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.
What is the consequence for companies that fail to most the CSR spending requirement as per the new amendments?
Companies are required to turn over the profits to government - run funds.
Understanding the Consequence of Failing CSR Spending in India
The provided passage discusses the evolution of Corporate Social Responsibility (CSR) in India, highlighting the implementation of new guidelines and amendments to the Companies Act, 2013. A key aspect of the new amendment is the change in consequence for companies that fail to meet the mandated 2 percent net profit spending on CSR activities.
Analyzing the Previous vs. New CSR Requirement
Initially, companies were required to spend 2 percent of their profits on CSR or provide reasons for their failure to do so. This gave companies an option to explain non-compliance.
However, the passage explicitly states that "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 indicates a shift from an "explain or comply" model to a stricter "comply or transfer" model.
Evaluating the Options
Let's analyze each option based on the information provided about the new amendments:
- Option 1: Companies may file a suitable explanation. The passage states this was the requirement *earlier*. The new amendment introduces a different consequence. Therefore, this option is not correct for the *new* rules.
- Option 2: Companies may seek grace from the Government. The passage does not mention any provision for seeking grace periods or exceptions under the new rules.
- Option 3: Companies may get it done from the Sister Companies. The passage provides no information about allowing sister companies to fulfill the CSR obligation on behalf of another company. The requirement is on the qualifying company itself.
- Option 4: Companies are required to turn over the profits to government - run funds. This directly matches the consequence described in the passage for failing to spend the required 2 percent profit under the new amendment. The passage states companies "are required to turn over this amount of profits in the funds which are run by the government."
Conclusion on CSR Spending Failure
Based on the passage, the new amendment to the CSR guidelines in India removes the option of merely providing an explanation for failing to spend the mandatory 2 percent of net profit. Instead, companies that fail to spend the required amount within the specified time limit are now required to transfer the unspent amount to specific funds managed by the government.
The consequence for companies failing the CSR spending requirement as per the new amendments is that they must turn over the unspent profits to government-run funds.
Revision Table: Key Changes in Indian CSR Mandate
| Aspect | Earlier Requirement | New Amendment Consequence (as per passage) |
|---|---|---|
| CSR Spending Mandate | Spend 2% of net profit | Spend 2% of net profit |
| Action on Failure to Spend | Provide reasons/explanation for non-spending | Turn over unspent amount to government-run funds |
| Nature of Compliance | Comply or Explain | Comply or Transfer (to government fund) |
Additional Information on Corporate Social Responsibility (CSR)
Corporate Social Responsibility (CSR) is a business model that helps a company be socially accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental.
Triple Bottom Line Approach
The passage mentions the Triple Bottom Line Approach, which is a framework or theory that recommends that companies commit to focus on social and environmental concerns just as they do on profits. The three Ps stand for:
- People: Fair labor practices, community involvement, employee well-being.
- Planet: Environmental sustainability, reducing pollution, managing waste, conserving resources.
- Profit: The traditional measure of corporate profit, but in a way that is sustainable and ethical.
Integrating these three elements helps companies contribute to sustainable development and gain a competitive edge, as highlighted in the passage.
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:
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?
Which of the following changes was introduced in 2024 under the Companies Act amendments to enhance corporate social responsibility (CSR) transparency in India?
What is the 'Triple Bottom Line Approach' in CSR as mentioned in the passage?
Given below are two statements :
Statement (I): CSR is a holistic and integrated management concept whereby companies integrate their industrial and future objectives with their business objectives.
Statement (II): In this modern digitalized world, business are required to be mindful both in terms of what they are doing and how they are doing.
In the light of the above statements, choose the most appropriate answer from the options given below:
