LAW RELATING TO CORPORATE GOVERNANCE IN SPECIAL

REFERENCE TO CORPORATE SOCIAL RESPONSIBILITY

RESEARCH DESIGN
OF THE THESIS IN PARTIAL FULFILLMENT OF DEGREE OF DOCTOR
OF PHILOSOPHY OF LAW (FULL TIME)

By
CH LAKSHMI ANUSHA
PHD RESEARCH SCHOLAR (FULL TIME)
OSMANIA UNIVERSITY OF LAW

UNDER THE SUPERVISION OF

PROFESSOR DR. N VENKATESWARLU
PROFESSOR OF LAW
OSMANIA UNIVERSITY OF LAW

.
Contents
1. INTRODUCTION
1.1 CSR AND TAX EXEMPTION
1.2 CSR AND FOREIGN HOLDING COMPANY
2. BACKGROUND
3. RESEARCH PROBLEM
3.1 Significance of the study.
3.1.1 Review of Literature
3.1.2 Research gap
3.2 Objectives
3.3 Hypothesis
3.4 Research Methodology
4. TENTATIVE CHAPTERISATION
4.1 Introduction
4.1.1 History
4.1.2 Corporate governance and CSR in economic Growth
4.1.3 Legal issues relating to Corporate Social Responsibility
4.1.4 Comparative Study On Corporate Governance Related To
CSR in US,
UK and India
4.1.5 Judicial Response Related to CSR
4.1.6 Conclusions and Suggestions
5. LIMITATIONS
6. REFERENCES.
Books, Articles, Legislations and Websites.

.
1. INTRODUCTION

Corporate governance refers to the system of rules, practices, and processes by

which a company is directed and controlled. It encompasses the relationships
between various stakeholders, such as shareholders, management, employees,
customers, and the community. On the other hand, corporate social
responsibility entails a company’s commitment to behaving ethically and
contributing to the economic development while improving the quality of life
of its employees, their families, the local community, and society at large.

India despite being the first country to legally mandate Corporate Social
Responsibility did not define the meaning of the Corporate Social
Responsibility. The European Commission presented a green paper for the
European Communities, as the EU was then called, "promoting a European
framework for Corporate Social Responsibility" in 2001. In that document CSR
was defined as a concept whereby companies integrate social and
environmental concerns in their business operations and in their interaction
with their stakeholders on a voluntary basis.

Section 135 of Companies Act, 2013 states that “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 immediately
preceding 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.”

1st proviso of the Companies Act, 2013 states that Provided that the “company
shall give preference to the local area and areas around it where it operates, for
spending the amount earmarked for Corporate Social Responsibility activities”

.
As per MCA Rules of General Circular No. 06/2018 it stated that “The
company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for Corporate Social
Responsibility activities - It is reiterated that the above provision has to be
followed in letter and spirit.”

General Circular No. 21/2014 dated June 18, 2014 of MCA has clarified that
the statutory provision and provisions of CSR Rules, 2014, is to ensure that
activities undertaken in pursuance of the CSR policy must be relatable to
Schedule VII of the Companies Act, 2013. The entries in the said Schedule VII
must be interpreted liberally so as to capture the essence of the subjects
enumerated in the said Schedule. The items enlisted in the Schedule VII of the
Act, are broad-based and are intended to cover a wide range of activities.

It is felt that narrowing down of the CSR activities and asking the Companies
to do only the activities mentioned in Schedule seven can be a difficult task to
the company who do not have a tradition of involvement in the social causes.

1.1 CSR and Tax Exemption

Finance Act 2014 has clarified that expenditure on CSR does not form a part of
business expenditure. No deductions can be claimed under section 37 (1) of the
IT act 1961.

As per MCA rules 2016 General Circular No. 01/2016 had clarified that “No
specific tax exemptions have been extended to CSR expenditure per se. The
finance Act, 2014 also clarifies that expenditure on CSR does not form part of
business expenditure. While no specific tax exemption has been extended to
expenditure incurred on CSR, spending on several activities like contributions

.
to Prime Minister’s Relief Fund, Scientific Research, Rural development
projects, skill development projects, agricultural extension projects, etc. which
find place in Schedule VII, already enjoy exemptions under different sections
of the Income Tax Act, 1961.”

