Corporate Social Responsibility And Its Implementation In India Providing A Stakeholder-Centric Approach

Author: LawSphereX

Category: Corporate & Insolvency

Published: 2026-08-23T19:01:25.257Z

Updated: 2026-08-30T07:07:06.137Z

CORPORATE SOCIAL RESPONSIBILITY AND ITS

IMPLEMENTATION IN INDIA PROVIDING A STAKEHOLDER-CENTRIC APPROACH

Salil Jain, BBA LLB (C), O.P. Jindal Global University

ABSTRACT

Corporate Social Responsibility (CSR) are fundamentally a set of principles or social responsibilities that dictate the corporate sector in its conduct towards the people and make the big corporations take liability in contributing towards industrialization and betterment of society and environment. But it is not a one-sided obligation, it is also beneficial for reputation of the brand, and customer reputation along with staff loyalty thereby building trust with stakeholders. On the other hand, many criticisms are also present for the implementation of this responsibility being difficult— as the agency cost of the same being too high, having different business goals generating a conflict of interest, and how to deal with transparency of such spend amounts for CSR. They are usually in historical sense, voluntary practices, to be done on the discretion of the corporate entity.

But some countries have extended the scope of this voluntary practise by attaching legal liability through statues and precedents enforcing compliance. Such is the case with countries such as India and United Kingdom (UK). In this paper, I shall analyse the history of how India has reached the current landscape of CSR implementation and evaluate how the statues and precedents provide for a stakeholder-centred approach.

1. THE CURRENT LANDSCAPE— S.135

Currently, India has implemented CSR guidelines robustly through the use of Section 135 of the Companies Act, 20131 read in conjunction with Schedule 7 of the Companies (Corporate Social Responsibility Policy) Rules, 20142, which respectively, establishes the eligibility and the procedure to be followed for companies that are to be encompassed under this Section while Schedule 7 defines what comes within the ambit of CSR activities. It was initially established in the landmark case of Union Carbide Corporation v. Union of India3 by the Supreme Court, that it is the legal obligation of corporations to ensure the safety of the environment and the well-being of communities. This case laid the foundation for integrating environmental concerns into the legal framework governing corporate accountability under the act.

4 The Ministry of Corporate Affairs is another example whom released the National Voluntary Guidelines on Socio-Economic and Environmental Responsibilities of Business, 20115 (SEER Guidelines), which provide for nine principles that are important for every type of organization i. e. for commercial organizations to meet their socio-economic and environmental duties. These principles must be followed in day-to-day operations— imposing more compliance, extending the scope CSR. To further analyse the imposition of CSR, we shall dive into S. 135 starting off with the eligibility regarding such companies.

1.1. ELIGIBILITY OF COMPANIES ENCOMPASSED UNDER S.135

Eligibility for a company to follow CSR is determined by S.135(1)6— as companies having net-worth7 of Rupees 500 crore or more, or turnover8 of Rupees 1000 crores, or a net profit9(calculated in accordance with S.19810) of Rupees 5 crore or more during the immediately preceding financial year. The Company through the board of directors prescribed under S.14911 shall then appoint a

1 Companies Act, 2013, s 135.

2 Companies (Corporate Social Responsibility Policy) Rules, 2014, Schedule 7.

3 Union Carbide Corporation v. Union of India, 1992 AIR 248.

4 Ritika Pathania & Dr. Sunil Kumar, CSR Non-Compliance and Corporate Accountability in India: Examining Corporate Social Responsibility Violations, IJRPR, Vol 4, no 11, pp 2075-2082. 5 National Voluntary Guidelines on Socio-Economic and Environmental Responsibilities of Business, 2011.

6 Companies Act, 2013, s 135(1).

7 Companies Act, 2013, s 2(57).

8 Companies Act, 2013, s 2(91).

9 Companies (Corporate Social Responsibility Policy) Rules, 2014, Rule 2(h).

10 Companies Act, 2013, s 198.

11 Companies Act, 2013, s 149.

Corporate Social Responsibility Committee consisting of 3 or more directors, of which one director is an independent director and this board’s report of committee composition shall be disclosed under S.134(3)12 for enforcement. The composition is in effect with reference to Rule

5 of Companies (Corporate Social Responsibility Policy) Rules, 201413.

