DEFINITION
The concept of CSR rests on the ideology of businesses giving back to society as they grow and benefit. Companies take resources in the form of raw materials, human resources etc. from the society. By performing the task of CSR activities, the companies are giving something back to the society.
As commonly misunderstood, the CSR is not charity or mere donations. CSR is a way of conducting business, by which corporate entities visibly contribute to the social good.
CSR
The Term Was Coined First In 1953. In His Publication Named Social Responsibilities Of The Businessman, American Economist Howard Bowen Coined The Term And He Is Often Referred As The Father Of CSR.
On April 1, 2014, India became the first country to legally mandate corporate social responsibility. The rules in Section 135 of India’s Companies Act make it mandatory for companies of a certain turnover and profitability to spend 2% of their average net profit for the past three years on CSR.
On 29th August 2013, The Companies Act 2013 replaced the Companies Act of 1956. The New Act has introduced far-reaching changes that affect company formation, administration, and governance, and incorporates an additional section i.e. Section 135.
CSR Definition as per Companies Act
In India, the Ministry of Corporate Affairs, Government of India notified the Section 135 of the Companies Act, 2013 along with Companies (Corporate Social Responsibility Policy) Rules, 2014.
Moreover, while proposing the Corporate Social Responsibility Rules under Section 135 of the Companies Act 2013, the Chairman of the CSR Committee mentioned the Guiding Principle as follows CSR is the process by which an organization thinks about and evolves its relationships with stakeholders for the common good and demonstrates its commitment in this regard by adoption of appropriate business processes and strategies.
The mandatory CSR provisions were made effective from 1st April, 2014 for companies with a certain profit, turn-over or valuation.
Who needs to spend on CSR
The companies which fall in the ambit of have of the following three criteria are required to spend on CSR and must establish a CSR committee. Such companies are required to do CSR spend amounting to 2 % of their average annual profit over last three years. Here are the criteria for CSR eligibility for the companies.
Thus, section 8 companies must also establish a CSR committee and comply with CSR provisions when it meets the specified net worth, turnover, or net profits.
- Net worth of the company to be Rs 500 crore or more; or
- Turnover of the company to be Rs 1000 crore or more; or
- Net profit of the company to be Rs 5 crore or more.
Constitution and functions of CSR Committee
- The CSR Committee of the Board shall consist of three or more directors, out of which at least one shall be an independent director.
- Foreign companies shall constitute CSR Committee with at least two persons in which one must be a resident person, authorised to accept notices/ documents served on the foreign company and the other as nominated by the foreign company.
- Unlisted public company (UPC) or a private company, which otherwise does not require an independent director on its board, shall not need an independent director for the purposes of this committee.
- Any private company which only has two directors on its board shall have the said two directors in the CSR committee.
PENALTIES
If a company contravenes the provisions shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.
FAQ’s
Whether provisions of CSR are applicable to a section 8 Company ?
Yes, section 135(1) of the Act commences with the words “Every company” and thus applies to section 8 companies as well.
Whether reporting of CSR is mandatory in Board’s Report & for foreign company?
Yes, as per rule 8(1) and 8(2) of the Companies (CSR Policy) Rules, 2014, Board’s Report includes CSR Annual Report and in case of foreign company, the balance sheet shall include annual report on CSR
WHY CSR BECAME MANDATE?
Companies are utilizing a chunk of the economy’s money and resources for their benefit. When they are taking so much from the society, don’t you think they should be giving back something to the society in return too?
What is the meaning of the term ‘administrative overheads? What is the maximum permissible limit for administrative overheads?
Administrative overheads generally comprise of items such as employee costs, utilities, office supplies, legal expenses, etc. However, expenses which are attributed to the project implementation shall be included in project cost only.
The maximum permissible limit for administrative overheads is five per cent of the total CSR expenditure of the company for the financial year.
Which are the funds specified in Schedule VII of the Act for the purpose of CSR contribution?
Contributions to the following funds shall be admissible as CSR expenditure:
- Swachh Bharat Kosh
- Clean Ganga Fund
- Prime Minister’s National Relief Fund (PMNRF)
- Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)
- Any other fund set up by the Central Government and notified by the Ministry of Corporate Affairs, for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.
- Contributions to public funded Universities: IITs, DRDO, ICMR, ICAR, CSIR, DST, etc.
- Promoting education, gender equality, empowering women, employment enhancing vocational skill.
- Protection of national heritage, art and culture.
- Measures for the benefits of armed forces, veterans, war widows and their dependents.
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