1.2 CSR and Foreign Holding Company

As per General Circular No. 21/2014 Expenditure incurred by Foreign Holding

Company for CSR activities in India will qualify as CSR spend of the Indian
subsidiary if, the CSR expenditures are routed through Indian subsidiaries and
if the Indian subsidiary is required to do so as per section 135 of the Act.

2. BACKGROUND

The concept of corporate governance has roots dating back centuries, but its
modern form emerged in the 1970s when regulators started focusing on the
inner workings of large corporations, particularly in the United States; while
Corporate Social Responsibility (CSR) traces its origins to the late 1800s with
the rise of philanthropy, where business tycoons began donating to community
causes and improving working conditions, although the term "CSR" was only
coined in 1953 by economist Howard Bowen.

Religious traditions of daan, seva, and zakat operated in India for centuries
helping to shape the relationship between the privileged and the dispossessed.
The vast majority of philanthropy in India has always been to religious
institutions and that continues to be the case. The earliest industrialists of the
19th Century launched the practices of corporate giving via trusts, and endowed
institutions controlled by members of business families.

.
The close relationship between Mahatma Gandhi and leading industrialists is
well-known. He proposed a model of trusteeship for business in which tycoons
should understand their position as fiduciaries of society’s wealth.

One of the first to criticise CSR is in the year 1958, a Harvard economist
Theodore Levitt who said that ‘govts job is not business and businesses job is
not government. ‘In 1970, Milton Friedman, the Nobel Prize-winning
economist, expressed his views against businesses (Fortune, December 14,
2015 ) Capitalism and Freedom and then again in a widely circulated article
in The New York Times from 1970, entitled, “The Social Responsibility of
Business is to Increase Profits.” The ideas from both the book and the article
became known collectively as the Friedman doctrine. Friedman argued that
returning value to shareholders was the primary responsibility of business and
suggested that “Greed is Good.” Shareholders, of course, could invest their
money in whatever causes they desired, but Friedman believed companies
should focus their own efforts on creating value for shareholders. By returning
value to shareholders, the shareholders could then make their own decisions
about how to uphold their own social values.

As per DR. Bhaskar Chatterjee the pioneer of imparting section 135 in

Companies Act,2013 states that “CSR in any form must be linked to the
inclusive development agenda of the nation. make your profits first and then do
not think of profits, think of the social good and see the difference in the
perspectives is what the Chatterjee model is.”

3. RESEARCH PROBLEM:

Launch on March 28, 2020, the Prime Minister's Citizen Assistance and
Relief in Emergency Situations Fund "PM CARES" has courted as much

.
controversy as it has funds. Having reportedly collected over INR 6500 crores
within a week of its launch, the fund has incurred the wrath of the opposition
(for the political-signalling acronym and for ignoring the existing PMNRF)
and has also been the subject of at least two Public Interest Litigations "PILs",
neither of which got a warm reception at the Apex Court. Adding fuel to the
fire, was the denial by the Prime Minister's Office "PMO" to disclose
information and documents pertaining to PM CARES against a Right to
Information "RTI" application filed on April 21, 2020. These Scenarios
leaves pressing concerns of transparency and accountability as troubling
residue.

A study, titled ‘State of CSR in India: 2014-2023’, by social impact and

consulting firm Sattva Consulting said that India’s backward districts
received a mere 2.5% of Rs 1.84 lakh crore of corporate social responsibility
(CSR) funds spent by companies across the country over the past nine years
and There is also a data from MCA, which said that the states like
Maharashtra, Karnataka, Gujarat received the most CSR spends while North
East states, Lakshadweep and Leh and Ladakh received the least CSR
spendings and this ignited debate about uneven spending of CSR in a few
sectors and regions.

To maximize the impact of CSR, companies must move beyond mere

compliance and embrace strategic alignment with local government
programs, address sectoral and regional disparities, and ensure transparency
and accountability.