1.2. IMPLEMENTATION OF S.135

Under S. 135(5)14, it is mandated for companies every year, to spend at least 2% of average net profits of the company made during the three immediately preceding financial years, alternatively if such a period of 3 years has not been completed due to recent incorporation, then we take it as per the CSR policy. The Board has the duty to make sure of CSR implementation in relation to the Rule 415 i. e. they are done either through them or prescribed medium. Failure to pay for such policy implements certain penalties, creating liability on the company to pay twice the amount required to be transferred by the company to the Fund specified in Schedule VII, or one crore rupees whichever is less under S. 135(7)16.

The officers of the company in default are also liable to pay a penalty of one-tenth of the amount required to the Fund, or of Rupees 2 lakhs whichever is less under the same section. Exceptionally, the timing of transfer to Fund may be delayed if such unspent amount is pursuant to an ongoing project defined as per Rule 2(i)17 in relation to the CSR activities under S. 135(6)18, where an extended period of 30 days is given for deposit of the unspent amount to a Fund in a scheduled bank. Pursuant to which, it shall be used within a period of 3 succeeding financial years. Contrarily, Failure of which, it shall transfer to Fund specified in Schedule 7. If there are Spent amounts exceeding the requirements under S. 135 in one financial year, they can be reduced from subsequent financial years.

If there are violation apart from Sections 135(5) and 135(6), Section 134(8)19 or if the general penalty under Section 45020 is applicable, non-payment of these penalties, then falls under Section 454(8)21.

12 Companies Act, 2013, s 134(3).

13 Companies (Corporate Social Responsibility Policy) Rules, 2014, Rule 5.

14 Companies Act, 2013, s 135(5).

15 Companies (Corporate Social Responsibility Policy) Rules, 2014, Rule 4.

16 Companies Act, 2013, s 135(7).

17 Companies (Corporate Social Responsibility Policy) Rules, 2014, Rule 2(i).

18 Companies Act, 2013, s 135(6).

19 Companies Act, 2013, s 134(8).

20 Companies Act, 2013, s 450.

21 Companies Act, 2013, s 454(8).

1.3. DUTIES OF THE CSR COMMITTEE AND BOARD OF DIRECTORS

Section 135(3)22 then determines the duties of these committees thus formed, prescribing the extent to which they have the power within the company enforcing compliance— S. 135(3)(a)23—Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company subject to specification in Schedule 7. As per S. 135(3)(b)24 and S. 135(3)(c)25 respectively—recommend the amount of expenditure to be allocated for CSR activities and monitor the CSR policy for prescribed activities to be implemented from time to time. Section 135(4)26 determines the duties of directors deliberating on how board of directors are mandated to undertake the advice of the CSR Committee and ensure that CSR Policy is followed by the Company under sub-clause (a) and (b). S.

166(2)27 also expands upon the concept of stakeholder importance by stating the duties of the directors to extend, in the interests of the community and protection of environment. M. K. Ranjitsinh v. Union of India (2021)28 has further stated that there is no hierarchy between the duties, but the duty itself is present as per S. 166(2), that are owed to the company and the other stakeholders as mentioned under the said section. Thus, consideration of environmental factors is not an option for the directors of the Indian companies but rather an ‘obligation’, creating a liability on the company limited to not in contravention of the company’s interests.

2. THE THIRD AGENCY PROBLEM

As foundation of this stakeholder-centred approach, we discuss the Third Agency Problem that is described by Henry Hansmann and Reinier Kraakman29, as a problem between the Shareholders and Stakeholders— including the employees, creditors and customers which the firm interacts with. The problem lies where the firm/company works opportunistically ignoring the stakeholders by expropriating creditors, exploiting workers, or misleading consumers.30 Here, the definition of stakeholder may expand to the society as large and is not limited to customer and people related to the company. The stakeholder theory, as part of agency problem

22 Companies Act, 2013, s 135(3).

23 Companies Act, 2013, s 135(3)(a).

24 Companies Act, 2013, s 135(3)(b).

25 Companies Act, 2013, s 135(3)(c).

26 Companies Act, 2013, s 135(4).

27 Companies Act, 2013, s 166(2).

28 M.K. Ranjitsinh v. Union of India, (2021) AIRONLINE 2021 SC 209.

29 John Armour, et al., Agency Problems, Legal Strategies, and Enforcement (July 20, 2009), Harvard Law and Economics Research Paper Series No. 644.

