Synopsis: Loosely worded CSR laws lead to a narrow interpretation of the definition of CSR. A multitude of social causes, including human trafficking get left out by companies which play it safe.
Corporate Social Responsibility (CSR) is a way for the corporations to give back to the society thereby creating a culture of being socially responsible. Before 2013, this was optional and had very few takers. With the aim to change this, mandatory CSR was suggested as an amendment to Section 135 of the Companies Act, 2013 (‘the Act’).
CSR is the great way for the private sector to contribute towards the betterment of the society. The Legislation mentions 11 activities that corporations can invest in: while the exhaustive list includes a lot of necessary issues, many didn’t make the cut. One such issue, among various others, is human trafficking. This costly exclusion harms the efforts of well-meaning corporations that want to help, and reduces the financial funding of Civil Society Organisations (CSOs) that are trying to help fight human trafficking in India.
What is Corporate Social Responsibility?
According to Section 135 of the Act, all corporations having net worth of Rupees five hundred crore or more, or turnover of Rupees one thousand crore or more, or a net profit of Rupees five crore or more in a financial year, should spend 2% of the average net profits of last 3 years towards CSR activity. As per Section 135(5) of the Act, in case the said amount is not spent, the reasons for not doing so are to be disclosed in the Board’s report.
Law regarding CSR is spread across the Act and the Companies (Corporate Social Responsibility Policy) Rules, 2014 (‘the Rules’). The definition of CSR is provided in Rule 2(c) of the Rules is as follows –
Corporate Social Responsibility (CSR) means and includes but is not limited to –
(i) Projects or programs relating to activities specified in Schedule VII to the Act; or
(ii) Projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act.
As per the definition, a CSR activity can be carried out by a company after the CSR Committee recommends it and makes it a part of the CSR Policy of the company. Further reading of the Rule 7 of the Rules states that the money spent towards CSR activities is called CSR Expenditure.
Let’s understand these terms better –
CSR Committee’s functions, as defined in Section 135 of the Act, are inter alia to formulate and recommend a CSR Policy which indicates the activities to be undertaken by the company as
specified in Schedule VII of the Act.
As per Rule 6 of the Rules, the CSR Policy of the company shall, inter alia, include the a list of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act. Provided that the Board of Directors shall ensure that activities included by a company in its Corporate Social Responsibility Policy are related to the activities included in Schedule VII of the Act.
According to Rule 7 of the Rules, CSR Expenditure shall include all expenditure relating to CSR activities but does not include any expenditure on an item not in conformity with activities which fall within the purview of Schedule VII of the Act.
Activities which may be included by companies as per Schedule VII of the Act are inter alia related to poverty, education, gender equality, healthcare, environment, etc., as listed under 11 categories.
Can a company look outside of Schedule VII of the Act for CSR?
The answer lies in a web of words and tangled meanings. Simply put, it is a YES for the bold and NO for the careful. To understand better we have to group the words into 2 parts
|Phrases indicating that CSR is within Schedule VII of the Act||Phrases indicating that CSR can be outside Schedule VII of the Act|
|CSR Committee can plan and recommend activities from Schedule VII of the Act||CSR activity means but is not limited to activities under Schedule VII of the Act|
|CSR Expenditure is money spent on activities only within Schedule VII of the Act|
|If the company fails to spend CSR amount, the Board shall, in its report specify the reasons for not spending the amount.|
|CSR Policy to mention the activity undertaken under Schedule VII of the Act|
|Board of Directors to ensure CSR Policy mentions activities related to Schedule VII of the Act|
While the very meaning of CSR is not bound by Schedule VII of the Act, every other CSR-related term in the Act and the Rules mentions that the activity conducted by the company should fall within the scope of Schedule VII of the Act. This leaves a very narrow scope for interpretation and very few companies would be so brave as to interpret the term ‘CSR’ widely to include activities outside the mentioned list.
Such wide interpretations would mean that the expenditure towards an activity outside Schedule VII of the Act will not be considered ‘CSR activity’. The company will have to report why no CSR activity was conducted that year, or spend extra money outside CSR expenditure towards such activities.
