CSR Policy under the Companies Act

Introduction

Corporate Social Responsibility (CSR) is an initiative by the company to undertake measures for the purpose of making a more sustainable, stable and consumer-centric natural environment. CSR Initiatives aim out at cutting down pollution and effluent discharge levels in the environment, establishing infrastructure for active waste management, greenification of the company’s existing premises and other locations, among other measures. The Company is required to set aside a fixed amount of it’s annual turnover for the purpose of investment in CSR initiatives, the same shall be approved by the Corporate Social Reasonability Committee of the Board of the company. The CSR initiative seeks to align the financial and commercial goals of a company with the social and environmental concerns in due course of their business with their stakeholders. According to the United Nations Industrial Development Organization ,  Corporate Social Responsibility has turned out as strategic business concept , which has helped Small and medium Scale Industries in developing nations to meet and raise the quality of their social and environmental standards. Such initiatives raise the competitiveness, product/service quality and the overall living standards of nation’s general population . Apart from a consumer –centric perspective, CSR also benefits in raising the overall efficiency of an organization , as by investing in the societal aspects of the business, the company is directly benefitting the stakeholders and employees, who ultimately happen to be the most vital asset for the company .

Corporate Social Reasonability – An overview

Corporate Social Responsibility is a humanitarian concept that a company has a major role in the process of sustainable developemt of it’s immediate environement , and should play a positive role in the community development , which ultimately cast a crucial impact on it’s business decisions. It is closely linked to the premise of ecological sustainability which is creating economic, social, and environmental value. Section 135 of the Companies Act 2013 states that A  CSR committee of the board, made up of three or more directors, must include at least one independent director for every company with a net worth of at least 500 crores of rupees, a turnover of at least 1,000 crores of rupees, and a net profit of at least 5 crores of rupees during any financial year. The committee will supervise the distribution of the CSR fund and make sure that the activities are carried out in accordance with the business’s CSR policy.

The Sustainable Development Goals should be mapped to Schedule VII of the legislation, according to advice from a High-Level Committee that was established in 2018 to examine the CSR framework (SDGs). The committee made the observation that businesses should balance their CSR spending between their immediate surroundings and less developed places, such as aspirational districts. The inspiring districts programme (ADP), which was introduced by the Indian government in January 2018, aims to raise the socioeconomic standing of the country’s least developed areas. The programme is built on five socioeconomic themes, including health and nutrition, education, agricultural and water resources, financial inclusion, skill development, and the enhancement of fundamental infrastructure. 112 inspiring districts are currently recognised by the government, with Jharkhand having the most of them.

The Corporate Social Responsibility Committee shall formulate and make a recommendation to the Board for adoption of a CSR policy setting forth the steps the Company will take to carry out the activities set forth in Schedule VII, which include reducing child mortality and increasing maternal health, hunger and poverty alleviation ,literacy awareness, gender equality and women empowerment, battling forms of venerable and communicable diseases such as  HIV/AIDS, malaria and promoting a sustainable environment, providing vocational training to underprivileged sections, social business projects, and contributing to the Disaster Relief Fund or any other fund established by the Central Government are all included in Schedule VII of the Companies Act of 2013. Expenditure on Corporate Social Responsibility was made compulsory after the enactment of The Companies (Corporate Social Responsibility Policy) Rules, 2014 . The scope of the Act extends to “Every company ,including it’s subsidiary or holding , and a foreign company defined under clause (42) of the Section 2 of the Act having it’s branch office or project office in India.” [1] . The committee will make suggestions for the expenditures of the activities and will periodically review the company’s CSR strategy. According to the provisions of the Companies Act, the board of each firm must ensure that the company spends at least 2% of the average net profit it made over the three most recent financial years in accordance with its CSR strategy. The Board must approve the firm’s CSR Policy in accordance with Rule 9 of the  2014 rules and post it on the corporate website.