By fostering stronger collaborations between PSUs and non-PSUs and

investing in innovative, scalable projects, CSR can drive sustainable social
change and contribute to India’s long-term socio-economic development.

.
In this context the present research would be focusing on the debates in
Parliament around the PM CARES FUND and also the Supreme Court
judgments relating to PM CARES fund filed by Mahua Moitra. This Research
further concentrates on Methods to be followed by the CSR Companies for
ensuring transparency and accountability.

3.1 Significance of the study:

In India CSR as a mandatory obligation is around 10 years and the subject area
is evolving. The last 10 years have been a roller coaster ride for many CSR
professionals and the journey will continue to be intriguing with an
everchanging landscape. Many felt that mandating this CSR by law was not a
good idea. Arguments ranged from this CSR being equivalent to an additional
tax burden, to saying it would deprive shareholders from their right to decide
how the company profit or their dividend should be used.

Earlier efforts were limited to voluntary guidelines which the government

brought out in 2009 broadened at the updated in 2011 but the growing pressure
resulted in a law being enacted in 2013 like making CSR mandatory for large
companies and the stipulation of spending 2% of profits averaged over the last
3 years and the new amendments in 2019 brought in penalties not only
monetary but also jail for the person responsible. Further changes in 2021
removed the jail sentences but continued the monetary penalties.

In this thesis the researcher attempt to know and understand the extent to which
the newly introduced mandatory Corporate Social Responsibility (CSR) under
Companies Act 2013 as a socially responsible initiative is capable of bringing
positive social and environmental changes to bridge the welfare gap in India. In

.
this thesis the researcher would also focus on the evolution of voluntary
guidelines in 2009 to the triple bottom line in 2011 to the legal regimen in 2013
to its tightening to include penalties for non-compliance

3.1.1. Review Of Literature:

1. Doing Good : Navigating the CSR Maze in India, by Meena

Raghunathan (Author), Harper Business publications,2022.

This book talks about the practical aspects of implementing CSR

projects. This book reinterprets about triple bottom line and the

fulfilment of sustainable development goals by companies and argued

that CSR is good for business. This book talks about the CSR rules in

India and analyses the legislation and also talks about the History of

CSR. This book however do not analyse the reason for including the

criminal penalties for noncompliance of CSR in 2019 amendment and

removing the criminal penalties in the year 2021 amendment. This book

do not talk about the judicial decisions regarding the CSR in India.

2. Prison Privatization: Exploring Possibilities in India (2017). By Prakash

Sharma:

This book attempts to provide a study on prison privatization from a

comparative perspective. It explores the possibility of adoption of the

private prison model in India and objective consideration of prison

privatization against the major problems plaguing the prison system in

this country. Major focus of this book is on comparative study of

.
 privatization of jails with other countries but this book didn't specify or

attempted to know the public opinion and the opinion of the Corporates

in India regarding the privatisation of Jails.

3. Corporate Social Responsibility in India : A Practitioner’s Perspective by

Nirbhay Lumde (2018)

This is a practical handbook that address day to day issues pertaining to

CSR in Indian context. This particular book tries to fill the gap of non-

availability from practitioners point of view regarding CSR subject. This

specific book does not talk about the case studies regarding the

corporates involvement in doing CSR after legal mandate and this book

do not have comparative study of CSR with other countries.

4. Law Of Corporate Governance (2020) by Dr. S.N. Ghosh and Professor

Amitava Banarjee.

The chapter titled CSR in this Book touches the history of CSR in India

and discusses in detail the law governing CSR activities in India. It also

discusses how corporates are moving from the concept of CSR to a much

wider concept of sustainability and complying with international standard

in this respect. But this book comprehensively deals with the basic

concepts, laws, regulations and issues concerning corporate governance

.
 5. Corporate social responsibility and accountability: A new theoretical

foundation for regulating CSR, International Journal of Corporate Social

Responsibility, by Mallika Tamvada.

This paper poses a fundamental question on what should constitute CSR

and what should be the nature of CSR regulation? By constructing the

boundaries of CSR, the paper offers scope for consistently developing

CSR regulation around the world. It construes CSR as consisting of

business relation and impact relation, and demonstrates that these are

intertwined with legal responsibilities of business and, consequentially,

with accountability. It accomplishes this by establishing the obligatory

nature of responsibilities using the lens of ethical and legal jurisprudence.

This new approach towards CSR recasts it as an obligatory responsibility

that is linked to accountability. This article do not discuss about the

relation of CSR with corporate governance.

3.1.2 Research Gap:

The Supreme Court in Gautam Navlakha V. National Investigation

Agency and Anr. said big corporate houses can build private prisons as
part of their Corporate Social Responsibility.

"In Europe, there is a concept of private jails. Then there is corporate

social responsibility. They will build it and give it to you and claim
reduction under the Income Tax. A new concept will emerge. Then a
new concept will evolve, from anticipatory bail to anticipatory jail," said
a bench of Justices K M Joseph and Hrishikesh Roy.

.
 The above observation was made by the Supreme Court in the year 2022
and this is obiter dicta of the Supreme Court. But it is crystal clear that
limited research is carried on the privatization of the jails in India and
also Several different gaps in the implementation of the CSR policy in
the country emerge from a detailed analysis of the existing literature on
impact assessment. For example, lack of availability of reliable CSR
reporting data in one central place, lack of collaborative partnerships
between the government, private and civil society sectors across the
spending areas, a general lacking in the infrastructure and ecosystem
such as skilled professionals, standardisation of evaluation and impact
assessment of CSR projects and a lacking investment in developing
effective collaborative platforms, research systems and capacity-
building institutions. After reviewing the existing literature, the
researcher had identified the following research gaps:

1. There is absence of in depth study of privatization of jails by the

corporates to be made as part and parcel of corporate social
responsibility under section 135 of Companies Act 2013. In this thesis
researcher tries to analyse the merits and demerits of privatisation of
jails in India and comparative study with other countries.
2. CSR and stakeholder expectations: there is a limited study of
stakeholder expectations from the company and stakeholder
involvement in implementing CSR by the company. Corporates need to
be engaged directly with the community and make the CSR initiative
meaningful and outcome oriented. All the interval interventions should
be based on the take of the community.

.
 3. Redefining geographical operation limits: one of them operational issues
for companies in implementing CSR is limiting to their physical
geographic locations. In this context of special categories of companies
such as ecommerce business outsourcing and virtual service providers
the physical location of a company may become obsolete and may even
hinder them taking up strategic CSR. The acts that enable the companies
to go beyond their physical locations and provides scope to expand
operational limits where it matters the most. It certainly helps in
addressing the issue of regional imbalances both social and economic
4. There is limited research on the topic whether companies who failed to
perform CSR activities within time should be made Criminally liable or
whether the Civil Penalties is sufficient for Companies to carry forward
the CSR Activities in accordance with section 135 of Companies Act
2013.

3.2 Objectives:

1. The study the relation of corporate governance and CSR.

2. To study about the role of CSR in Privatisation of Jails.
3. To study the impact of CSR activities of various organisations in
enhancing the community development.
4. To study about the legal updates and judicial decisions relating to CSR
from the date of implementation till date.
5. To compare the CSR activities with US, UK and India.

3.3 Hypothesis:

.
 1. CORPORATE GOVERNANCE and CORPORATE SOCIAL
RESPONSIBILITY are interrelated and interdependent in Companies
Management.
2. Concept of Privatization of JAILS to include in CSR could have a
positive impact on Undertrial Prisoners and the Conditions of the Jails in
India.
3. Companies’ objectives and focus of CSR spending was heavily tilted
towards Education, Health Care and PM CARES FUND.
4. Civil liability and penalties is insufficient for the Corporates for
Noncompliance of CSR in accordance with Companies Act 2013

3.4 Research Methodology:

The researcher has adopted the Doctrinal research methodology for

completing the Research Topic

The Researcher hugely relies on secondary data like published Annual

Reports and statistical tables relating to Corporate Social Responsibility
for analysing the data, the technique of ratio analysis, simple
mathematical tools like average, percentage etc. Circulars, Reference
Books, Publication, Journals, Newspapers, Internet, Websites Etc. will
be thoroughly studied in the said research.

