INTRODUCTION

Mahatma Ghandi stated, ‘The wealth that one creates has to be ploughed back for the benefit
of society’. The relationships between business and society have been studied for a long time
to find out the way through which business can pro-actively promote the public interest by
encouraging community growth, development and voluntarily eliminating practices that harm
the public sphere, regardless of legality. Essentially, corporate social responsibility is the
deliberate inclusion of public interest into corporate decisions. Presently, the society
convincingly recognized the process of undertaking corporate social responsibilities and
reporting such activities at a regular interval as an essential device for organizations towards
ensuring the long term continued existence. Corporate social responsibility has become an
inevitable priority for business leaders across the globe in recent times. Governments,
activists and media now hold the companies accountable for the social consequences of their
actions and favourable publicity is often bestowed on companies with prominent CSR
(corporate social responsibility) programs.

Corporate Social Responsibility (CSR) is the commitment of business to contribute to

sustainable economic development, working with employees, their families, the local
community and society at large to improve quality of life, in ways that are both good for
business and good for development. Also called corporate conscience, corporate citizenship,
social performance, or sustainable responsible business, CSR is a form of corporate self-
regulation integrated into a business model. CSR policy functions as a built-in, self-regulating
mechanism whereby a business monitors and ensures its active compliance with the spirit of
the law, ethical standards, and international norms. CSR is a process with the aim to embrace
responsibility for the company's actions and encourage a positive impact through its activities
on the environment, consumers, employees, communities, stakeholders and all other
members of the public sphere who may also be considered as stakeholders. The term
"corporate social responsibility" came into common use in the late 1960s and early 1970s
after many multinational corporations formed the term stakeholder, meaning those on whom
an organization's activities have an impact.1 Corporate social responsibility is an umbrella
term used to describe voluntary corporate initiatives concerned with community
development, the environment and human rights. CSR policies and programs seek to benefit
society while simultaneously improving a corporation’s public image and profitability. CSR
covers a wide range of issues relating to business conduct, from corporate governance and
environmental protection, to issues of social inclusion, human rights and national economic
development.

Evolution in India

India has a long tradition of paternalistic philanthropy. The process which is acclaimed
recently has been followed since ancient times though informally. Philosophers such as
Kautilya from India and pre-Christian era philosophers in the West preached and promoted
ethical principles while doing business. The concept of helping the poor and disadvantaged

1
http://www.corporatesocialresponsibility.com/

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was cited in several ancient literatures. In the pre-industrialized period philanthropy, religion
and charity were the key drivers of CSR. The industrial families of the 19th century had a
strong inclination toward charity and other social considerations. However, the donations,
were activities of charity or philanthropy that were taken out of personal savings, which
neither belonged to the shareholders nor did it constitute an integral part of business. During
this period, the industrial families also established temples, schools, higher education
institutions and other infrastructure of public use. The term CSR itself came into common use
in the early 1970s. The last decade of the twentieth century witnessed a shift in focus from
charity and traditional philanthropy toward more direct engagement of business in
mainstream development and concern for disadvantaged groups in the society. In India, there
is a growing realization that business cannot succeed in isolation and social progress is
necessary for sustainable growth. An ideal CSR practice has both ethical and philosophical
dimensions, particularly in India where there exists a wide gap between sections of people in
terms of income and standards as well socio-economic status.2

Importance of CSR

CSR plays a major role in developing the economy of a country. It can be defined as the way
in which a company manages various business entities to produce an impact on the society.
Companies with high CSR standards are able to demonstrate their responsibilities to the stock
holders, employees, customers, and the general public. Business organizations that have high
corporate social responsibility standards can attract staff thereby reducing employee turnover
and cost of recruitment. Companies voluntarily contribute a large sum of money to make a
better society and a clean environment.3 Corporate social responsibility is a process in which
all companies come together as one and take part in the welfare of the society. Many
organizations conduct campaigns to create awareness among corporate, civic bodies, and
government bodies about the importance of corporate social responsibility. Many national
and multinational firms are booming in various developing countries. But at the same time,
these countries suffer social challenges such as poverty, corruption, population growth, etc.
Therefore, it is important for all companies to strive together and adapt corporate social
responsibility standards to make the society better than before. An organization can exhibit a
better image in the society if it cares for its employees and involve them in social activities.
The responsibilities of an organization may range from providing small donations to
executing bigger projects for the welfare of the society. Many business houses around the
world show their commitment to corporate social responsibility.

