Book review by Gaurav Pingle, Practising Company Secretary
Along with Related Party Transactions & Independent Directors, Corporate Social Responsibility (CSR) has been one of the most deliberated concepts of the Companies Act, 2013. Interestingly, CSR (section 135 of the Companies Act, 2013 and CSR Rules) is also one of the most amended provisions. The book (published by Lexis Nexis) titled – CSR, ESG & Charitable Institutions, authored by Dr. KS Ravichandran helps the readers in understanding the concepts of CSR, Environmental, Social and Governance (ESG) reporting practices and Charitable Institutions.
This book provides 360-degree perspective of CSR. The author has explained the concepts in very simple language, which would be very helpful for corporate law professionals and students pursuing CS/CA/CMA course or students of law school and management institutions. The discussion is not only about company law but also, about foreign exchange laws, foreign contribution regulation law, income tax law and accounting practices.
Philosophy of CSR: Initially, the author has discussed in detail nine principles that constitute the social responsibility of the company (as provided in National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business). At necessary places, the author has given reference to the practical application of the said principles. He has also given practical and latest examples of unethical and undesirable corporate practices (e.g. Volkswagen, Mitsubishi, Ranbaxy, Johnson & Johnson, etc.). The author has also given references and details of the CSR initiatives at Paris, CSR principles in Indonesia, OECD principles on CSR, etc. By reading the first chapter, the reader gets a global outlook, ‘principle-based’ approach and not just as compliance-oriented perspective.
ESG reporting practices: After discussing the concept of ESG, the author has presented a thorough study of ESG activities of top 50 listed companies. This study will be helpful in understating the effectiveness of ESG in India. The author has concluded this important chapter by stating that “it is essential to note that the concept of business responsibility and sustainability reporting, introduced by SEBI under the provisions of LODR Regulations has brought much needed changes to bring a lot of thrust on the significance of Socio-Enviro Governance”
CSR & CSR expenditure: There is a detailed discussion on the provisions of section 135 of the Companies Act and the CSR Rules made there under. There is detailed analysis of the said provisions, accounting aspects, accounting of CSR assets, grants received, disclosure in financial statements, audit and action for fraud, falsification of books of accounts. This discussion will help compliance officers, finance heads and accountants to understand and apply the said provisions.
CSR Vehicles: There are 3 separate chapters on CSR vehicles, which covers section 8 companies, trusts and societies. There is detailed discussion on grant of license to section 8 companies, grounds of revocation, corporate restructuring in such entities, etc. There is also detailed discussion on establishment of societies, registration requirements, procedural & administrative aspect of societies, de facto doctrine & legal status of societies as not body corporate. On the trust as CSR vehicle, after explaining the concepts of public trusts and private trust, the author has discussed in detail provisions relating to duties, authorities, general powers & rights of trustees, etc. There is detailed discussion on other important concepts of trust law, which becomes relevant when promoters of company / social entrepreneurs decide to set up a trust for CSR activities.
Income Tax aspect of CSR: In a separate chapter, the author has also discussed the procedure and critical aspects of registration of trusts under the Income Tax Act, 1961 and exemptions from income tax. There is also a detailed discussion on section 12A of the Income Tax Act along with registration procedure, factors considered by prescribed authority, conditions for being entitled to exemption under section 11 and 12 of Income Tax Act. In a separate chapter, the author explains the benefits of contributions to funds, trusts and Institutions registered under section 80G of Income Tax Act. There is clause by clause analysis of Section 80G of Income Tax Act. The author has also analyzed in the detail the taxation aspects of CSR expenditure (under section 30 to 36 of Income Tax Act).
Foreign contributions as CSR: There is a separate chapter and detailed discussion on CSR vis-a-vis Foreign Contribution Regulation Act, 2010. There section-wise commentary on the said Act. This will be helpful for the readers who are connected with companies accepting foreign donations. There are references to notifications issued by the Ministry of Home Affairs.
CSR spend pattern analysis: The author has also presented a study of CSR spend pattern analysis. Top 50 listed companies are considered by the author for this study. The statistical analysis relates to applicability of CSR provisions by average threshold, analysis of CSR required to be spent, actually spent and unspent CSR in 3 financial years, amount spent on various categories of CSR activities during last 3 FYs, amount spent on most preferred and least preferred categories of CSR activities, CSR amount spent on funds specified in Schedule VII in 3 FYs. The author has also presented detailed statistics and analysis on amount spent directly and amount spent on CSR activities through implementation agencies in 3 FYs. After every statistical information and presentation, author has provided his analysis and views on the same. There is detailed discussion on the findings of such research and statistical information. This will be helpful for the Government agencies/ departments in further refining, amending and implementing CSR provisions effectively.
In the book, the author has also discussed 100 FAQs on CSR provisions. The answers are not simply – yes or no. But there is a short discussion on the relevant question and references to the provisions of the Companies Act, CSR Rules, MCA Circulars, etc. The FAQs covers discussion on the critical questions w.r.t. CSR applicability, spending, reporting, calculation of net profits, nature of expenditure included and excluded in CSR spending, coverage of policy, CSR activities vis-à-vis CSR policy, approval process, role of board of directors / CSR committee, corporate restructuring and applicability of CSR provisions, etc. All these questions are relevant and the replies / answers to the same are researched-based and practical. Some of the important questions relates to: frequency of meetings of CSR committee, whether systems required for monitoring CSR expenditure, consequences of the failure to undertake CSR activities, including at least one KMP as member of CSR committee, whether creating awareness constitutes CSR activity, display of CSR activities on website, mandatory requirement of 3 years track record, reference to various MCA Circulars in relation to MCA notification dated January 22, 2021, etc.
For the benefit of readers, the author has given a model memorandum of association and articles of association of a section 8 company for undertaking CSR activities and project report. There is also a model trust deed for undertaking CSR activities.
The overall deliberations in the book would be useful to professionals, directors, officers, trustees, office bearers of NGOs, social entrepreneurs, academicians, Government officers, law makers, students, etc. Every reader will get a different and unique experience on CSR. In my view, every corporate law professional and student must have this book for having a global and broader perspective of CSR, ESG & Charitable Institutions.