India is one of the first countries in the world to make Corporate Social Responsibility (CSR) mandatory for companies following an amendment to the Companies Act,2013 (Companies Act) in 2014.
a. Applicability:
Section 135(1) of Companies Act, 2013 prescribes thresholds to identify companies which are required to constitute a CSR Committee.
b. The Provision of CSR applies to:
- Those Companies,
- Its holding, subsidiary,
- or Any Foreign Company, those in the immediately preceding financial year:
- Net worth is Rs. 500 Cr. Or more or
- Turnover is Rs. 1000Cr. Or more or
- Net Profit is Rs. 5Cr.
c. Constitution of the CSR Committee:
- Every Company falling under the CSR criteria shall constitute a Corporate Social Responsibility Committee.
- Minimum 3 or more directors form CSR Committee.
- Among these 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.
Note: 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 and the services of notices and other documents and the other person shall be nominated by the Foreign Company.
d. Duties of CSR Committee:
The Corporate Social Responsibility Committee shall-
- 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 CSR activities
- Monitor the Corporate Social Responsibility Policy of the company from time to time.
- The Committee shall establish the transparent controlling mechanism for the implementation of the CSR projects or programs or activities undertaken by the company.
e. Duties of Board:
The Board of every company shall-
- After taking into account the recommendations made by the Corporate Social
- Responsibility Committee, approve the Corporate Social Responsibility Policy for the
- Company and disclose contents of such Policy in its report and also place it on the
- company’s website, if any, in such manner as may be prescribed; and
- Ensure that the activities as are included in Corporate Social Responsibility
- Policy of the company is undertaken by the company.
- The Board of every company shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years.
- 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.
f. The Board’s Report shall disclose:
- CSR Committee’s composition
- Its contents of CSR Policy
- 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 the 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:
The Board’s Report referring to any financial year initiating on or after the 1st April, 2014 shall include an annual report on CSR.
In case of a foreign company, the balance shall contain an annexure regarding report on CSR.
> CSR Policy:
CSR Policy elaborates the Activities to be taken by the Company as named in Schedule VII to the Act and spend. The activities should not the same which are done by the company in its normal course of Business.
Note: 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.
> The CSR policy shall monitor the projects or programs.
UPDATES ON CSR:
MCA notifies PM CARES as eligible to receive CSR Corpuses of corporates as it amends Schedule VII of Companies Act, 2013 vide Gazette Notification dated 26th May, 2020 and included Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) in Corporate Social Responsibility (CSR) Activities under Section 135 of Companies Act, 2013.
MCA vide General Circular No. 15/2020 dated 10th April 2020 has issued and published COVID-19 related FAQs on Corporate Social Responsibility (CSR).
PM-CARES FUND contribution now qualifies as CSR expenditure under the Companies Act, 2013.
MCA gas recently added that any spending towards curbing COVID-19 spread in India under the list of eligible CSR activities, which are:
- Promotion of Health Care.
- Expenses towards preventive Health care and Sanitation.
- Disaster Management.
>Permitted Activities to be included in accordance with Schedule VII of the Companies Act, 2013:
1. Abolishing poverty, malnourishment and hunger, improvising health care which includes preventive health care and sanitation and making available safe drinking water.
2. Improvement in education which includes special education and employment strengthening vocation skills among children, women, elderly and differently -abled and livelihood enhancement projects.
3. Improving gender equality, setting up homes and hostels for women and orphans.
4. Introducing the measured for reducing inequalities faced by socially and economically backward groups .
5. Safeguarding environment sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources an maintain a quality of soil, air and water which also includes a contribution for rejuvenation of river ganga.
6. Protection of national 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.
7. Areas for the advantage of skilled armed forces, war widows and their dependents.
8. Training to stimulate rural sports, nationally recognised sports , Paralympics sports and Olympic sports.
9. Contribution to incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government, and contributions to public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies (established under the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO), Department of Biotechnology (DBT), Department of Science and Technology (DST), Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
10. Contributions or funds provided to technology incubators which are approved by the Central Government .
11. Rural Development Projects.
12. Disaster management, including relief, rehabilitation and reconstruction activities.
13. Slum area development where Slum area shall mean area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.
> Non –Compliance Fines and Penalties:
- The Company in default will be punishable with a minimum fine of Rs. 50,000 which may increase to Rs. 25 lakh.
- Further, every officer in default of such company 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.
Author Bio
well presented. thank you.Dr U.N.Bora