2
Evolution of corporate social responsibility in India prezi.com, https://prezi.com/xef1gjtq0x8r/evolution-of-
corporate-social-responsibility-in-india/ (last visited Apr 2, 2018)
3
https://www.financierworldwide.com/the-importance-of-corporate-social-responsibility/#.WsGyN4hubIU

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 RESEARCH METHODOLOGY
The research is done as a proper doctrinal research. The researchers have used articles,
journals, books and internet for the purpose of this research. The research is purely based on
the secondary data.

Objectives of the research

 To understand the concept of corporate social responsibility.

 To analyze the growth and trend of corporate social responsibility policy worldwide.
 To understand and analyse the effects of globalisation on CSR.
 To analyse whether expenditure in CSR is mandatory or not.

Research Questions

The following are the research questions:

 Whether the globalisation has affected CSR?

 Whether expenditure is mandatory in CSR?

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 LEGAL ANALYSIS
Section 135 of the Indian Companies Act 2013 deals with the CSR. The section applies to
every company including its holding or subsidiary, and a foreign company defined under
Section 2(42) of the Act having its branch office or project office in India, which fulfils
anyone of the financial criteria set in Section 135(1), if such company, in any financial year
has:

 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 more4

The requirement applies irrespective of the nature of activities carried on by the company.
The company meeting the above financial criteria is to 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.

Corporate Social Responsibility Committee shall formulate and recommend to the Board, a
Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by
the company, recommend the amount of expenditure to be incurred on the Corporate Social
Responsibility activities and monitor the Corporate Social Responsibility Policy of the
company from time to time.5

The activities to be undertaken by the company should be as specified in Schedule VII.

Activities included in Schedule VII, as revised through notification by the Ministry of
Corporate Affairs vide G.S.R 130 (E) dated 27 February 2014 are as under:
1. Eradicating hunger and poverty and malnutrition, promoting health care including
preventive healthcare and sanitation and making available safe drinking water.
2. Promoting of education including special education and employment enhancing
vocation skills especially among children, woman, elderly and the differently abled
and livelihood enhancement projects.
3. Promoting gender equality and 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
of quality of soil, air and water.
5. Protection of national heritage, art and culture including restoration of buildings and
sites of historical importance and works of art; setting up of public libraries; promotion
and development of traditional arts and handicrafts.
6. Measures for the benefit of armed forces veterans, war widows and their dependents.

4
Section 135(1) of Companies Act , 2013 and Rule 3(1) and Rule 3(2) of the Companies (CSR) Rules, 2014
5
Section 135(3)

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 7. Training to promote rural sports, nationally recognized sports, and Para-Olympic
sports and Olympic sports.
8. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by
the Central Government or the State Governments for socioeconomic development and
relief and funds for the welfare of the Scheduled Castes, 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 projects.
11. Slum area development.6
The Board of Directors of every company shall approve the Corporate Social Responsibility
Policy as recommended by Corporate Social Responsibility Committee. The Board shall also
disclose contents of such Policy in its report and also place it on the company’s website and
ensure that the activities as are included in the CSR Policy of the company are undertaken by
the company.

Thus onus is placed on the Board of Directors of a company to approve the policy, place it on
the website of the company and ensure that the activities mentioned therein are undertaken by
the company.

Rule 8 requires that the Board’s report of a company pertaining to a financial year after 1
April 2014 shall include an annual report on CSR specifying details as contained in the
Annexure to the Rules. Balance sheet for a foreign company shall include an Annexure
regarding report on CSR. Rule 9 requires the Board of Directors, disclose the particulars of
the CSR policy to be displayed on the website of the company.

