Abstract
The evolving economic and legal landscape in India has brought increased attention to the dual pillars of Corporate Social Responsibility (CSR) and insolvency law, both of which aim to align corporate conduct with broader societal and financial obligations. This study critically examines the legal framework governing CSR obligations under the Companies Act, 2013, and juxtaposes it with the Insolvency and Bankruptcy Code (IBC), 2016, to explore how corporate responsibility is sustained or compromised during financial distress and insolvency proceedings.
Through doctrinal analysis and case-based evaluation, the research explores the tension between compliance with CSR mandates and the prioritization of creditors’ claims in insolvency scenarios. It also investigates whether insolvency proceedings absolve companies of their social responsibilities and to what extent CSR obligations can or should persist when a corporate entity is undergoing resolution or liquidation.
The study further delves into judicial interpretations, regulatory guidelines, and the evolving role of insolvency professionals and resolution applicants in sustaining ethical governance. It highlights the lack of a cohesive legal approach that integrates CSR into insolvency frameworks and proposes policy reforms that could ensure continuity of social commitments even amidst financial restructuring.
This research provides a nuanced understanding of the intersection between corporate accountability and economic viability, offering critical insights into how Indian law can better harmonize profit, people, and sustainability in times of corporate distress.
Keywords: Corporate Social Responsibility, Insolvency and Bankruptcy Code, Companies Act 2013, Corporate Governance, Liquidation.
Introduction
Companies are obligated to allocate 2% of their average net income from the past three fiscal years to corporate social responsibility (CSR) projects according to the Companies Act 2013 (Act). Businesses are impacted by this provision if their net value was 500 crores or more, their turnover was 1000 crores or higher, or their net profit was 5 crores or higher in the preceding fiscal year. Companies in this category must appoint at least three people to serve on the Board’s CSR Committee, with at least one director having to be an independent contractor. Two directors are required for a CSR committee; however, no more than four directors may be nominated unless the company is excluded from the Act’s section 149(4) obligation to choose an independent director.The CSR Committee should draft and propose to the board a CSR policy that outlines the company’s plans with respect to the issues mentioned in Schedule VII of the Act. The committee is also in charge of monitoring how the policy is being applied. The committee is responsible for drafting an annual report outlining the business’s CSR efforts. The shareholders should then get this report from the board. The report should include information on the company’s CSR initiatives, the funds allocated for them, and the societal effects of these programs. The Act mandates that CSR programs target issues like gender inequality, poverty, hunger, education, and environmental protection that are mentioned in Schedule VII. In addition to the Companies Act, there are several other laws and regulations in India that promote corporate social responsibility. The Securities and Exchange Board of India (SEBI) mandates that all companies that trade on the Indian stock exchange file a Business Responsibility and Sustainability Report (BRSR) detailing their CSR (corporate social responsibility) programs. In addition, a number of guidelines and circulars regarding corporate social responsibility have been released by the Ministry of Corporate Affairs (MCA).