CS S. Dhanapal
Corporate Social Responsibility (CSR) has been in existence for a long time and is almost as old as civilization. It is based on the Gandhian Principle of “trusteeship concept” whereby business houses are looked upon as trustees of the resources they draw from society and thus are expected to return them back manifold. CSR is extremely important for sustainable development of all stakeholders (all the people, on whom the business has an impact, including the society at large). Proponents of CSR argue that companies make more long term profits by operating with a perspective, while critics argue that CSR distracts from the economic role of businesses. Nevertheless, the importance of CSR cannot be undermined.
Section 135 of the Companies Act, 2013 contains provisions exclusively dealing with Corporate Social Responsibility. Schedule VII contains a list of the activities which a company can undertake as part of its CSR in initiatives.
PROVISIONS OF COMPANIES ACT, 2013 ON CSR (READ WITH NOTIFIED RULES)
♦ Meaning of CSR
“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.
♦ CSR Committee
(i) an unlisted public company or a private company covered under subsection (1) of section 135 which is not required to appoint an independent director pursuant to sub-section (4) of section 149 of the Act, shall have its CSR Committee without such director.
(ii) a private company having only two directors on its Board shall constitute its CSR Committee with two such directors;
(iii) with respect to a foreign company covered under CSR rules, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company.
v 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 of the Act.
v Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
v Monitor the Corporate Social Responsibility Policy of the company from time to time.
v Prepare a transparent monitoring mechanism for ensuring implementation of the projects / programmes / activities proposed to be undertaken by the company.
♦ Responsibility of the Board of Directors
“Net profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely:
i) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and
ii) any dividend received from other companies in India, which are covered under and complying with provisions of Section 135 of the Act
♦ CSR Policy & expenditure
– a list of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act, specifying modalities of execution of such project or programs and
– monitoring process of such projects or programs:
♦ Other points relating to CSR
(i) if such trust, society or company is not established by the company or its holding or subsidiary or associate company, it shall have an established track record of three years in undertaking similar programs or projects;
(ii) the company has specified the project or programs to be undertaken through these entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism.
♦ Activities which may be included by companies in their Corporate Social Responsibility Policies ( Amended Schedule VII)
(i) Eradicating hunger and poverty and malnutrition, promoting preventive healthcare and sanitation and making available safe drinking water;
(ii) Promoting education including special education and employment enhancing vocational skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;
(iii) Promoting gender equality, empowering women, setting up homes and hostels for women and orphans, setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
(iv) Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air and water;
(v) Protection of natural heritage, art and culture including restoration of buildings and sites of historical importance and works of art, setting up public libraries, promotion and development of traditional arts and handicrafts
(vi) Measures for the benefits of armed forces veterans, war widows and their dependents
(vii) Training to promote rural sports, nationally recognised sports, paraolympic sports and Olympic sports;
(viii) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and
(ix) Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government.
(x) Rural development projects
(Written by S.Dhanapal, Senior Partner, S Dhanapal & Associates, A firm of Practising Company Secretaries, Chennai.)