4. TENTATIVE CHAPTERISATION:

4.1 Introduction :

The first part deals with the introductory part of research study in which
the relevance and importance of corporate governance in special
reference to corporate social responsibility is discussed and this chapter

.
 also deals with background of research study, it's significance, research
objectives, research problems, research questions, hypothesis and
research methodology along with scope and limitation of the research .

4.1.1 History

The second chapter deals with with the history of the Corporate
Social Responsibility and Religious traditions of daan, seva,
and zakat operated in India for centuries helping to shape the
relationship between the privileged and the dispossessed. This
chapter also talks about various models of CSR from Triple Bottom
line and it further talks about the voluntary guidelines 2009 bought
out by the government and the reason for making the CSR
mandatory under the Companies Act 2013.

4.1.2 Corporate governance and CSR in economic growth:

Corporate governance has now moved beyond the boardroom and

globalization has brought in concepts such as Environmental, Social
and Governance (ESG) to India. In this Chapter researcher talks
that Corporate Governance and Corporate Social Responsibility are
not distinct. This Chapter discusses in detail the CSR activities in
India and how the activities aided in economic growth of the
Country. This chapter also focuses on how the effective way of
spending CSR Funds would Contribute a lot to the economic
upliftment of the Country.

4.1.3 Legal issues relating to corporate social responsibility:

.
 This chapter covers about the mandatory CSR in India that has come
into effect from April 2014, this chapter in detail discusses about the
rules of MCA regarding CSR from here 2014 till date. This chapter
also talks about provisions in section 135 of Companies Act 2013
till the changes bought by the way of amendment in the year 2019 in
penalties not only monetary but also for jail for the person
responsible and also talks about the further changes in 2021 which
had removed the jail sentences but continued the monetary penalties
and analyses the provisions present in section 135 of Companies
Act,2013.

Social Justice is not possible without strong and coherent

redistributive policies conceived and implemented by public
agencies the classic example in ensuring the social justice is the
provision of directive principles of state policies contained in part 4
of the constitution of India. In this chapter researcher analysis about
the relation of schedule VII of CSR with Directive Principles of state
policy and also with Fundamental Rights of Indian Constitution.

4.1.4 Comparative Study On Corporate Governance Related To CSR in

US, UK and India:

CSR laws vary significantly across countries, reflecting distinct

approaches to corporate accountability and social impact. India’s
CSR mandate under the Companies Act, 2013 stands out globally,
requiring companies above certain financial thresholds to spend 2%
of net profits on CSR activities. This mandatory model emphasizes
direct contributions to social welfare but faces challenges with
ensuring meaningful impact. In the United Kingdom, CSR is largely

.
 voluntary but supported by the Companies Act, 2006 and the UK
Corporate Governance Code, In the United States, CSR remains
voluntary and is driven by ESG standards. In this chapter the
researcher analysis about the difference between having compulsory
CSR as legal obligation in India and CSR without legal obligation in
other countries.

4.1.5 Judicial Response Related To CSR:

In this chapter the researcher analyses about various judicial

decisions and opinion of the Supreme Court of India from Bhopal
gas tragedy to the Supreme Court decision till date. In this chapter
the researcher even deals with parliamentary debate of Mahua Moitra
regarding the PM CARES FUND.

4.1.6 Conclusions and Suggestions

In this chapter the researcher concludes with summary of research

findings key research issues and findings and testing of hypothesis
and ends with concluding remarks suggestions and recommendations
based on research studies outcomes this chapter offers a synthesis of
its principal findings, implications and recommendations by
encapsulating the research study. Indies it contributes to scholarly
discourse and enhances decision making process in relevant domains

5. LIMITATIONS:

This Thesis focuses on Companies Act,2013 and its rules, Obiter Dicta of
Supreme Court regarding Privatization of jails and the Comparative Study
of the Thesis is limited to US,UK and INDIA.

