CSR CHALLANGES

 The Sanskrit saying Atithi Devo Bhava means- the

one who comes to you for being served, should be
taken to be as God, is considered as the highest order
CASES
of responsibility,
 It not only reflects the passage of time in its
impact and transformation, but its meaning and
understanding has been affected by the growth
of society, nations and changes in their
appreciation of cultural heritage and background.
Globalization has influenced trade all over the
world; companies have looked for new
opportunities in doing business outside their
home country. In recent years Corporate Social
Responsibility (CSR) has gained growing
recognition as a new and emerging form of
governance in business. It is already established
in a global context, with international reference
standards set by the United Nations, Organization
for Economic Co-operation and Development
(OECD) guidelines and International Labor
Organization (ILO) conventions
 Broadly speaking, CSR has three key components:

· the basic values, ethics, policies, and practices of a

company business;

· the voluntary contributions made by a company to

community development;

· The management of environmental and social issues

within the value chain by the company and its business
partners”from the acquisition and production of raw
materials, through the welfare of staff, to product sale,
use, and disposal.
 Corporate Social Responsibility in India
Corporate Social Responsibility Practices in India sets a realistic agenda of
grassroots development through alliances and partnerships with sustainable
development approaches. At the heart of solution lies intrinsic coming
together of all stakeholders in shaping up a distinct route for an equitable
and just social order.

Indu Jain, Chairman, The Times of India Group, New Delhi

CSR in India is in a very nascent stage. It is still one of the least understood
initiatives in the Indian development sector. A lack of understanding,
inadequately trained personnel, non availability of authentic data and
specific information on the kinds of CSR activities, coverage, policy etc.
further adds to the reach and effectiveness of CSR programs.

But the situation is now changing. Corporate houses are realizing that what
is good for workers - their community, health, and environment is also good
for the business.
 Some Cases of CSR Initiatives in India

1) Reliance Industries Ltd.-
Reliance Industries Ltd. launched a countrywide initiative known as “Project
Drishti”, to restore the eye-sights of visually challenged Indians from the
economically weaker sections of the society.

2) Hero MotoCorp-
Hero MotoCorp takes considerable pride in its stakeholder relationships,
especially ones developed at the grassroots. The Company believes it has
managed to bring an economically and socially backward region in Dharuhera,
Haryana, into the national economic mainstream.

3) Infosys Technology Limited-

Infosys promoted, in 1996, the Infosys Foundation as a not-for-profit trust to
which it contributes up to 1% PAT every year. Additionally, the Education and
Research Department (E&R) at Infosys also works with employee volunteers on
community development projects.
 4)ITC Limited-
ITC partnered the Indian farmer for close to a century. It is now engaged in elevating
this partnership to a new paradigm by leveraging information technology through its
trailblazing ˜e-Choupal’ initiative. ITC is significantly widening its farmer
partnerships to embrace a host of value-adding activities viz. creating livelihoods by
helping poor tribes make their wastelands productive, investing in rainwater harvesting
to bring irrigation to parched dry lands, empowering rural women by helping them
evolve into entrepreneurs, and providing infrastructural support to make schools an
exciting platform for village children.
5) ˜LABS of Dr. Reddys Labs-
Dr. Reddy’s lab started ‘LABS’ (Livelihood Advancement Business School)
in the year 1999. It trains the underprivileged youngsters, even street children for
livelihood earnings in the job areas i.e. technology, healthcare, hospitality, finance and
marketing issues. It involves four types of volunteers viz Student volunteer mentors,
Faculty volunteer mentors, Network mentors and Resource mentors.

In a newly emerged global market as the competition is very intense and the customers
are very sophisticated, companies must ensure social responsibility in order to secure
fundamental relationships that fuel business growth.
Instances of violation of CSR Principles
I. Bhopal Gas Tragedy, the Bhopal disaster also known as Bhopal Gas Tragedy
was one of the world's worst industrial catastrophes. It occurred on the night of
December 23, 1984 at the Union Carbide India Limited (UCIL) pesticide plant in
Bhopal, Madhya Pradesh, India. A leak of methyl isocyanate gas and other
chemicals from the plant resulted in the exposure of hundreds of thousands of
people. Estimates vary on the death toll. The official immediate death toll was
2,259 and the government of Madhya Pradesh has confirmed a total of 3,787
deaths related to the gas release. Others estimate 3,000 died within weeks and
another 8,000 have since died from gas-related diseases. A government affidavit
in 2006 stated the leak caused 558,125 injuries including 38,478 temporary
partial and approximately 3,900 severely and permanently disabling injuries.
 The above cases show that emerging
markets might have loose laws which
protect the interests of the local
population. However it is in the best
interest of the corporations to take care of
the welfare of the local community. The
adverse publicity caused by the protests
and media coverage brings out high
degree of negative public response for the
product safety of the company.