Impact of Globalisation on Corporate Social Responsibility

Globalisation is a leading concept which has become the main factor in business life during
the last few decades. This phenomenon affects the economy, business life, society and
environment in different ways, and almost all corporations have been affected by these
changes. These changes mostly related with increasing competition and the rapid changing of
technology and information transfer.

For multinational corporations, globalisation not only brings more opportunities and benefits,
but also makes them to adapt the changing environment and accept the unprecedented
challenges in the global level, industrial level and other levels. Corporate social responsibility
is considered as one of the most significant aspects facing firms employing international
business. In other words, multinational corporations reconsider the fact that the moral,
ethical, environmental and social issues should be incorporated into the process of decision
making on business strategies and operations.7

6
Schedule VII, Indian Companies Act 2013
7
N.Ravikumar, Globalization and Corporate Social Responsibility In India, International Journal of Innovative
Technology & Adaptive Management (IJITAM) ISSN: 2347-3622, Volume-1, Issue-5, February, 2014

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In accordance with the theoretical perspective, there are two aspects of the effect of
globalisation on corporate social responsibility. First, economic growth not only makes the
public and national governments concentrate on welfare augmentation and its benefits for the
society, but also makes them recognize that economic development is the consequence of the
combination of social, economic and moral implications. In ideal environment, economic
growth will provide the equal distribution of income and welfare, the respect and protection
of human rights and other aspects, which all people will share. However, globalisation to a
certain extent further intensifies the phenomenon on inequality. During this process, who to
be responsible for the balance between economic growth and inequality is considered as the
significant path of coping with the negative consequences of globalisation. This describes
that governments, firms, consumers are described as the principal undertaker. For firms, they
are significant undertakers responsible for the public and social interests and moral issues.
The firms incorporate social, environmental and moral issues into the process of their
decision making and take the rational responsible behaviour and activities, which brings more
and more profits for their shareholders and interests for their stakeholders in the long term.
However, some firms made some decision and illegal and immoral and were responsible for
the bad consequences. For instance, Enron scandal is considered as the most important
example on illegal operation and misbehaviour making shareholders responsible for the huge
loss.

Second, during the process of globalisation, the firms can maximize the efficiency and the
performance of firms business through the worldwide allocation of resources. Nevertheless,
the firms encounter the fierce competition beyond the spectrum of country or area. The
competition not only brings more value and interests for their consumers, but also makes
firms rethink their concerns of social, ethical and environmental issues and decision making
process. There is a fact that more and more consumers concern the perception of firms
environmental and social issues and socially responsible behaviours. Furthermore, the
shareholders and stakeholders also focus on the implement of the strategies on environment
and social communities. They will invest in the responsible and sustainable companies that
produce the benefits and profits in the long term. Based on these facts from consumers and
shareholders, more and more companies concentrate on the implementation and development
of social responsibility.

Expenditure on CSR--Is it mandatory?

The expression used in the section is "shall ensure". "Shall ensure" is explained in the
dictionaries to mean "to secure or make sure" which does suggest that there is a mandate to
spend 2% of average net profits of last three years on CSR activity.

Second Proviso of sub-section (5) requires the board to specify the reasons for not spending
the amount, where the company has failed to do so. Failure to spend does not make these
provisions voluntary. Neither the Act nor the rules prescribe any penal provision if a
company fails to spend the amount and also there does not appear to be any explicit provision
stating existing of any legal obligation on companies to make good short spend of one year in
the subsequent years.

