deal with the challenges and issues looked after to a certain extent by the
states.[2]
Among other countries India has one of the oldest traditions of CSR. But CSR practices are regularly not
practiced or done only in namesake especially by MNCs with no cultural and emotional attachments to
India. Much has been done in recent years to make Indian Entrepreneurs aware of social responsibility
as an important segment of their business activity but CSR in India has yet to receive widespread
recognition. If this goal has to be realised then the CSR approach of corporates has to be in line with
their attitudes towards mainstream business- companies setting clear objectives, undertaking potential
investments, measuring and reporting performance publicly.
The Four Phases of CSR Development in India
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.

The First Phase

In the first phase charity and philanthropy were the main drivers of CSR. Culture, religion, family values
and tradition and industrialization had an influential effect on CSR. In the pre-industrialization period,
which lasted till 1850, wealthy merchants shared a part of their wealth with the wider society by way of
setting up temples for a religious cause. Moreover, these merchants helped the society in getting over
phases of famine and epidemics by providing food from their godowns and money and thus securing an
integral position in the society. With the arrival of colonial rule in India from the 1850s onwards, the
approach towards CSR changed. The industrial families of the 19th century such
as Tata, Godrej, Bajaj, Modi, Birla, Singhania were strongly inclined towards economic as well as social
considerations. However it has been observed that their efforts towards social as well as industrial
development were not only driven by selfless and religious motives but also influenced by caste groups
and political objectives.[3] Or studies

The Second Phase

In the second phase, during the independence movement, there was increased stress on Indian
Industrialists to demonstrate their dedication towards the progress of the society. This was
when Mahatma Gandhi introduced the notion of "trusteeship", according to which the industry leaders
had to manage their wealth so as to benefit the common man. "I desire to end capitalism almost, if not
quite, as much as the most advanced socialist. But our methods differ. My theory of trusteeship is no
make-shift, certainly no camouflage. I am confident that it will survive all other theories." This was
Gandhi's words which highlights his argument towards his concept of "trusteeship". Gandhi's influence
put pressure on various Industrialists to act towards building the nation and its socio-economic
development.[4] According to Gandhi, Indian companies were supposed to be the "temples of modern
India". Under his influence businesses established trusts for schools and colleges and also helped in
setting up training and scientific institutions. The operations of the trusts were largely in line with
Gandhi's reforms which sought to abolish untouchability, encourage empowerment of women and rural
development.

The Third Phase

The third phase of CSR (1960–80) 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 a certain limited extent. 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.

The Fourth Phase

In the fourth phase (1980 - 2013) 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{Gajare, R.S. (2014). A conceptual study of CSR development in India. In D.B. Patil &
D.D. Bhakkad, Redefining Management Practices and Marketing in Modern Age Dhule, India: Atharva
Publications (p. 152-154).} 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.
Current State of CSR in India
As discussed above, CSR is not a new concept in India. Ever since their inception, corporates like the Tata
Group, the Aditya Birla Group,and Indian Oil Corporation, to name a few, have been involved in serving
the community. Through donations and charity events, many other organizations have been doing their
part for the society. The basic objective of CSR in these days is to maximize the company's overall impact
on the society and stakeholders. CSR policies, practices and programs are being comprehensively
integrated by an increasing number of companies throughout their business operations and processes. A
growing number of corporates feel that CSR is not just another form of indirect expense but is important
for protecting the goodwill and reputation, defending attacks and increasing business
competitiveness.[6]
Companies have specialised CSR teams that formulate policies, strategies and goals for their CSR
programs and set aside budgets to fund them. These programs are often determined by social
philosophy which have clear objectives and are well defined and are aligned with the mainstream
business. The programs are put into practice by the employees who are crucial to this process. CSR
programs ranges from community development to development in education, environment and
healthcare etc.[7]
For example, a more comprehensive method of development is adopted by some corporations such
as Bharat Petroleum Corporation Limited, Maruti Suzuki India Limited. Provision of improved medical
and sanitation facilities, building schools and houses, and empowering the villagers and in process
making them more self-reliant by providing vocational training and a knowledge of business operations
are the facilities that these corporations focus on. Many of the companies are helping other peoples by
providing them good standard of living.
Also, corporates increasingly join hands with non-governmental organizations (NGOs) and use their
expertise in devising programs which address wider social problems.
CSR has gone through many phases in India. The ability to make a significant difference in the society
and improve the overall quality of life has clearly been proven by the corporates. Not one but all
corporates should try and bring about a change in the current social situation in India in order to have an
effective and lasting solution to the social woes . Partnerships between companies, NGOs and the
government should be facilitated so that a combination of their skills such as expertise, strategic
thinking, manpower and money to initiate extensive social change will put the socio-economic
development of India on a fast track.