From Compliance to Impact: Legal Framework for CSR Fund Allocation under Companies Act, 2013

Abstract

The evolution of Corporate Social Responsibility (CSR) in India from a philanthropic endeavour to a legal requirement under the Companies Act, 2013, is a landmark development in corporate governance and social responsibility. Section 135 of the Act, along with Schedule VII of the Companies Act, 2013, requires certain companies to spend at least two percent of their average net profits for CSR purposes. This article critically analyses whether such mandatory CSR expenditure in practice has moved from mere compliance ("obligation") to achieving social and developmental impact ("impact"). This research takes a doctrinal and analytical approach in examining the legal framework for allocation of CSR funds, including the amendments, compliance, reporting and penal provisions for non-compliance. It also assesses operational issues like under-spending, transparency, project inefficiencies and the vagueness surrounding the activities considered CSR. It also examines the role of corporate boards, implementing agencies, and regulatory enforcement mechanisms, to evaluate mechanisms of accountability. The article concludes that while the legislative framework has resulted in higher CSR spending, the lack of monitoring and impact assessment, and standardisation, has prevented CSR from achieving its full potential. It concludes with suggestions for legal and policy changes to improve governance, transparency and ensure that CSR expenditure is directed at sustainable development objectives, making CSR more than a statutory obligation and contributing to social change.