In order to tackle above situations a new initiative has taken by Government of

India, that is CREP, or The Corporate Responsibility for Environmental
Protection initiated by the Indian government recently this year in 2003, is a
case in point. A guideline for a set of non-mandatory norms for 17 polluting
industrial sectors has been set but there is no real pressure for implementation
or internalization. An ethical being which claims to respect the earth cannot
have discontinuities in its practices. Ethical practices have to place in an
integrity framework, and that implies at the very least a lack of multiple ways of
being. This can be no different for individuals as for companies. Contrast to the
above news the Unilever website states All Unilever companies must comply
with local laws and adopt the same standards for occupational health and
safety, consumer safety and environmental care.

The above cases show that emerging markets might have loose laws which
protect the interests of the local population. However it is in the best interest of
the corporations to take care of the welfare of the local community. The
adverse publicity caused by the protests and media coverage brings out high
degree of negative public response for the product safety of the company.

III. Unilever Global Company, In the year 2001 the
Unilever Company has dumped 300 metric tons of
mercury at Kodaikanal located at South India. As
a contrast to the above activity the Unilever
website states, “We are committed to
conducting our operations with integrity and with
respect for the interests of our stakeholders…..
We are also committed to making continuous
improvements in the management of our
environmental impacts and to working towards our
longer term goal of developing a sustainable
business.”
 II. Cadbury, In October 2003, a Cadbury stockiest in
Mumbai detected worms in Cadbury’s Dairy Milk
chocolate. Then the Commissioner of Food and Drug
Administration of Maharashtra examined the sealed Dairy
Milk packs and found worms in them. He immediately
ordered the seizure of all Cadbury’s Dairy Milk
chocolates from the company’s factory in Talegaon
near Pune. This attracted lots of criticism from consumer
activists on lack of appropriate laws on storage. They also
demanded immediate government action against Cadbury.
Another factor brought to light was that the chocolates
were delivered by three wheelers, which did not have
refrigeration facility for appropriate transit maintenance of
the product.
 UCIL was the Indian subsidiary of Union Carbide
Corporation (UCC). In 2001 the US-based gigantic
Dow Chemical purchased Union Carbide, thereby
acquiring its assets and liabilities. However it has been
steadfastly refusing to clean up the site, provide safe
drinking water or compensate the victims, or even
disclose the composition of the gas leak, Dow
Chemical, like UCIL earlier, claims that it has no
liability of the past. The Dow Chemical Company, with
annual sales of $28 billion, says in its web site: it is
“committed to the principles of Sustainable
Development and its approximately 50,000 employees
seek to balance economic, environmental and social
responsibilities.”
 International Scenario
I. Hinkley groundwater Contamination, Pacific Gas & Electric operates a compressor station in the
town of Hinkley in the Mojave Desert of California in the United States for natural gas transmission
pipelines. The natural gas has to be re-compressed approximately every 350 miles (560 km), and
the station uses large cooling towers to cool the compressors. The water used in these cooling
towers contained hexavalent chromium to prevent rust in the machinery. Since the water was
stored between uses in unlined ponds, it ultimately severely contaminated the groundwater in the
town. The wastewater dissolved the hexavalent chromium from the cooling towers and was
discharged to unlined ponds at the site. Some of the wastewater percolated into the groundwater,
affecting an area near the plant approximately two miles long and nearly a mile wide. PG&E had
alerted the townsfolk earlier about the chromium but said that it was nothing to worry about,
saying that chromium was in many multivitamins. While trivalent chromium does exist naturally in
many fruits and vegetables, hexavalent chromium can be toxic. When inhaled, it can damage the
lining of the nose and throat and irritate the lungs. Studies of workers in chromium processing
factories have shown that hexavalent chromium is a known human carcinogen due to chronic
inhalation exposures. When swallowed, it can upset the gastrointestinal tract and damage the
liver and kidneys; however, evidence suggests hexavalent chromium does not cause cancer when
ingested, most likely because it is rapidly converted to the trivalent form after entering the
stomach.