CSR Amendment Rules,2022

The Companies (Corporate Social Responsibility Policy) Rules, 2014 was amended on 20.09.2022. The CSR compliances under the 2022 rules require every Company , holding ,subsidiary or foreign , within the meaning of section 2(42) of the Act to have it’s branch office or project office in India , hence fulfilling the criteria under section 135 of the Act .In the amendment  of this act, the new proviso was added in rule 3 which states that  a company , which has any amount left unutilized in it’s CSR Account shall constitute a CSR Committee in order to comply with the provisions of the act for the purpose of fulfilling it’s CSR liability The Report of the Board under section 134(3) shall disclose the composition of the CSR Committee. The sub- rule (2) of  rule 3 was omitted in the  amendment of 2022.In the amendment of this 2014 act in 2022, the rules of sub- rule (1) of rule 4 was substituted

In case if the Board of any company established under the Companies Act,2013 , or any registered Public Trust or a Registered Society Exempted under section 12A and approved under Section 80G of the Income Tax Act,1961 wished to undertake CSR activities, it shall demonstrate an established history of 3 years in undertaking similar programs or projects .With the commencement of the amendment in this act in 2022, the company is permitted to the book expenditure for Impact Assessment , which shall not be more than two percent, which was earlier  five per cent in the 2014 Amendment , of the Total CSR Expenditure or rs. 50 lakhs , whichever is higher, under rule 8 .

CSR Reporting is the most essential element of the implementation of the CSR policies as well as their projection .Under section 3(a) , “every Company having an average CSR obligation of Rs. 10 crore or more in the immediately preceding three years shall undergo impact assessment through an independent agency .The Assessment Report shall be placed before the Board and annexed with the annual CSR Report” .[2] 

 “Har Ghar Trianga Campaign”

Vide circular no.08-20220276, The Ministry of Corporate Affairs introduced a clause in the 2022 Policy Framework , integrating the Social responsibility of a Company with it’s National one.  On Occasion of the 75^th Anniversary of the Indian Independence, dubbed as Aazaadi ka Amrit Mohatsav (Golden festival of the Independence) .The initiative allowed the companies to shell –out CSR funds for the purpose of nationalist activities for the purpose of invoking patriotism among employees and other working personnel. Profit making companies are allowed to utilize the CSR funds for the purpose of production and display of the National Flag , outreach and amplification efforts and other related activities . The companies may undertake to promote the holistic nature of patriotism and other related activates of national interest , which shall be in compliance with the Companies (CSR Policy) Rules, 2014 and other notifications and circulars issued by the MCA from time to time.[3]

Conclusion

The incorporation of the concept of Corporate Social Responsibility in the new Companies Act is an excellent step in holding corporations accountable for their societal and environmental duties as well as ensuring transparency in the allocation of resources towards undertaking CSR activities.  Instances of Top Managerial Officials of a Company , such as the Central Executive Officers of a Company (CEO) insisting to be referred to as Chief  Environment Officer , as well as existence of a Chief Sustainability Officer  as indicative of the fact that the Management itself is taking keen interest in furtherance of CSR initiatives and effective functioning of the company’s Corporate Social Responsibility Mechanism.

References

• Companies Act , 2013 (Act no. 18 of 2013) , s.134(3),135
• The Companies (Corporate Social Responsibility Policy) Rules, 2014
• Income Tax Act,1961 (Act no. 43 of 1961) ,s.23,12A, 80G

[1] Ashima Obhan , Aparna Amnerkar , “CSR Amedment Rules,2022”  <https://www.obhanandassociates.com/blog/csr-amendment-rules-2022/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=LinkedIn-integration> Accessed 5^th December ‘2022

[2] “CSR Compliances wef 20^th September 2022” <https://taxguru.in/company-law/csr-compliances-rules-w-e-f-20th-september-2022.html > Accessed 5^th December 2022

[3] “Har Ghar Tiranga’: Govt allows companies to spend CSR funds for campaign”, Zeebiz https://www.zeebiz.com/india/news-har-ghar-tiranga-csr-policy-abhiyan-campaign-india-2022-independence-day-azadi-ka-amrit-mahotsav-191455#:~:text=’Har%20Ghar%20Tiranga’%3A%20Govt,about%20the%20Indian%20national%20flag  Accessed 6^th December 2022