30 id. at 29.

dictates that shareholder’s interest of profit-maximisation needs to be kept in mind but also different stakeholders who have different interests such as employees with equal pay and society with environmental concerns, also need to be incorporated into the decision-making by the company. Corporate Social Responsibility comes with regards to society at large, and stakeholders are a broader term that encompass society. Thus, we can say that corporate social responsibility is a subset of the stakeholder theory where the society at large is one part of the stakeholders. Therefore, to solve the 3rd agency problem, we divulge upon the stakeholder theory that helps us understand the problem on a broader basis, where to ensure such interest of the society, there needs to be accountability for them i.e. compliance strategies as implemented by the government such as the provisions above.

3. HISTORY OF CORPORATE SOCIAL RESPONSIBILITY IN INDIA

Corporate Social Responsibility in India was historically implemented in different phases. They are not inert and thus overlap with one another. These phases provided for different approaches towards CSR— not done through legal implementation such as statues, or through legislative implications such as bill in Rajya or Lok Sabha. It was implemented at the start through the goodwill of corporate giants such as TATA Group during the 1990s and through Hindu historical religious texts such as Bhagwat Gita and Arthshastra in their philosophical approach.

3.1. THE FIRST PHASE

The Bhagwat Gita and Arthshastra are the very earliest examples where both talk about the concept of, “Dharma” i.e. the social welfare activities that should be undertaken by people similar to Directive Principles of State Policy(DPSP) enshrined under Chapter IV31 of the Indian Constitution for the government. The motive behind these concepts is to direct and to advice the people and government to do good karmas for the benefit of the society. They are not enforceable but advisory in nature. The businessmen in this phase were the main drivers of CSR through charity and philanthropy by sharing their wealth with the society at large.

3.2. THE SECOND PHASE

Then during the time of early 19th century, Mahatma Gandhi came up with a trusteeship

31 The Indian Constitution, chapter IV.

philosophy32 where he expressed his view in support of socialist view where capital and labour do not go hand in hand and capitalism in itself tries to undermine equality segregating the rich and poor by only putting money in the pockets of the few. He vouched for an egalitarian society where production is based on societal necessity and not personal greed thus essentially providing all people with equal benefit, abolishing inequality in society and establishing a maximum ceiling on the income of people. CSR which essentially means for companies to do good of the society advocates for a similar goal of establishing a structure where all money earned is not concentrated for personal greed of few, but for a wider audience— the stakeholders i. e. the general public and customers of the company.

This theory also provides an unconventional answer to the 3rd Agency problem also described in their paper as an incentive strategy for solution of the same where, there is an "independent director" in the trusteeship approach, used in many jurisdictions to authorize self-dealing transactions. These directors are anticipated to make judgments more strongly based on their reputation and conscience because they will not directly benefit from decisions that disproportionately favour the company's managers or controlling shareholders. Since they are separate from the labour to decide and implement, they form a more egalitarian solution incorporating both the interest of shareholders and the stakeholders.

3.3. THE THIRD PHASE

In the late 19th century, big companies such as the TATA group out of societal benefit i.e. philanthropy established the TATA Memorial Hospital and Institute of Social Sciences without profit making intentions during the phase of industrial revolution. Having a model of mixed economy, India established CSR in a more indirect way, through the use of compliance strategies making such requirements more stringent, such as harsh industrial licenses and taxes, legal capital issues, loans, imports, resource allocation, price setting, the developing monopolies, the consolidation of economic power, and public regulation of business operations. Due to the low success rates of public sector entities, the private sector grew and started to play a more significant role in socioeconomic development.33 Therefore, with no direct provisions for CSR, these alternate methods were used.

