A company is the creation of the law. It is not a human being but is an artificial person. On incorporation, the company acquires a separate legal entity distinct from and independent of its members. Unlike a partnership firm, which has no separate legal entity, a company has a separate corporate existence. Since a company has a separate legal entity, a shareholder can be the Director, creditor of the company, office bearer of the trade union, etc all at the same time. A shareholder cannot be held personally liable for the acts of omission and commission of the company, even though he holds almost the entire share capital of the company (1). This makes the dominant or majority shareholders relaxed businessmen and very less head is paid to the legal and the other requirements. The moment legal requirements are violated law steps in and make the defaulting persons responsible for the wrong act or omission. At this stage these powerful companies point towards various “deficiencies” in the law that they were formerly unaware of. The sanction of criminal law opens their mind towards the law. The same is, however, not true about the “moralistic aspects” of the law. There is no requirement that a company must be a “morally abiding company” though minimum quantum of morality is incorporate by the legislature in various laws of the country. The same is also present in the “grundnorm of all laws” popularly known as the Constitution of India. These are, however, at most a “moral appeal” and have no force of a binding law. This nature and existence of moral appeal is also desirable since morality cannot be imposed but it is inherent in the very existence of human being. In fact, none has a right to tell what is morally good for another to do. The same holds equally true about companies and what corporate social responsibilities (CSRs) are required to be fulfilled must be left for them to decide. The same must be in addition to those provided by the law on a compulsory basis. Thus, the most ideal situation is that where the companies fulfill both the legal mandates and the moral appeal voluntarily and in their true letter and spirit.
II. DEFINING CSR
There cannot be any definition of what constitutes CSR and what not. It must be left flexible and not rigid so that it can accommodate many more aspects. The defining of the same is also not the task of the academicians and lawyers but that must be left for the Courts and the Legislature to decide. If at all the other segments wish to discuss that aspect it should be more on the side of a “moral appeal” and not “commands” and “unnecessary philosophy” which has no base and binding value. The task must be to touch the moral fabric of the companies in a friendly manner and not a hostile confrontation (2). Thus, the best definition of CSR can be “taking of that voluntary beneficial action on the part of companies which they are not required to be take by the law”. For instance, if a company reallocates the victims of earthquake voluntarily that is a CSR. This is so because if they are performing the mandates of law then that is not a CSR but a mere following of legal commands(3). This aspect should not be misunderstood as claiming that following legal mandates is not the responsibility of companies. That has to be done by every person whether it is a company or natural person. The main idea is to clearly differentiate the spheres of legal compliance and CSR. The moment we are able to differentiate and demarcate these two spheres we can easily identify the role played by the companies in promoting the CSR. The non-performance of these CSRs should not be deprecated and abhorred but their performance must be appreciated and accepted with full heart and warm regards. Thus, what we are envisaging is the “positive aspect” of CSR and not a forceful imposition of the same upon the companies.
III. FOUNDATION OF CSR
The foundation, if at all we can say so, for CSR can be found not only in the Constitution of India but equally under various statutory laws. The primary source, however, can only be the Constitution of India that has to be utilized by the courts to its fullest extent. This is so because the courts in interpreting the Constitution enjoy a freedom, which is not available in interpreting a statute(4). The Constitution is organic and living in nature. It is also well settled that the interpretation of the Constitution of India or statutes would change from time to time. Being a living organ, it is ongoing and with passage of time, law must change. New rights may have to be found out within the constitutional scheme. It is established that fundamental rights themselves have no fixed content; most of them are empty vessels into which each generation must pour its contents in the light of its experience. The attempt of the court should be to expand the reach and ambit of the fundamental rights by process of judicial interpretation. There cannot be any distinction between the fundamental rights mentioned in Chapter III of the Constitution and the declaration of such rights on the basis of the judgments rendered by the Supreme Court(5). Thus, horizons of constitutional law are expanding and these expanding horizons can provide a sound base for CSR. Further, we cannot allow the dead hand of the past to stifle the growth of the living present. Law cannot stand still; it must change with the changing social concepts and values. If the bark that protects the tree fails to grow and expand along with the tree, it will either choke the tree or if it is a living tree it will shed that bark and grow a living bark for itself. Similarly, if the law fails to respond to the needs of changing society, then either it will stifle the growth of the society and choke its progress or if the society is vigorous enough, it will cast away the law, which stands in the way of its growth. Law must therefore constantly be on the move adapting itself to the fast-changing society and not lag behind(6). One of the necessities of the contemporary society is the recognition and acceptance of CSR by the companies. This can be supplemented by declaring private persons as State by the judiciary.