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The Framework for the Preparation and Presentation of Financial Statements defines the term
"expense" as: "Expenses are decreases in economic benefits during the accounting period in
the form of outflows or depletions of assets or incurrences of liabilities that result in
decreases in equity, other than those relating to distributions to equity participants." CSR
expenditure is an item of expense for the company which needs to be charged to the
statement of profit and loss.
Expenditure' is equal to 'expense' and 'expense' is money laid out by calculation and intention
though in many uses of the word this element may not be present. But the idea of 'spending'
in the sense of 'paying out or away' money is the primary meaning which is relevant.
'Expenditure' is thus what is 'paid out or away' and is something which has gone
irretrievably.8
'Expenditure' is not necessarily confined to the money which has been actually paid out. It
covers a liability which has accrued or which has been incurred although it may have to be
discharged at a future date. However, a contingent liability which may have to be discharged
in future cannot be considered as expenditure. Although expenditure primarily denotes the
idea of spending or paying out, it may, in given circumstances, also cover an amount of loss
which has not gone out of the assessee's pocket but which is all the same, an amount which
the assessee has had to give up. It also covers a liability which the assessee has incurred in
praesenti although it is payable in future. A contingent liability that may arise in future is,
however, not 'expenditure'. It would also cover not just a one-time payment but a liability
spread out over a number of years.9
The 'expenditure' primarily denotes the idea of 'spending' or 'paying out or away'. It is
something which has gone irretrievably, but should not be in respect of an unascertained
liability of the future. It must be an actual liability in praesenti, as opposed to contingent
liability of the future.10

There is no legal obligation on a company to spend on CSR or cover for the shortfalls in the
spend in subsequent years. It may so happen that a company does not spend the requisite
amount as approved in its CSR policy, but discloses that it will cover the shortfalls in
subsequent years, thereby creating a constructive obligation for itself.

A provision for constructive obligation is required under Ind-AS, which is based on

accounting principles under IFRS. An opinion of Expert Advisory Committee of ICAI in The
Chartered Accountant of July 2013, states "Since as per Department of Public Enterprises
('DPE') Guidelines, there is no such obligation on the enterprise, provision should not be
recognised. Accordingly, the committee is of the view that the requirement in the DPE
Guidelines for creation of a CSR budget can be met through creation of a reserve as an
appropriation of profits rather than creating a provision as per AS 29. On the basis of the
above, the committee is of the view that in the extant case, it is not appropriate to recognise a
provision in respect of unspent expenditure on CSR activities. However, a CSR reserve may
be created as an appropriation of profits."

8
Indian Molasses Co. (P.) Ltd. v. CIT, [1959] 37 ITR 66.
9
Madras Industrial Investment Corpn. Ltd. v. CIT, [1997] 225 ITR 802.
10
Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836 KAR.

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Similarly, neither the Act nor CSR rules provide any guidance on whether a company can
carry forward the benefit of higher expenditure and use the same to spend lower amount in
subsequent years, although CSR policy of company could recommend and board of the
company approve, any higher expenditure than 2% of the average net profits.

CONCLUSION
CSR is a broad subject which leads to a variety of opinions and can be considered in a
number of different ways. CSR has gained in prominence in recent years. It has also changed
in nature as different issues have become more prominent. We have considered these changes
and looked in particular at environmental issues and the way in which the effects and
associated costs can be externalized away from the company itself. CSR is now generally
considered to be an integral part of strategy for any organization and built into the strategic
planning process. There are many perceived benefits to an organization from this.
Governance also is an integral part of this process. Globalization has an enormous effect on
society and business life which can be manifest in a number of different ways. So business
life needs more regulation and proper and socially responsible behavior than before.

When a corporate undertakes a new project it has to keep in mind how does it portray its
image in the market. Any wrongdoings can be potential pitfalls for the corporates; they have
to be right all the time, any mistake or shortcoming can immediately result in a loss of market
share as also reputation. Thus the companies have to continuously re evaluate its goals and
objectives and align them with the corporate strategy. They can take this opportunity to
inculcate proper business ethics & corporate values in their employees.

Along with the CSR comes the opportunity to convert these social initiatives into tangible
results, namely profits. A company should look what amount of value the project can give
back to the company. A social cost benefit analysis can give the company a fair idea about
what kind of rewards the initiative can generate for the company. Thus a company can decide
on the initiatives taking into consideration these various factors.

BIBLIOGRAPHY

Books -

a. A. Ramaiya, A Ramaiya Guide to the Companies Act, 18th ed. (2014)

b. M C Bhandari, Guide To Company Law Procedures, 25th ed. (2015).

Websites –

a. www.manupatra.com

b. www.lexisnexis.com