32 Gandhi Philosophy

Gandhi's Views, Gandhi Sevagram Ashram (Oct. 14, 2024, 100:00 A.M.), https://www.gandhiashramsevagram.org/gandhi-views/on-theory-of-trusteeship.php. Shraileen Kaur, Corporate Social Responsibility, IPleaders (Oct. 2024, 10:07 A.M.), https://blog.ipleaders.in/corporate-social-responsibility-4/#History_of_corporate_social_responsibility_in_India.

3.4. THE FOURTH PHASE

Further, the late 19th century opened the gates of India to the LPG- Liberalization, Privatisation and Globalisation where the borders of the country were opened up, increasing access to the global markets having greater commercialization and westernization but also accompanying increased compliance requirements in line with the global standards, increasing the restrictions on these companies shifting from self-regulation to standardized compliance accepted at international level. During this period, although compliance was accepted to be followed due to global restrictions, there still were no express statues dictating optimal utilization of CSR in India. The international compliance of CSR used by these companies during the 1990s originated after the Rio Conference on Environment and Sustainable Development of 1992, formed to be followed internationally.

34 — proposed by the European Commission in its Green Paper of 2001— “CSR is “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. Being socially responsible means not only fulfilling legal expectations, but also going beyond compliance and investing ‘more’ into human capital, the environment and the relations with stakeholders. ”35 This definition provides for a voluntary basis for these companies to invest and not be followed compulsorily. Later, in 2011, the definition was changed in the European Commission in its renewed EU strategy 2011-2014 for Corporate Social Responsibility.

— The new definition describes CSR as “the responsibility of enterprises for their impacts on society”, reenforcing the necessity of implementation of CSR guidelines emphasizing the motive for a shared profit between the shareholders and its stakeholders/society at large and mitigating any of their adverse impacts. The shareholders need to integrate social, environmental, ethical, human rights and consumer concerns in their operations in close collaborations with the stakeholders. The United Nations has also sponsored the "Global Compact," signed by a number of countries. It is the world's biggest corporate sustainability initiative which guarantees members' 34 International Instruments and Corporate Social Responsibility, A Booklet to Accompany Training on Promoting labour standards through Corporate Social Responsibility, International Labour Organization, (Oct. 14 2024, 10:07 A. M.

),https://www. ilo. org/sites/default/files/wcmsp5/groups/public/@ed_emp/@emp_ent/@multi/documents/in structionalmaterial/wcms_227866. pdf.

35 id. at 34

adherence to internationally accepted social responsibility standards that their companies should strive to achieve. The United Nations itself oversees the execution of such programs. "Mandatory corporate social responsibility" refers to a broad legislative requirement to conduct business in a socially responsible manner. This legal obligation may be created by corporate law or by the directors' fiduciary duty.36 In pursuance to these treaties, in 2013, the ‘Companies Act, 2013’ was established, giving the express provision S.135— providing for a strict compliance for companies to follow and essentially providing for a stakeholder-centric provision that accounts the benefits of society at large in collaboration with the interests of the shareholders, addressing a solution to Agency Problem 3 between the Shareholders and Stakeholders.

4. PRECENDENTS THAT INCORPORATE CSR IN INDIA

Over the years, many cases have been adjudged to evolve and grow the concept of CSR. The case of Rylands v. Fletcher37, established the concept of strict liability, a concept of torts. This concept of strict liability makes a person accountable for his mistakes if one was negligible and lacked due diligence in his conduct making him liable, thus allowing for a damages. But in India, this concept of strict liability has been further widened under the term— Absolute liability by removing the essential of negligence. It entitles that, damage caused by any company or individual, may be held liable, subject to certain conditions being a hazardous activity in nature, irrelevant of presence of negligence. Absolute liability was established in case of M. C. Mehta v.

