Read the following passage carefully, and answer question. In this modern digitalized world, business are required to be mindful both in terms of what they are doing and how they are doing it. The company's brand is not just dependent on the quality of products they are offering to people but on the overall impact of the company's operations on the society, environment and the economy. Their sense of social responsibility provides them with a competitive edge over their competitors in a crowded marketplace. CSR is a holistic and integrated management concept whereby companies integrate their social and environmental objectives with their business objectives. It companies integrate their social and environmental objectives with their business objectives. It works on a Triple Bottom Line Approach i.e. Company focuses on 3P's; People, Planet and Profit while addressing all the expectations of its stakeholders. The majority of policy initiatives in the country are driven by the objectives of equal opportunities, minimizing poverty and human deprivation, focus on fundamental rights, etc. thereby leading to strong human development. The choices that we make today will be going to affect and influence our future generations. Despite all this, inequality and disparity still exists. This year, the Indian Government implemented new CSR guidelines. These guidelines require Indian companies to spend 2 percent of their net profit net profit on CSR. India is the first country in the world to make CSR mandatory. Including the CSR mandate in Companies Act, 2013, is a great step of engaging the corporate sector in the equitable development of the country. Earlier companies were required to spend 2 percent of the profits towards CSR and in case of failure to do so; they were required to give reasons. But as per the present amendment, companies are required to spent 2 percent of profit towards CSR in the given time limit or are required to turn over this amount of profits in the funds which are run by the government. The new amendment will require all the companies which qualify the provisions under CSR guidelines to spend the specified part of their profits towards Corporate Social Responsibility without failing.
Given below are two statements : one is labelled as Assertion (A) and the other is labelled as Reason (R). Assertion (A): Companies are required to spend 2\% of profits towards CSR in the given time limit. Reason (R): The Government of India has made stringent provisions for CSR in the Companies Act, 2013. In the light of the above statements, choose the most appropriate answer from the options given below:
Both (A) and (R) are correct and (R) is the correct explanation of (A)
Understanding Corporate Social Responsibility (CSR) under Companies Act 2013
The question asks us to evaluate two statements, an Assertion (A) and a Reason (R), based on the provided passage about Corporate Social Responsibility (CSR) in India, specifically concerning the Companies Act, 2013.
Analyzing Assertion (A)
Assertion (A): Companies are required to spend 2% of profits towards CSR in the given time limit.
Let's look at the passage. It states, "This year, the Indian Government implemented new CSR guidelines. These guidelines require Indian companies to spend 2 percent of their net profit net profit on CSR." It further adds, "as per the present amendment, companies are required to spent 2 percent of profit towards CSR in the given time limit or are required to turn over this amount of profits in the funds which are run by the government."
This clearly indicates that companies are indeed required to spend 2% of their net profit on CSR within a specified time limit. The passage explicitly mentions this requirement.
Therefore, Assertion (A) is correct.
Analyzing Reason (R)
Reason (R): The Government of India has made stringent provisions for CSR in the Companies Act, 2013.
The passage discusses the inclusion of the CSR mandate in the Companies Act, 2013, calling it a "great step". More importantly, it highlights a "new amendment" which changes the previous requirement (where companies just needed to give reasons for not spending) to a more compulsory one. The new rule requires companies to either "spend the specified part of their profits towards Corporate Social Responsibility without failing" or transfer the unspent amount to government-run funds.
The shift from merely giving reasons to mandatory spending or transferring funds represents a significant increase in strictness or 'stringency' regarding CSR compliance.
Therefore, Reason (R) is correct as the recent amendments mentioned in the passage demonstrate stringent provisions.
Evaluating if (R) explains (A)
We have established that both Assertion (A) and Reason (R) are correct. Now we need to determine if (R) provides the correct explanation for (A).
Assertion (A) states the requirement for companies to spend 2% of profits within a time limit. Reason (R) states that the government has made stringent provisions in the Companies Act, 2013.
The fact that the government has made stringent provisions (as described in the passage by the shift to mandatory spending or transfer of funds) is precisely *why* companies are now required to spend the 2% within a given time limit without fail, or face consequences like transferring funds to the government. The stringent provisions under the Companies Act, 2013, are the mechanism that enforces the requirement stated in (A).
Thus, Reason (R) correctly explains Assertion (A).
Conclusion
Based on the analysis of the passage:
- Assertion (A) is correct because the passage explicitly states the requirement to spend 2% of profits within a time limit, especially under the new amendment.
- Reason (R) is correct because the passage describes the new amendment as making the spending compulsory or requiring fund transfer, indicating stringent provisions in the Companies Act, 2013.
- Reason (R) is the correct explanation for Assertion (A) because the stringent provisions are the reason behind the mandatory spending requirement within a time limit.
Therefore, both (A) and (R) are correct, and (R) is the correct explanation of (A).
Revision Table: CSR under Companies Act 2013
| Concept | Key Aspect | Detail from Passage |
|---|---|---|
| CSR Mandate | Requirement | Companies must spend 2% of net profit on CSR. |
| Companies Act, 2013 | Legal Basis | Includes the CSR mandate. |
| New Amendment | Stringency | Requires spending within time limit or transfer to government funds. |
| Purpose of Mandate | Goal | Engage corporate sector in equitable development. |
Additional Information: Corporate Social Responsibility (CSR)
Corporate Social Responsibility (CSR) is a management concept where companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. It goes beyond just making profits and considers the impact of business activities on society, the environment, and the economy.
- Triple Bottom Line: Often associated with CSR, this concept evaluates a company's performance based on three dimensions: People (social responsibility), Planet (environmental responsibility), and Profit (economic responsibility).
- Stakeholders: Companies are expected to consider the expectations of various stakeholders, including employees, customers, communities, suppliers, and shareholders.
- Mandatory CSR in India: India is noted as the first country to make CSR mandatory for companies meeting certain criteria regarding net worth, turnover, or net profit. The requirement is to spend 2% of the average net profit of the preceding three financial years. The Companies Act, 2013, Schedule VII lists the activities that can be considered under CSR.
- Evolution of Provisions: The passage highlights that the provisions have become more stringent over time, moving from a 'comply or explain' approach to a more mandatory spending or fund transfer requirement, ensuring greater accountability.
Important Questions from Corporate Social Responsibility (CSR)
On which of the following principles is Andrew Carnegie's view on Corporate Social Responsibility, as reflected in his book, 'The Gospel of Wealth' based?
(a) Peter Principle
(b) Scaler Principle
(c) Charity Principle
(d) Steward Principle
Choose the correct option from the following:
Which of the following are part of Corporate Social Responsibility (CSR) to consumers?
a) Reasonable chances and the proper system for accomplishment and promotion
b) To supply goods at reasonable prices even when there is sellers market
c) Improving the efficiency of the business operation
d) To provide an opportunity for being heard and redress genuine grievances
Choose the correct answer from the options given below
As per Carroll Model, the four levels of Corporate Social Responsibility are :
What is the minimum prescribed net profit threshold for Companies to be required to undertake Corporate Social Responsibility activities under clause 135 of the Companies Act, 2013?
What is the 'Triple Bottom Line Approach' in CSR as mentioned in the passage?
