Introduction:
The Legislation relating to Companies & its affairs has evolved over a period of time. One of the bulkiest legislations in India with numerous rules pertaining to company affairs has brought significant changes in recent years. India first enacted legislation pertaining to Company affairs in 1956.[1] The fast-changing corporate sector & various reforms made the lawmakers amend the whole legislation of 1956 into a revamped & facelifted company legislation in the year 2013. In 2013, the Government of India enacted the Companies Act of 2013.
In recent years the Companies Act, 2013 has brought in significant & rapid amendments in the parent legislation. The Companies Act, 2013 been amendment several times since 2013 as the Corporate sector, especially relating to Company affairs has got rapid technological & other advancements. The need arises to make the legislation more flexible, at the same time more advanced, concrete & stringent.
In March 2020, the parliament introduced the Companies Act (Amendment) Bill, 2020 which was tabled in the parliament bringing about 72 changes to the existing 65 sections of the Act. The bill aims to decriminalize a host of offences & make it a civil wrong. It further aims to remove criminality in 35 procedural defaults & reduce imprisonment in 11 provisions. These proposed amendments are tabled to further “Ease of doing Business” in India.
The Bill also seeks to exempt companies whose Corporate Social Responsibility (CSR) obligation is below ₹50 lakhs from constituting a CSR committee. Additionally, the exemption provided to key managerial posts from government restrictions on compensation in case a company is facing liquidation was expanded to include independent directors.[2]
Companies Act, 2013:
The Companies Act, 2013 passed by the Parliament has received the assent of the President of India on 29th August 2013. The Act consolidates and amends the law relating to companies. The Companies Act, 2013 has been notified in the Official Gazette on 30th August 2013. Some of the provisions of the Act have been implemented by a notification published on 12th September 2013.[3]
The Companies Act, 2013 provides for a concrete framework from wide-ranging company affairs. It mandates every Company to draft & register Articles of Association & Memorandum of Association. Right from the Incorporation of the Company to its winding up the Companies act, 2013 covers all the aspects. It also structures the working of the company with regard to its administration, finance, social sector, etc. It lays down procedures for the filing of annual returns, holding meetings (Board/General meetings), the appointment of directors, members, allotment of shares, debentures & various other procedural aspects.
The Companies Act also provides for the establishment of an Ombudsman called the Registrar of Companies who is appointed by the Ministry of Corporate Affairs, Government of India. The Registrar of Companies is an appointment for each state. Although, some states have more than one Registrar. The act also provides for the appointment of an Official Liquidator under the Jurisdiction of each High Court for the Liquidation matters of the Company (ies).
The Companies Act, 2013 in itself is a wholesome package governing every aspect of the Company affairs. Hence, the said act is cumbersome & bulky in nature. With the Act, there exist various rules pertaining to specific areas of the company affairs, compliance of which is mandatory in nature & non-compliance may invite penalties & other offences.
Corporate Social Responsibility (CSR):
Over the span of time, the affairs of the company have been widened. With limited resources available, the companies use these resources available to fulfill its objectives. The companies not only use resources available from nature but also uses public space, public services & other alternatives.
Hence, it is the primary duty & responsibility on the part of the Companies to give it back in some way or another to nature & society. Every company owes back to the environment & society at large.
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. Even though the latter can also make a valuable contribution to poverty reduction, will directly enhance the reputation of a company and strengthen its brand, the concept of CSR clearly goes beyond that.[4]
The Key CSR issues involve: environmental management, eco-efficiency, responsible sourcing, stakeholder engagement, labor standards and working conditions, employee and community relations, social equity, gender balance, human rights, good governance, and anti-corruption measures.[5]
A properly implemented CSR concept can bring along a variety of competitive advantages, such as enhanced access to capital and markets, increased sales and profits, operational cost savings, improved productivity and quality, efficient human resource base, improved brand image and reputation, enhanced customer loyalty, better decision making and risk management processes.[6]
1. Section 135, Companies Act, 2013:
The concept of CSR is also embedded in the Companies Act of 2013. Section 135 of the Companies Act, 2013 provides for Corporate Social Responsibility. The provision mandates Every company having a 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. [7]
It further mandates that the Boards’ report shall disclose the composition of the Corporate Social Responsibility Committee. The section further prescribes the duties of the CSR Committee & its compliances.
2. Schedule VII, Companies Act, 2013:
Schedule VII of the Companies Act, 2013 gives the whole list of the Activities which may be included by companies in their Corporate Social Responsibility Policies are:
Activities relating to: —
(i) eradicating extreme hunger and poverty;
(ii) promotion of education;
(iii) promoting gender equality and empowering women;
(iv) reducing child mortality and improving maternal health;
(v) combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;
(vi) ensuring environmental sustainability;
(vii) employment enhancing vocational skills;
(viii) social business projects;
(ix) contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women and
(x) such other matters as may be prescribed.[8]
Recently, when the world saw the outbreak of deadly coronavirus, the Indian Government under the Ministry of Corporate Affairs notified that contribution to the Prime Ministers’ Citizens’ assistance & relief in emergency situation fund (PM CARES) shall qualify to be a valid CSR Activity. Among other expenditures that were considered as CSR included contributions made to state disaster management authority to fight against Covid-19, spending on Covid-19 related activities like preventive health care and sanitation and any ex-gratia paid to temporary/casual workers over and above their daily wages.[9]
Conclusion:
The company legislation in India has been crisp & active legislation promoting & protecting the rights & the duties of the shareholders of the companies. It provides for accountability & transparency on part of every company registered under the competent law & authority. Furthermore, it compels every company to have the cross-prescribed turnover to contribute to the societal & environmental good as an obligation & a duty and not as a strict rule.
[1] The Companies Act, 1956.
[2] https://economictimes.indiatimes.com/
[5] Ibid.
[7] https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
[8] Ibid; https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
[9] https://economictimes.indiatimes.com/
This Article is Authored by Harshal Mukesh Desai, 5th Year B.A.LL.B Student at V.M.Salgaocar College of Law, Panaji-Goa.
Also Read – Policies Relating To Corporate Social Responsibility (CSR)
