Social Responsibility during Social Distancing

Posted On - 30 March, 2020 • By - Rajashree Devchoudhury

CSR in India During Covid 19 Outbreak 

How do we change the world? One random act of kindness at a time. – Morgan Freeman.

The concept of Corporate Social Responsibility (“CSR”)
is being pursued by corporate entities worldwide. The United Nations Industrial
Development Organisation (“UNIDO”), a specialized agency of the United
Nations, whose mission is to promote and accelerate inclusive and sustainable industrial development in Member States,
states CSR as:

 “Corporate Social Responsibility is a management concept whereby
companies integrate social and environmental concerns in their business
operations and interactions with their stakeholders. CSR is generally
understood as being the way through which a company achieves a balance of
economic, environmental and social imperatives (“Triple-Bottom-Line-
Approach”), while at the same time addressing the expectations of shareholders
and stakeholders. In this sense it is important to draw a distinction between
CSR, which can be a strategic business management concept, and charity,
sponsorships or philanthropy…..” [1] 

Corporate Social Responsibility and Triple Bottom Line

The concept of Triple – Bottom – Line (“TBL”) has
been extensively discussed by John Elkington in his book Cannibals with Forks:
The Triple Bottom Line of 21st Century Business. John Elkington
argues that a company’s performance should not only be determined by its
profits but also through its adherence to the key principles of TBL, viz.
social justice, economic prosperity, and environmental quality. At the broadest
sense, the expression TBL encompasses the entire set of values, processes,
ethics and/or practices that a corporate entity must adhere to with the aim of
reducing the damage that might have been caused to the society at large due to
the activities carried out by the company.

The concepts of TBL and CSR go hand in hand, whereby TBL
acts as the measure of CSR activities being carried out by a company.

CSR in the Indian perspective

India, being a member of the UNIDO, is no stranger to the
aforementioned concepts of CSR and TBL approach. The Companies Act, 2013 (the “Act”)
vide Section 135 and the Companies (Corporate Social Responsibility Policy) Rules
2014 (“CSR Rules”)makes it
mandatory for companies meeting certain thresholds to spend a specified percentage
of their net profits towards CSR activities. By way of making CSR activities
mandatory on part of certain companies meeting the stipulated threshold under
the Act, India has become the first country in the world to mandate CSR
activities pursuant to an amendment to the legislation.

Brief analysis of the CSR provisions in India

Section 135 of the Act, mandates companies having (a) net worth of INR Five Hundred Crore or
more, or (b) turnover of INR One
Thousand Crore or more, or (c) net
profit of INR Five Crores or more during the immediately preceding
financial year to constitute a CSR committee who shall formulate a CSR policy
indicating the CSR activities to be undertaken by the company. Sub-section 5 of
Section 135 mandates that at least two percent of the average net profits of
the company made during the three immediately preceding financial years shall
be spent towards CSR activities. The Act, vide Schedule – VII (the “Schedule”),
indicates the activities which may be included in the CSR policies of companies
to carry out their CSR obligations.

In its attempt to bridge the gap between corporate
capitalism and deliberate socialism, the Ministry of Corporate Affairs (“MCA”)
released the general circular dated 18th June 2014[2] expressing that entries in the Schedule should be
interpreted liberally capturing the true sense of the letter and spirit.
However, a substantial amount of CSR funds remain unutilized under the guise of
a lack of appropriate projects.

A Welcoming Development

In light of the increasing number of cases of COVID-19 &
the World Health Organisation’s (“WHO”) declaration of it as a pandemic,
the Government of India has decided to treat COVID-19 as a notified disaster.
Further, on 23rd March 2020, the MCA released a General Circular[3]
clarifying that funds spent by the corporate houses towards providing aid and
succour for combating COVID – 19 shall be eligible to be considered as funds
spent for CSR activities.

The MCA further clarifies that the funds may be utilized for
activities falling under the item numbers (i) [promoting healthcare including preventive health care and sanitation]
and (xii) [disaster management, including
relief, rehabilitation and reconstruction activities] of the Schedule and
shall be interpreted liberally.

This circular has come as a sigh of relief during these
tough times and has been welcomed as a commendable step by the MCA towards
combating the spread of COVID-19 by several corporate houses. This is an
encouraging step by the MCA towards providing an opportunity for the companies
to play an effective role in talking COVID–19.

CSR, TBL – COVID-19

During these tough times, when nations are under lockdown,
economies are falling and common men are losing their jobs, it is of utmost
importance on part of companies to adhere to the basic principles of TBL while
carrying out their CSR activities. With the spread of COVID-19 in the entire
country, panic and chaos have taken over. Under these circumstances, the role
of companies in participating with the government machinery to implement
welfare schemes for the needy under the CSR program takes precedence over
earning regular profits. Companies may expect to face certain challenges in
implementing the CSR activities, however, they must remember that to refuse the
challenge is akin to risking extinction.

Conclusion

It can be aptly concluded that the Indian CSR regime is at
the right cusp of defining and adjusting to make the CSR policies of corporate
houses more impactful towards the constant social, political, economic and
environmental vicissitudes.

Contributed By – Rajashree Devchoudhury
Designation – Senior Associate

King Stubb & Kasiva,
Advocates & Attorneys

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