“Corporate sector is one of the important foundations for economic, social and environmental development of any country. The Companies Act, 2013 initiated the responsibility over certain class of companies to boost social development by way of contributing a certain sum of money for promoting specified undeveloped sectors. The author aims to throw light on the key tits bits of Corporate Social Responsibility.”

1. Introduction of the concept

Corporate Social Responsibility (CSR) is a concept introduced by the Companies Act, 2013 via section 135 made effective from 01/04/2014. Companies, use resources in the form of money and material from the society to meet its business requirements. Utilization of public resources casts responsibilities towards such companies to expend certain sum of money out of its profits for the betterment and upliftment of the society.

2. Applicability of CSR

Although initially CSR was thought to be implemented on all the companies, however, the law itself specifies for certain conditions to be fulfilled by any company is mandatorily covered under the provisions of CSR. Accordingly, any company complying with any of the following conditions shall be liable to meet its CSR obligation mandatorily :

(a) Any company having its Net Worth of Rs 500 crores or more

(b) Any company having a turnover of Rs 1000 crores or more

(c) Any company making a net profit of Rs 5 crores or more

The above limits are applicable for each financial year independently.

3. Activities covered under CSR

The activities which are permitted and prescribed under Schedule VII of the Companies Act, 2013 for accepting the contribution from the companies are as follows:

1. Eradicating extreme hunger and poverty

2. Promotion of education

3. Promoting gender equality and empowering women

4. Reducing child mortlity and improving maternal health

5. Combating human immunodeficiency virus , acquired immune deficiency syndrome, malaria and other diseases

6. Ensuring environmental sustainability

7. Employment enhancing vocational skills

8. Social business projects

9. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women

10. Such other matters as may be prescribed.

4. Compliance of CSR

In order to comply with statutory provisions of CSR the company has to constitute CSR Committee consisting of 3 or more directors from its Board, out of which at least one director shall be an independent director. The key purpose of this committee is to ensure timely compliances of CSR related activities which relieves the other directors of the company principally focusing on activities other than CSR activities. The CSR committee formulated policies and make recommendations to the other Board members about the activities (referred above) to be undertaken for the betterment and upliftment of the poor and backward section of the society. It also monitors and supervises the spending of CSR funds in the right direction and in accordance with its policies.

Along with such social focus, such committee will also ensure about completion of the corporate compliances which are mandatorily specified under the relevant provisions of the Companies Act, 2013. Such compliances are as under:

1. That the CSR policies formulated and recommendations made by the committee should be disclosed in the separately in its Director’s Report (a report prepared by the Board of Directors of the company annually).

2. That if the company is maintaining its website, then CSR policies and recommendations specified above must be disclosed on its website also.

3. That the companies are required to spend a certain sum of money in every financial year in such activities. The minimum amount required to be spent by such companies is 2% of the average net profits of the company earned during 3 immediately preceding financial years.

4. That the detailed and separate report of such expenditure needs to be disclosed in the Audit Report of the company.

5. That the committee should also ensure that CSR fund should be utilized locally and primarily in the areas where the company operates.

5. Proposed Amendment in CSR by the Companies Amendment Bill, 2019

In view of the above discussion the responsible companies are required to spend specified sum of money towards CSR activities. However, it has been generally found that the companies are either not timely utilising complete CSR funds or misutilising or utilizing in haste resulting in halfhearted achievement of this noble social cause. Hence, with this amendment bill it is proposed to impose a time limit of spending the said sum of money. Additionally, the amendment also specifies the treatment to be given to the said unutilized sum of CSR fund.

The key takeaways from the proposed amendment are

  • That if the company does not utilize the specified CSR fund then it has to record the reasons for such unutilized amount in its annual report.
  • That the unutilized CSR fund has to be transferred to one of the funds specified under Schedule VII of the Companies Act 2013 within a period of 6 months of the expiry of the relevant financial year.
  • That if the unutilized CSR fund is related to the ongoing project (one of the activity covered under CSR), subject to the fulfillment of the prescribed conditions (conditions yet to be notified), such unspent amount have to be transferred to a special account which will be opened by the company in any scheduled bank, within 30 days of the expiry of financial year. Such account will be named as Unspent Corporate Social Responsibility Account. The transferred amount shall be utilized in pursuance of the corporate social responsibility policy within a period of 3 financial years from the date of such transfer. However, violation to this provision will attract penalty.

6. Before Parting

The government is regularly taking up measures for the better and worthy life of the poor and backward sections of the society. It is therefore essential for citizens of this country to take active part in this noble cause. However, considering misutilisation, unutilisation and hasty utilization of funds it is an imperative need to tighten the provisions so as to meet the objectives for which the provision is introduced. Opening of a separate bank account and introduction of penal provisions will ensure a better sight of responsibility in the company towards social development along with economic development.

Regards,

CS KANIKA LOHIYA

Author Bio

Qualification: CS
Company: N/A
Location: Rajasthan, IN
Member Since: 06 Sep 2019 | Total Posts: 3

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