.
6. REFERENCES:

Books:
1. Paul L. Davies, Gower and Davies Principles of Modern Company
Law
2. Gower’s and Davies’ Principles of Modern Company Law, (11th ed.,
2021) Palmer’s Company Law,
3. A. Ramaiya, Guide to the Companies Act (19th ed., 2020)
4. Hicks, Andrew & Goo S H, Cases and Material on Company Law,
Oxford University Press (8th ed., 2008)
5. Kershaw, David, Company Law in Context, Oxford University
Press, UK, (2nd ed., 2012)
6. Hanningan, Brenda, Company Law, Oxford University Press, UK,
(6th ed., 2021)
7. K.M. Ghosh & Dr. K.R. Chandratre's Company Law, (15th ed.,
2015) Avtar Singh, Company Law (17th ed., 2018)
8. H.K. Saharay, Company Law (7th ed., 2016) Case Material supplied
by Faculty of Law for Company Law

Articles :

1. Balasubramanian B (2016) Issues in board and director

independence. NSE Centre for Excellence in Corporate Governance
Quarterly Briefing, No. 15
2. Berle A (1931) Corporate powers as powers in trust. Harv L Rev
44(7):1049–1074

.
 3. Bertrand M, Mehta P, Mullainathan S (2002) Ferreting out tunneling:
an application to Indian business groups. Q J Economics 117(1):121–
148
4. Carroll A, Shabana K (2010) The business case for corporate social
responsibility: A review of concepts, research and practice. Intl J
Management Rev 12(1):85–105
5. Carroll A (1991) The pyramid of corporate social responsibility:
Toward the moral management of organizational stakeholders.
Business Horizons 34(4):39–48
6. Chaudhari V, Wang J (2007) Communicating corporate social
responsibility on the internet: a case study of the top 100 information
technology companies in India. Management Comm Q 21(2):232–
247
7. Clarke B (2015) The role of the board of directors in promoting
environmental sustainability. In: Sjåfjell B, Richardson B (eds)
Company law and sustainability: legal barriers and opportunities.
CUP, Cambridge, pp. 148–174
8. Crane A, McWilliams A, Matten D et al. (2008) The corporate social
responsibility agenda. In: Crane A, McWilliams A, Matten D, Moon
J, Siegel D (eds) Oxford Handbook of Corp Social Responsibility.
OUP, Oxford, pp. 1–17
9. Davis K (1973) The case for and against business assumption of
social responsibilities. Academy Mgmt J 16(2):312–322
10. Deva S (2012) Socially responsible business in India: has the
elephant finally woken up to the tunes of international trends?
Common L World Rev 41(4):299–321
11. Dharmapala D, Khanna V (2016) The impact of mandated corporate
social responsibility: evidence from India’s Companies Act of 2013.

.
 Working Paper. Available at:
[Link]
12. Dodd E (1932) For whom are corporate managers trustees? Harv L
Rev 45(7):1145–1163
13. Du Plessis J, Hargovan A, Bagaric M et al (2005) Principles of
contemporary corporate governance. CUP, Port Melbourne
14. Eccles R, Ioannou I, Serafeim G (2014) The impact of corporate
sustainability on organizational processes and performance.
Management Science 60(11):2835–2857

Legislations:

1. The Companies Act, 2013.

[Link]
2. Companies (Amendment) Act, 2020
[Link]

Websites:

1. Ministry of Corporate Affairs (2014), Clarifications with regards to

provisions of Corporate Social Responsibility under Section 135 of
the Companies Act, 2013, General Circular No. 21/2014. Available
at
[Link]
2. Available at [Link]
CSR_Rules_2013.pdf.
3. [Link]
Ministry of Corporate Affairs (2011) National voluntary guidelines
on social, environmental & economic responsibilities of business

.
 social responsibility voluntary guidelines. Available at
[Link]
delines_2011_12jul2011.pdf.
4. [Link]