People and domestic animals in the town of Hinkley, California started getting sick and some died.
Since residents depended on the local groundwater supply for all their needs, were the illnesses
somehow related to PG&E's Gas Compressor Station located nearby?
 Steps PG&E took to evade their responsibility-
· Whereas the fact was that hexavalent chromium was toxic and a known cancer-
causing chemical. When swallowed, it upset the gastrointestinal tract and damaged the
liver and kidneys permanently. PG&E records revealed that the company knew about it
all. Yet they preferred to evade their responsibility towards the residents.

· One official even "represented that he and his children would gladly drink their well
water." As a result, the people of Hinkley who lived in the path of the contaminated
plume continued to use the groundwater and remained on their property where they
continued to be exposed to dangerous levels of a cancer-causing chemical.

· PG&E told the residents to, “...avoid drinking your well water, but it is safe to use
for all other domestic purposes such as bathing and watering animals and plants.† It
is difficult to comprehend how anyone could have made such a statement in light of the
facts.

After many arguments the case was finally led to arbitration with maximum damages of
$400 million. After the first 40 people received about $110 million, PG&E reassessed its
position and decided it was a bad idea. The case was settled in 1996 for $333 million,
the largest settlement ever paid in a direct-action lawsuit in U.S. history.
 II. Chernobyl nuclear power plant in Ukraine, The April 1986 disaster at the Chernobyl
nuclear power plant in Ukraine was the product of a flawed Soviet reactor design coupled
with serious mistakes made by the plant operators. It was a direct consequence of Cold War
isolation and the resulting lack of any safety culture. The resulting steam explosion and fires
released at least 5% of the radioactive reactor core into the atmosphere and downwind.

Two Chernobyl plant workers died on the night of the accident, and a further 28 people died
within a few weeks as a result of acute radiation poisoning.

Acute radiation syndrome (ARS) was originally diagnosed in 237 people on-site and involved
with the clean-up and it was later confirmed in 134 cases. Nobody off-site suffered from
acute radiation effects although a large proportion of childhood thyroid cancers diagnosed
since the accident is likely to be due to intake of radioactive iodine fallout. Furthermore,
large areas of Belarus, Ukraine, and Russia and beyond were contaminated in varying
degrees.

Progressive closure of the Chernobyl plant:

Chernobyl Unit 4 is now enclosed in a large concrete shelter which was erected quickly (by
October 1986) to allow continuing operation of the other reactors at the plant. However,
the structure is neither strong nor durable. Some 200 tons of highly radioactive material
remains deep within it, and this poses an environmental hazard until it is better contained.
A New Safe Confinement structure is due to be completed in 2014. In the last two decades
there has been some resettlement of the areas evacuated in 1986 and subsequently.
Recently the main resettlement project has been in Belarus.
 Do Corporates have a responsibility towards society?
As we know that the traditional role of a corporation is to generate income, to
employ people and to earn profit. Therefore traditional goals of corporation have
been profits, sales and wealth maximization. Now, profit is still the main motive of
the corporation but it is not the sole motive as the role of contemporary corporations
has been to serve the society at large, since it uses societal resources, namely man
power and raw material. Since a company operates within the society, it affects the
society. Therefore there is a need to regulate the corporate power to get optimum
societal benefits. Justice P. N. Bhagwati has aptly remarked in this connection that
maximization of social welfare should be the legitimate goal of a company.
Originally, a company has been considered an artificial person, though having a legal
entity apart from its members, yet could not enjoy rights like human beings. But with
the advent of organic theory, a company or corporation is considered a living
organism, is entitled to rights and also liable for duties, and the same has been
declared by the Apex Court time and again. The corporation is viewed as a central
institution within a dynamic economy. The term social responsibility emphasizes the
intimacy of the relationship between the corporation and society. It is not a
philosophy, but a goal. This goal is accepted by business in response to demands of
the society for an improved standard of living. It means that business should oversee
the operation of an economic system that fulfils the expectations of the public at
large.
 VARIOUS RESPONSIBILITIES OF CORPORATE
Responsibility towards itself-
It is the duty of each corporate entity to do business and stay in the
business. It has to work towards growth, expansion and stability and thus
earn enough profits. If the corporation is to achieve social and economic
ends, it has to give enough importance to the efficiency factor.