Union of India38, a case of Oleum gas leak, where, by interpreting Article 32(1)39 and (2)40 to issue directions and orders, the court extended the scope of the section by saying, 'whichever may be appropriate' in 'appropriate proceedings'41. This means that the Supreme Court has the power to issue writs as per S. 22642, however appropriate for implementation of Fundamental Rights as necessary in appropriate cases where these rights have been violated to ensure constitutional remedy has been provided. As mentioned earlier, in Shraileen Kaur, Corporate Social Responsibility, IPleaders (Oct. 2024, 10:07 A. M. ), https://blog. ipleaders. in/corporate-social-responsibility-4/#History_of_corporate_social_responsibility_in_India.

37 Rylands v. Fletcher, (1868) LR 3 HL 330.

38 M.C. Mehta v. Union of India, (1987) 1987 AIR 965.

39 The Indian Constitution, art 32(1).

40 The Indian Constitution, art 32(2).

Debmalya Banerjee & Nicholas Choudhury, Mondaq (Oct. 2024, 10:44

A.M.), https://www.mondaq.com/india/corporate-and-company-law/1269846/corporate-social-responsibility-howlegislature-and-judiciary-mandated-the-path-from-company-to-community.

42 The Indian Constitution, art 226.

the case of Union Carbide Corporation v. Union of India, court observed the need for environmental concerns in corporate accountability. This accountability was done through the principle of absolute liability where without negligence, they were held to be liable causing damage to the lives of millions. In M. C. Mehta43, the Supreme Court noted that the right to life i. e. Article 2144 is read to encompass the right to an unpolluted environment and the duty to preserve and safeguard nature's abundance. Wild animals, woods, lakes, historic places, vegetation, ecological balance, and sustainable development are all protected under this right, expanding its meaning. Even, the legal entitlement to environmental protection may frequently supersede societal economic interests.

The 42nd amendment to the constitution has also imposed the duty on the State and the citizens to protect and improve environment. This was done by adding article 48A45 to the DPSPs and 51A(g)46 as a fundamental duty of the people towards State. Additionally, Article 4747 provides that it is the duty of the State to raise the level of nutrition as well as living standards of its people and improve public health. 48 CSR at its essence is formulated in a way to implement corporate accountability and be liable to stakeholders of the company and the society at large. S. 135 although only provides for ancillary support behind its philosophy, absolute liability is one way, which generates this corporate accountability that, companies have towards the environment.

5 CONCLUSION

Implementation of Corporate Social Responsibility (CSR) in India represents a significant evolution in corporate governance, marking a shift from voluntary practices to a legally mandated framework under Section 135 of the Companies Act, 2013. CSR over the years, has evolved from philosophical text emphasizing the role of practise in benefit of the society namely ‘Dharma’ to implementing it legislatively into the democracy of India. This paradigm shift is reflected through the various compliance rules as established through the DPSPs and the rules and regulations as elaborated in the Company Act, 2013. The Stakeholder approach is prevalent in CSR as it is itself a subset of stakeholder theory thus in the interest of the same.

43 id. at 3.

44 The Indian Constitution, art 21.

45 The Indian Constitution, art 48A.

46 The Indian Constitution, art 51A cl. g.

47 The Indian Constitution, art 47.

48 id. at 40.

The 3rd Agency problem focusing on the stakeholders proves the same by not limiting itself to the definition of being related to the company as an external creditor or customer but extending the scope of it to all of society. Throughout, the history of India, CSR has been approached as a concept that has put strong support for the voluntary involvement, but also imposed strong compliance for companies to consider involvement and interests of the stakeholders. By expanding the concept of culpability beyond negligence to include absolute liability in circumstances of environmental destruction, court rulings have emphasized the significance of corporate accountability. This legal environment acts as, deterrent against disregarding stakeholder interests whilst, also reaffirming the idea of corporate accountability.

The stakeholder-centric approach outlined in the Companies Act encourages companies to rethink their operational strategies, to lean into innovation in social responsibility initiatives that align shareholder interest with that of society for holistic progress of society overall. It is imperative that corporations embrace this paradigm, recognizing that their long-term success is inextricably linked to the welfare of the communities and environments in which they operate, thus by solving the problem between the stakeholders and the shareholders, there is mutual exclusive benefit, where the shareholders build profit and trust, benefit of which is reaped by the stakeholder equally.