Every business operates within the society and earns revenues from the social sphere. End-users of every product/ service are the constituents of the society and hence this sphere deserves to be awarded. With a view to delivering defined and compulsory measures for corporate houses with respect to paying back the community, the Companies Act 2013 embraces Corporate Social Responsibility norms.
Definitely, this must be viewed as an opportunity by the business houses to create a better nation and hence add value to their market standing. I disagree with those who look at this as an unwanted compulsion. Remember, in case direct and indirect taxes did not have statutory validity, revenue of the government would have been lesser, which subsequently would have not delivered the prosperous economy we live in.
Section 135 that comprehensively covers the subject-matter of Corporate Social Responsibility should be briefly looked into prior to any appreciation or criticism. Whether private or public, every company with either a net worth of INR 500 Crore or turnover of INR 1000 Crore or net profit of INR 5 Crore is mandatorily required to spend at least 2 percent of its average net profits for the immediately preceding three FYs on corporate social responsibility activities mentioned in the Schedule VII of the Act.
The rules embrace holding, subsidiary, and foreign companies which have branch or project office in India. It is considerable to note that while computing profit, profits from any overseas branch of the company, including those operating as separate entity and dividends received from any other company in India which separately complies with CSR obligations are to be excluded. Eradication of hunger and malnutrition, promoting education and gender equality, and setting up homes for women and orphans are few of the CSR activities mentioned in the Schedule VII.
An express mention of exclusion of contributions to political parties from CSR activity definitely deserves applauds. Compulsory composition of CSR Committee with inclusion of at least one Independent Director too adds to the strength of this Section. However, some loopholes too are to be paid attention to. The task of undertaking CSR activities can be entrusted to a registered trust or society, or even a company established by the entity’s holding, subsidiary, or associate company for this purpose.
Corporate corruption is unhidden. Misappropriation of funds cannot be overlooked. The Board or the management though proficient in their relevant business, however holding deficient expertise of social welfare may be lured to extend CSR funds to trusts/ societies working under their illicit supervision. Plus, ultimate profit to the company/ shareholders and programmes only in Board’s preferred area can be the objective rather than the motive to bring in unbiased social prosperity. Though an express mention of the fact that companies are restricted to use CSR fund for any business related activity, indirect appropriation of fund that will eventually lead to the affluence of shareholders is probable.
Public sector/ government companies run under the administration of state/ central government too are under the obligations of CSR rules; however ministers, who directly and indirectly influence the Board, are vulnerable to employ CSR funds exclusively in their constituencies. This can result in overflow of funds in one area; however the most deprived areas can stay unnoticed. Inequality in income distribution will thus be accompanied with inequality in social welfare. Yes, there are ways to trim down such instances comprehensively.
To ensure that the funds, which would go as high as thousands of crores with fair participation both from the private as well as the public sector companies, are pooled and then utilized for actual social welfare, the MCA can look forward to establishing a statutory body with independent members holding requisite expertise of running welfare programmes as constituents. The body shall be entrusted with the task of applying funds to the activities that call for immediate attention. This way, the government would also be able to extend welfare programmes beyond the revenues generated from collection of taxes and grants. Surely, the capacity of the government would be enhanced and real reforms would come sooner than later. The underlying target of all-inclusive prosperity can thus be achieved uncomplicatedly and assuredly.