IV. THE NEED OF THE HOUR
The need for the declaration of private persons(7) as State, within the meaning of Article 12 of the Constitution of India, is immediate and compulsive in nature. This has arisen due to globalisation, privatisation and decentralization. The traditional “welfare state functions” have now slipped into the hands of private individuals due to this phenomenon. The crucial “public interest” has also been transferred to these private persons as far as the transferred business is concerned. This is, however, not the end of the story. The duties and limitations by which the traditional State was bound are also, with necessary modifications, passed to the private persons. These duties and limitations, though not as stringent and rigorous as were meant for traditional State, are still in existence and are required to be followed by the “successors” of those welfare state functions. It is no doubt true that private individuals cannot be expected to play the role of “parents or guardians” of the nation, but certain minimum fair and reasonable obligations, commensurate with the basic Human Rights, Fundamental Rights and Constitutional Rights, have to be met reasonably. The welfare state requirements mandate that if the power and essential functions of a state are decentralized or delegated to private persons, they retain their mandates of welfare requirements, though in a modified form. For instance, if a public company, performing crucial public functions is pravitised, than the successors are required to act justly, fairly and reasonably. An arbitrary, unreasonable or oppressive act of a “privatized public company” should be equally vulnerable to the challenges of unconstitutionality. Thus, the changed socio-economic conditions of India require a different outlook and this makes the declaration inevitable and essentiaL(8). This declaration will go a long way in fulfilling the mandates of CSR.
V. CONCLUSION
The law have conferred and assigned a special status to the companies, which is not available to other forms of associations. It expects the companies to contribute for the growth and development of the nation. The companies are expected to perform their “Social responsibilities” so that people can enjoy a qualitative life. The role of the companies is so important that we can see provisions touching and regulating their functioning in almost all the spheres of life. This is particularly so in a country like India which is a “Welfare State” by nature. The State formulates various laws and regulations keeping in mind its welfare state role. Thus, a balance has been maintained between social responsibilities of the company on the one hand and conferment of absolute autonomy and freedom from interference upon the company on the other. In the present scenario companies play a very important role in the growth and development of the nation. Thus, they should be encouraged and motivated to contribute more. This can be achieved by providing them additional benefits, concessions and privileges. Their functioning and operations should not be made complicated by forcing them to comply with unnecessary and technical formalities. In fact, the various technical and procedural formalities governing them should be made more liberal and simplified so that the “corporate governance” can become a real and effective governing force(9). In the ultimate analysis one can say that CSR is not a myth but an ignored and unfulfilled reality.
© Praveen Dalal. All rights reserved with the author.
* Consultant and Advocate, Delhi High Court
Contact at:
pd37@rediffmail.com/ perry4law@yahoo.com (1) Praveen Dalal, “Corporate entity in existing legal system-Its rights and liabilities under the Constitution and other enactments”, (Published in Aug 2004 issues of Corporate Law Adviser).
(2) This article has been written with this understanding and the author believes that a person convinced against his will is never convinced at all.
(3) In the opinion of the author the legal mandates must be first separated from the activities of the companies and if they are still performing voluntary beneficial activities then these activities must be accepted as CSR.
(4) J.P.Bansal v State of Rajasthan, (2003) 3 SCALE 154.
(5) P.U.C.L v U.O.I, (2003) (3) SCALE 263.
(6) Justice Bhagwati in National Textiles workers union v P.R. Ramakrishanan, (1983) 1 SCC 228.
(7) The expression “persons” is used in this article to include natural as well as artificial entities, i.e. both human agency and corporate entities.
(8) This has been proved empirically by the research conducted by the author personally. For more details kindly see
http://mumbai.indymedia.org/en/2005/04/210334.shtml. (9) Praveen Dalal, “The corporate entity and judicial panorama”, www.india.indymedia.org, posted on 30-03-05.
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