Corporate Social Responsibility (CSR) Under Section 135 of Companies Act 2013

CSR is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders to achieve balance of economic, environmental and social imperatives. In India, with the enactment of the Companies Act, 2013 by the Ministry of Corporate Affairs, Government of India, it has now become mandatory by certain categories of companies to take up CSR projects on social welfare activities.

CSR Policy

CSR Policy elaborates the activities to be undertaken by the Company named in Schedule VII to the Act and spend. The activities should not be the same which are done by the company in its normal course of business

• Contents of CSR Policy should be placed on the company’s website by the Board

• The activities mentioned in the policy must be undertaken by the company

• The Company can join hands with other companies for undertaking projects or programs or CSR activities and report separately on such programs or projects

• The CSR policy shall monitor the projects or programs.

Applicability

CSR is Applicable only for the following companies irrespective of whether Listed, unlisted, private, public, etc.

How CSR is applicable and how Companies need to form CSR Committee

Constitution of the CSR Committee

• Every company to which CSR criteria is applicable shall constitute a CSR board (i.e. CSR Committee).
• Minimum 3 or more directors must form CSR Committee.
• Among those 3 directors, at least 1 director must be an independent director.
• An unlisted public company or a private company shall have its CSR Committee without any independent director if an independent director is not required.
• In case of a foreign company, the CSR Committee shall comprise of at least 2 persons of which one person shall be a person resident in India authorized to accept on behalf of the foreign company – the services of notices and other documents. Also, the other person shall be nominated by the foreign company.

Role of CSR Committee

• formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII.
• recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
• monitor the Corporate Social Responsibility Policy of the company from time to time.
• The CSR committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs, or activities undertaken by the company.

List of Permitted Activities to be included in accordance with Schedule VII of the Companies Act, 2013

How much to Spend?

Every financial year, at least 2 percent of the average net profits of the company made during the immediately preceding 3 financial years.

What are all the activities not covered under CSR

• Contribution to political party either directly or indirectly shall not be considered as CSR activity.
• The projects or programs or activities that benefit only the employees and families shall not be considered as CSR Activities.

Role of Board of Directors

The role of the Board of Directors is explained below
• After considering the recommendations made by the CSR Committee, approve the CSR policy for the Company.
• The Board must ensure only those activities must be undertaken which are mentioned in the policy
• The Board of Directors shall make sure that the company spends in every financial year, minimum 2% of the average net profits made during the 3 immediately preceding financial years as per CSR policy.
• In case a company has not completed 3 financial years since its incorporation, the average net profits shall be calculated for the financial years since its incorporation.
• The Board’s Report shall disclose –
• CSR Committee’s composition

o the contents of CSR Policy
o In case CSR spending does not meet 2% as per CSR Policy, the reasons for the unspent amount, and details of the transfer of unspent amount relating to ongoing project to a specified fund (transfer within a period of six months from the expiry of the financial year).

CSR Reporting

With respect to CSR Reporting, the provisions are as follows:
• In case of a foreign company, the balance sheet filed shall contain an annexure regarding report on CSR.
• The Board must ensure only those activities must be undertaken which are mentioned in the policy

Fines and Penalties for Non-Compliance

In case a company fails to comply with the provisions relating to CSR spending, transferring, and utilising the unspent amount, the company will be punishable with a minimum fine of Rs 50,000 which may increase to Rs 25 lakh. Further, every officer of such company who defaults in the compliance will be liable for a punishment which is imprisonment for a term which may extend to three years or with a minimum fine of Rs 50,000 which may increase to Rs 5 lakh , or with both

Conclusion:

A Former President Mr. Abdul Kalam rightly pointed out "CSR if it is implemented with sustainability as a focus, then it enhances business sustainability, provides new opportunities, develops customer loyalty and improves stakeholder relationship”

“CSR IS A NEW EMERGING MANTHRA FOR CORPORATES”

Disclaimer:“Information contained herein is for informational purposes only and should not be used in deciding any particular case. The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts have been made to provide authentic information, it is suggested that to have better understanding and obtaining professional advice after thorough examination of particular situation.”