Status as on: 28/06/2023
Introduction-
Businesses and industries in the 21st and from the very beginning of the business and industry are taking resources from society for the sole purpose of maximizing profit expand their business. In this very process, the business tries to provide society with some aid in raising employment, developing infrastructure, etc.
But if we see the bigger picture the difference between how much these corporate business and industry is taking back from society and how much they are giving society back is huge/vast.
In the past few decades, business leaders as well as philosophers came up with a new phenomenon which is Corporate Social Responsibility (CSR).
American Economist Howard Bowen Coined this term for the very first time in his publication named Social Responsibilities of the Businessman apart from that Howard was the first who gave a clear identity.
Under CSR Businesses are responsible to the society that exists around them. And under CSR only it becomes their moral duty to safeguard that society and help that society to grow.
Types of Corporate Social Responsibility-
Businesses perform various corporate social responsibilities. Some of them are:
- Environmental Responsibility- Business entities and industries are the prime factor contributing to environmental degradation. As Businesses and industry take many resources from society it is their first and foremost duty to contribute to environmental prevention and reducing malpractices that affect the environment first in the local area where the business/industry is situated and then on a larger scale.
- Ethical Responsibility- as there are numerous stakeholders in the business, the business must treat every class of stakeholders ethically and businesses should perform fair treatment in a class of stakeholders.
- Philanthropic Responsibility- Businesses and industries have to elevate their societal position by means of education, Health, and Infrastructure by way of doing charity for social causes.
CSR in India-
Companies Act 2013 regulates CSR in India. In 2013 amendment of the Companies Act 1956 introduces Corporate Social Responsibility in India and legislate it in the year 2013.
Under Section 135 of the Companies Act 2013 corporate social responsibility has been given. It laid down that every company has-
- A net worth of Rs. 500 crores or more
- Turnover of Rs. 1000 crore or more
- Net profit of Rs. 5 Crore or More (before tax)
During an immediately preceding financial year that company shall establish a corporate social responsibility committee (CSRC). The board which will be having three or more directors taking decisions regarding corporate social responsibility (CSR)
Functions of the Corporate social responsibility committee-
- Formulate policies of CSR and recommend the board about the policy and their working.
- Incurring expenditures to fulfill the activities of CSR policies will also be recommended by the committee.
- Monitoring and making changes in the policies.
The corporate social responsibility board has to-
- The board will disclose the policy of CSR after taking recommendations from the corporate social responsibility committee.
- The board will also ensure that the company is following and implementing the policies of CSR properly or not.
The board must ensure that the company is spending at least 2% of the average net profit of the company made during the three immediately preceding financial year.
Companies while spending regarding CSR shall give priority to local areas around the company or industry first.
CSR at the time of Insolvency–
A company or an industry is related to society and has many stakeholders directly related or indirectly related to them. In the time of bankruptcy and insolvency, all these stakeholders who have different expectations from the organization got affected in different ways.
As the proceedings of Bankruptcy and insolvency started, two types of stakeholders were mostly get affected by it. Those are-
- Internal stakeholders- Manager, Owners(shareholders), and employees;
- External stakeholders- creditors, customers, suppliers, society, state, banks, and the court conducting the proceedings.
External stakeholders and internal stakeholder changes as the stages of insolvency move further or the liquidation of a company occurs.
Usually, big enterprises in order to run their work fluently take their just to safeguard their business and other than to safeguard numerous interests of society.
“The theory that some entities are ‘too big to fail’ or ‘too important to fail’ can indicate which social presumptions can influence bankruptcy decisions.
According to this doctrine, when a large bank encounters financial difficulties, steps are taken to save it. This is because the system of guarantee of deposit, in any country would not be able to survive the bankruptcy of its biggest bank. These steps are taken to protect people’s savings.”
Conclusion-
In conclusion, both CSR and Insolvency are two different fields and are responsible for two vast and differentiated works. In India, a business must contribute to CSR. But, in India also there is no provision neither in the Companies Act 2013 not Insolvency and Bankruptcy Code 2016 which correlates Bankruptcy and insolvency with CSR. Both laws not bound any business to contribute to CSR when facing bankruptcy or insolvency. Apart from legislation in India, there is no specific law that correlates CSR and insolvency in the EU also. In India contributing to CSR while facing insolvency is a discretion of either NCLT or the business entity. Here In India also Business keep the ‘too big to fail’ theory in mind while taking their decision as their decision can affect different stakeholders in different ways and can lead the local area or even a country in a bad position.
Disclaimer: The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us at rera@centrik.in & ibc@centrik.in
join For Updates