Guide to legal implications of a CSR policy in India

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Indian Corporates already have a lot of obligations to adhere to legally and otherwise. The following are the laws under which Indian Corporates have to conduct CSR and sustainability –

Guide to legal implications of a CSR policy in India

Indian Companies Act 2013 (CSR)

Indian Companies Act 2013 (CSR)

This law has ensured a complete change in the Indian corporate scenario. Giving back to the society is taken extremely literally in case of this law. Of course, Corporates lift from the society either in the form of raw materials or employees. As per this law, the Corporates ought to compensate by giving back to the society. This is applicable under Section 135; schedule VII of the Companies Act and under Corporate Social Responsibility Policy 2014 which has been ordered to be implemented since and on the 1st of April, 2014.

The following companies fall under section 135 –

  • Those with a net worth of over 500 crores
  • Those with a turnover of 1000 crores
  • Those with a margin of more than 5 crores

Note that the above are measured in Indian Currency. This law is applicable to all companies operating from India even if they are MNCs operating through FDI.   These companies will have to spend 2% of their total margin on CSR for the next 3 financial years. It also orders Corporates to have a CSR committee consisting of 3 or more members of the Board of Directors. It is this board that shall suggest a CSR policy to the committee along with the budget and monitor the ongoing activities to the policies. The policy will have to be approved by all the members of the board.

The schedule defines CSR as follows –

  • Projects related to activities listed under the schedule
  • Projects related to activities that have been recommended by the committee under the rules and regulations of the schedule.

However, the schedule doesn’t limit the companies in any way and they are free to choose their own kind of CSR. The following are the activities that are suggested under the schedule –

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  • Taking steps to eradicate hunger and poverty
  • Provision of education
  • Working towards gender equality and women empowerment
  • Helping towards reducing child mortality
  • Contributing to the health index of the country
  • Ensuring sustainability of the environment
  • Providing vocational training
  • Contributing to any of the Government’s funds

It is suggested that the companies give preference to the areas where they operate from. Two or more Corporates can form an association in order to make a joint effort towards CSR but they ought to report their responsibilities as individual firms and not as a joint effort.

The appointed CSR committee is expected to suggest a policy that specialises in conjoining more than one business model along with societal and environmental responsibilities that will result ultimately in the growth of the company.

If the company is unable to spend the amount expected of them, they are required to give valid reasons for non-compliance or they shall be penalised. This law is welcomed by one and all in the hopes of social development and of closing of the gaps between the rich and the poor.

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