Human trafficking misses out on CSR
While there are innumerable social issues that could qualify to be added to the Schedule VII of the Act, we want to focus on human trafficking for the purpose of this article. Statistics as per Global Slavery Index, published by Walk Free Foundation, states that 1.40% (1,83,54,700 people) of modern India’s population are under slavery which includes intergenerational bonded labour, forced child labour, commercial sexual exploitation, forced begging, forced recruitment into non-State armed groups and forced marriage. Human trafficking acts as a big propagator of these evils. One of the easiest ways to fight trafficking would be to bring an amendment to include human trafficking as an activity under Schedule VII of the Act.
Since the language of the statute regarding CSR is confusing with plenty of grey areas, companies generally play safe and conduct activities which fall squarely with activities listed in Schedule VII of the Act. This results in CSOs missing out on significant funds which could be instrumental in fighting human trafficking. By including trafficking to Schedule VII of the Act, we can pave way for significant social changes that can be brought about by the private sector.
According to International Justice Mission, the survey of just one State shows 30% of manual labourers in 11 industries were actually in bondage and as per International Labor Organisation, 1 in every 4 modern-day slaves is a child. Since production of goods and services has become increasingly fragmented as a result of globalisation, nearly every multinational supply chain could be exposed to risks of forced labour and human trafficking, particularly where migrant or otherwise vulnerable workers are recruited into lower-skilled jobs in the supply chain.
Often, companies team up with an organisation with whom they are conducting CSR activities to create awareness about such activity within the company. Such allied activities can have a huge impact on fighting human trafficking from within a company by –
- Conducting training and awareness programmes for staff.
- Identifying human trafficking within their processes and supply chains and eradicating them.
- Developing and implementing policies and programmes to prohibit human trafficking within their labour force and examining production planning and order placement practices.
- Identifying business partners and geographies where the risk of human trafficking is present and taking necessary preventive measures.
E.g. One of the commonplace for incidents of trafficking was the tea plantations in Assam. Children were lured into a life of money and happiness and trafficked to various states across India. There were reports of human trafficking in a tea plantation in Assam, which was largely owned by Amalgamated Plantations (APPL) – a company whose biggest shareholder is Tata Global Beverages (Tata), the parent company of Tetley tea. On this issue being reported by CSOs like Bachpan Bachao Andolan and Freedom United, Tata Global Beverages allegedly took it upon themselves to ensure awareness and safety among workers from being trafficked, as reported in The Guardian.
- Mandating suppliers to comply with company policies which include anti-trafficking measures.
A social evil such as human trafficking can be fought in 2 ways –
- By making trafficking a offence with deterrent punishments, and
- By creating a duty on the society to fight the evil and rehabilitate the victims.
Both methods are equally important and act as a two-pronged attack against trafficking. The State and the citizens should both bear the responsibility to fight such a social evil – a principal on which Directive Principles of State Policy were introduced. As victims of trafficking increase at an alarming rate, today, more than ever, there is the need for investments to curb human trafficking in India.
Ms. Sashmeeta Mulmi, Director of Strategic Engagement, International Justice Mission says, “Inclusion of human trafficking in the CSR bill will go a long way in addressing this heinous but largely hidden crime of trafficking for bonded labour. Corporates taking note of this issue and partnering with the government and NGOs will send out a strong message that the poor are not alone and will be protected by those who have the means and influence. Furthermore, large corporations can help practically by creating more awareness, investing in ensuring bonded-labour-free supply chains and creating systems that protect the poor from human trafficking and the violence that accompanies it.”
Much like how the introduction of activities such as environmental protection, promotion of public health and education in Schedule VII of the Act has created huge positive impact in those fields, the introduction of human trafficking as one of the clauses will be beneficial. Such direct inclusion, with no room for confusion, will definitely encourage companies to take up human trafficking concerns as a part of their CSR activities, thereby bringing about positive changes, both externally and internally.
DISCLAIMER: The information provided in this article is for educational purposes only. The same cannot be construed as legal advice.
 Gethin Chamberlain, The tea pickers sold into slavery, THE GUARDIAN, March 2, 2014, https://www.theguardian.com/global-development/2014/mar/02/tea-workers-sold-into-slavery (last visited Jun 25, 2018