What is Section 135 of the Indian Companies Act, 2013

Section 135 of the Indian Companies Act, 2013, marks a significant milestone in the legal framework governing Corporate Social Responsibility (CSR) in India. It mandates that certain categories of companies spend a minimum percentage of their profits on CSR activities. This legislation represents a shift from voluntary to mandatory CSR, aiming to ensure that businesses actively contribute to social and environmental welfare. The introduction of Section 135 was driven by the need to formalize CSR activities and ensure that companies are accountable for their social and environmental impacts. According to this section, any company with a net worth of INR 500 crore or more, a turnover of INR 1000 crore or more, or a net profit of INR 5 crore or more during any financial year must constitute a CSR Committee. This committee is responsible for formulating and recommending CSR policies, deciding on the CSR activities to be undertaken, and monitoring the implementation of these activities. The law requires eligible companies to spend at least 2% of their average net profits of the preceding three years on CSR activities. If a company fails to spend this amount, it must specify the reasons for not doing so in its annual report. This provision ensures transparency and accountability, compelling companies to justify their CSR expenditure or lack thereof. Section 135 outlines specific areas where CSR funds can be allocated. These include activities related to eradicating hunger and poverty, promoting education, enhancing vocational skills, ensuring environmental sustainability, and contributing to the national heritage. The act encourages companies to focus on local areas where they operate, thereby addressing community-specific needs and fostering local development. The impact of Section 135 has been significant. It has institutionalized CSR in India, making it a strategic priority for businesses. Many companies have established dedicated CSR departments and appointed CSR professionals to ensure compliance with the law. The mandatory nature of the law has led to increased CSR spending and more structured and impactful CSR initiatives. However, the legislation has also sparked debates and challenges. Critics argue that mandatory CSR can be seen as an implicit tax on businesses, potentially diverting resources from core business activities. Some businesses may engage in CSR merely to comply with the law, without genuine commitment to social responsibility. Additionally, the lack of a clear and comprehensive definition of what constitutes CSR can lead to varied interpretations and implementations. Despite these challenges, Section 135 has been a catalyst for positive change. It has brought CSR to the forefront of corporate strategy and governance, encouraging companies to integrate social and environmental considerations into their business models. The law has also promoted greater collaboration between companies, NGOs, and government bodies, leading to more effective and impactful CSR projects.

A Study on CSR Eco-System in India

Kuldeep Singh (School of Management, Gati Shakti Vishwavidyalaya, India), Madhvendra Misra (Indian Institute of Information Technology, Allahabad, India), and G. Vinodini Devi (Koneru lakshmaiah Education Foundation, India)