Responsibility towards shareholders-

The main responsibility of corporate entity is to secure and safeguard the
shareholders investment and endeavour to provide a reasonable return on
their money. At the same time, a careful balance must be maintained
between the long term needs of business enterprises and a need to pay
current dividends. If the corporation behaves in a manner which is
prejudicial to the interest of the shareholders, then the shareholders are
free to take action against the corporation.

.
 Responsibility towards state-
It has undoubtedly been settled that the business
sector is the major source of income in every
economy, whether capitalist or socialist. Thus, out of
the profit available, the state is entitled to a definite
to definite share as per the income tax laws and this
commitment has therefore to be performed at priority.

Responsibility towards consumers-

The company should maintain high quality standards at
reasonable prices. It is the consumer who decides the
fate of every business institution. Therefore it is
imperative for every corporate entity to fulfill its
contractual obligations to its customers
 Conclusion
CSR is not new to India; companies like TATA and BIRLA have been imbibing the case for social good
in their operations for decades long before CSR become a popular cause. Inspite of having such life
size successful examples, CSR in India is in a very nascent stage. It is still one of the least
understood initiatives in the Indian development sector. It is followed by a handful of public
companies as dictated by the very basis of their existence, and by a few private companies with
international shareholding as this is the practice followed by them in their respective foreign
country. Thus the situation is far from perfect as the emphasis is not on social good but rather on a
policy that needs to be implemented.

But organizations are coming to realize the bottom-line benefits of incorporating sustainability into
their DNA. It beneficial for attraction and retention and it the right thing to do. HR is a key
organizational leader and can take the lead or partner with other executives to work cross-
functionally to integrate CSR objectives into how business gets conducted. HR practitioners can act
as translators of the organization CSR commitment vertically and horizontally across departments.
To guarantee the supply of responsible and ethical goods, it is especially important to implement a
nationwide system of CSR standards.

I think that today, more so than ever, corporate responsibility is the best strategic as well as
financial path that most businesses can follow. For most businesses there are both compelling
reasons to be responsible and compelling statistics that validate that responsible businesses do
better according to traditional financial metrics.

By accepting responsibility, we take effective steps toward our goal: an inclusive human society
on a habitable planet, a society that works for all humans and for all nonhumans. By accepting
responsibility, we move closer to creating a world that works for all." - Sharif M. Abdullah
 Penalty for violation of CSR provisions
 For Company: punishment with fine which shall not be less than Rs. 50,000 but
which may extend to Rs. 25,00,000
 For Officer in default: punishment with imprisonment for a term which may
extend to three years or with fine which shall not be less than Rs. 50,000 but
which may extend to Rs. 5,00,000, or with both
 Corrective Measures for violation of CSR provisions
 If the company has failed to make the necessary CSR disclosures in its Board’s
Report, it can by virtue of Section 131, prepare a revised report after obtaining
approval of the Tribunal
 If the company fails to spend the threshold amount toward CSR activities, the
Board has to, in its report made under Section 134 (3) (o), specify the reasons for
not spending the threshold amount
 The unspent amount from the threshold limit of 2% has to be transferred by the
company to a special account to be opened by the company to be called the
Unspent CSR Account, and such amount has to be spent by the company in
pursuance of its obligation towards the CSR Policy within a period of 3 years from
the date of such transfer
 The company and its officers can make good the offence by applying for
compounding of offence under Section 441 of the Act.
 Case Laws

