Impact of Companies Act 2013 on CSR Practices of Select Indian Companies: A Study

Abstract

India is perhaps the first country to provide CSR in its statute and made it mandatory. This has been done by introducing the provisions relating to CSR in the Companies Act, 2013. Section 135 and Schedule VII of the Companies Act 2013 and CSR policy Rules 2014 came into force w.e.f. 1st April 2014. It is high time to study the impact of the legislation that is intended. From the study, it is found that during the pre-enforcement period, number of companies spending voluntarily and the quantum of voluntary spending on CSR was remarkable for large cap companies but it was negligible for small cap companies. Due to regulatory compliance, the quantum of CSR spending in post enforcement period increased more significantly in small companies than in large companies. If we take CSR spending as a percentage of average PAT of the immediately preceding three years, it is found that in the post enforcement period the earlier practice of voluntary spending of large companies is simply transformed to spending for regulatory compliance and no significant change is noticed. In this respect the small companies show totally different result. There is a significant improvement in CSR spending from preenforcement to post-enforcement period for small companies because during pre-enforcement period voluntary CSR spending of small companies was very negligible. As a result, they are required to spend a large amount on CSR to comply with the new act and by considering the Percentage of Average PAT, a significant improvement is noticedin post-enforcement period. However, CSR activities should not be construed as a cover to conceal the irregularities or violation of norms by corporates. In the words of Plato “Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws.â€