 In the recent case of Technicolor India (P.) Ltd. v. Registrar Of Companies[2] the Company
met the net profit criteria, U/ s 135 of the Companies Act, 2013, and had a CSR committee
but it spent some amount as per the CSR Policy of the Company during the fiscal year 2017-
18, which remain below the threshold mentioned in Section 135 (5) of the Act for which a
reason was duly provided by the company in its Director’s Report. However it was found that
the amount spent on the CSR and associated detail is incorrectly captured in the Director’s
report hence the company forwarded an application to NCLT Bangalore. The tribunal
allowed the application of the company to revise its report giving liberty to the company to
file for compounding under section 441 of the Act.
 Alok Pharmaceuticals and Industrial Company Private Limited[3], Rapid Estates Private
Limited[4], Avinash Developers Private Limited [5] where This Compounding Application
was filed before the Registrar of Companies, Chattisgarh (hereinafter as RoC) and the same
has been forwarded to the NCLT, Mumbai along with the RoC Report. The Learned RoC has
informed that, this application was filed because the Company has violated the provision of
S. 134 (3) (o) of the Companies Act, 2013 (hereinafter as Act) r.w. Rule 8 of 
Companies (Corporate Social Responsibility Policy) Rules, 2014 wherein the Company fails
to give explanation for the non-spending of the CSR amount for the Financial Years 2011-12
to 2013-14 in respective year‟s Director‟s Report.
 It has been observed that the compounding of offence in respect of violation of Section 134
(3) (o) for non-disclosure of the CSR policy details in the Board’s Report can be done by
forwarding an application under Section 441 of the Act.
 In the matters of Pan Asia Logistics India Private
Limited[6] K. Anantha Padmanabha Swamy, Member
(Judicial):— Under consideration is an Application
which has been filed by Petitioner(s) before the
Registrar of Companies, Tamil Nadu and Andaman &
Nicobar Islands, Chennai, for compounding of the
offences committed under Section 135 along with
Schedule VII and rule 3 of the 
Companies (Corporate Social Responsibility Policy) R
ules, 2014
. These provisions have come into effect from 1
April, 2014. The Deputy Registrar of Companies, along
with his Report dated 07.08.2017, has forwarded the
Application to the Registry of this Bench, which has
been numbered as CA/80/(441)/CB/2017.
 2. Brief averments of the application are that the Company is Private
Limited Company, it was incorporated on 18.04.2005 under the companies
Act, 1956,having its registered office at No. 46 & 48, Ehrlich Labs Building,
2 Floor, Masilamani Road, Balaji Nagar, Royapettah, Chennai-600014.
 3. The Petitioners are the Company and its two officers who have filed E-
form No. GNL-1 vide dated 12.04.2017 for violation of the provisions of
section 135 r/w section 450 of the companies Act, 2013.The offence
arose when the Company and its Officers failed to constitute the Corporate
Social Responsibility for the Financial Year 2014-2015 and 2015-2016 policy
has been formulated and company has comply with discloser related
provisions accordingly in the ensuring the financial year 2016-2017.
 “As per section 135(1) of the Companies Act, 2013, every company
having 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
more during any financial year shall 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”
 4. The Applicant Company and its directors have, suo moto,
submitted that they would like to compound the said offence
under section 135 r/w section 450 of the companies Act, 2013and
further submitted that the present application is being filed
voluntarily for violation of the provisions of section 135 r/w
section 450 of the companies Act, 2013 for non-constitution of
CSR Committee for the Financial year 2014-2015 and 2015-2016.
It is further submitted that for the financial year 2014-2015 and
2015-2016 none of the provisions of section 135 were complied
with as the company and its officers were ill informed the
applicability of CSR to the company for these years. The
applicability of CSR to the company for financial years 2014-2015
and 2015-2016 aroseon the basis of 
General Circular No. 21/2014 dated 18.06.2014  which
extended the applicability of CSR to “three preceding financial
years” instated of “any financial year” as originally mentioned in
the act and the Rules.
 5. The Dy. Registrar vide report dated 07.08.2017 has stated that if any
person being the director of the company fails to take all reasonable steps to
comply with the provisions of the section 135 r/w 450 of the companies
Act, 2013,the company and every officer of the company, who is in default,
shall be liable to be punishable with fine which may extend to ten thousand
rupees and where the contravention one, with a further fine which may
extended to one thousand rupees for very day after first during which the
contravention continues.
 6. Further, the Deputy Registrar of Companies stated in his report that there
is no prosecution pending in relation to the said offence, and his Office has no
objection, if the offence is compounded, e-form LNC28 is filed along with
compounding Order.
 7. Originally the Assistant Registrar of Companies, Tami Nadu, Chennai sent
notice dated 20.03.2017 (Annexure A6) pointing out the default under section
134 read with section 134(8) and section 135 read with section 450 of the
Companies Act, 2013.In this regard the counsel for petitioner has placed a
copy of order dated 23.02.2018 passed in CA/79/(441)/CB/2018 by NCLT,
Single Bench, Chennai, where in petitioners were permitted to compound the
offence under section 134(3)(o)
 Companies Act, 2013 by imposing penalty of Rs. 1 lakhs each to
the Company and its 2 officers (who are petitioners herein).
 8. While submitting above, the counsel for petitioner prayed to
take lenient view on the ground that this is the first offence
committed by them. The ROC Report also conforms the same
being the first offence. Therefore, the Application of the
company and the officers in default is allowed and the offence
is compounded in exercise of the powers conferred under
section 441 of the Companies Act, 2013.The fine imposed on the
Company and its Directors are given below:
 Name of defaulters Period of Default Penalty Pan Asia Logistics
India Private Limited 2014-2015 And 2015-2016 1,00,000/- Mr.
Siva Kumar Achanta (Managing Director) 2014-2015 And 2015-
2016 1,00,000/- Mr. Thirumala Vinjamoori Sreedhar (Whole Time
Director) 2014-2015 And 2015-2016 1,00,000/-
 9. The Company is directed to remit the penalty from
its accounts and the two Directors in default shall pay
the penalty from their own resources. The Petitioners
shall comply with order within three weeks from the
date; the order is uploaded on the website of NCLT.
The company is directed to file a copy of this order
along with required from with the Registrar of
Companies, Chennai, within the stipulated time.
 10. Accordingly, the Application No. 80/ (441)/2017 is
disposed of. The certified copy of the Order is
permitted to be issued to the Petitioner(s) only after
deposit of the amount of fine, as per the procedure
prescribed,
 Shoft Shipyard Private Limited[7], thus it has been observed that the
compounding of offence in respect of violation of CSR provisions under Section
135 can be done by forwarding an application under Section 441 of the Act.
 The determination of the Quantum of the CSR responsibility can only be
ascertained after the finalization of accounts at the close of the Books of
Accounts of a particular financial year. As a result, the amount to be
contributed for charitable purpose as CSR responsibility can be intimated to the
concerned authorities thereafter only i.e. after the finalization of accounts of a
particular financial year. The same view has been taken up by the tribunal in
the matter of M/s. Hira Power and Steels Limited [8]. The Applicants /
Defaulters herein had violated the Provision of S. 134 (3) (o) of the Act. And for
the said violation the punishment is provided u/Section 134 (8) of Companies
Act, 2013. The Sections which are relevant in this case are as follows:

 “S. 134 (3) (o) : There shall be attached to statements laid before a company in
general meeting, a report by its Board of Directors, which shall include the
details about the policy developed and implemented by the company on
corporate social responsibility initiatives taken during the year.”
  
  
 “S. 134 (8): If a company contravenes the provisions of this section, the company shall
be punishable with fine which shall not be less than fifty thousand rupees but which
may extend to twenty-five lakh rupees and every officer of the company who is in
default shall be punishable with imprisonment for a term which may extend to three
years or with fine which shall not be less than fifty thousand rupees but which may
extend to five lakh rupees, or with both.”
 11. This Bench has also taken into consideration that, this provision regarding CSR is
newly incorporated in the Statute and thereafter number of circulars were issued and
as a result of those circulars no clear clarification regarding the provision can be
recorded by the Company or its Directors.
 The further important argument taken into consideration that, the determination of
the Quantum of the CSR responsibility can only be ascertained / quantified after the
finalization of accounts at the close of the Books of Accounts of a particular financial
year. As a result, the amount to be contributed for charitable purpose as CSR
responsibility can be intimated to the concerned authorities thereafter only i.e. after
the finalization of accounts of a particular financial year.
 12. It is also noticed that the Company had made the default good by constituting the
CSR committee and by furnishing declaration in the Director’s Report for the F. Y.
2015-16. 13. On the above facts and circumstances it is noticed that Application made
by the Applicants/ Defaulters herein for compounding of offence committed under S.
134 (3) (o) of the Companies Act, 2013, merits consideration, though belatedly the
default has been made good.