Unlock the potential of Corporate Social Responsibility (CSR) as a unique method for organizations to give back to society. Explore the legal obligations under the Companies Act, 2013, and discover how CSR activities enhance brand image, contribute to societal well-being, and create a positive impact. Dive into the details of CSR Committee formation, policy formulation, and the various activities that qualify for CSR expenditure. Embrace CSR as a powerful tool for fostering sustainable development and achieving societal goals.
Giving back to society by an organization, particularly in the country in which it operates, is beneficial to many. Not only it is advantageous for the Company giving back to society, but also to a large extend at the receiving end. For the company, it results in enhanced brand image, and with enhanced brand image sales of the goods/services of that company also increase with an increase in sales of goods/services profitability increase, and with the increase in profitability, its capacity to give back to the society also increases and so on the cycle continues.
The concept of giving back to society can also be found in scriptures such as Bhagavad Gita (Bhagavad Gita’s Chapter 17 verse 20). Chapter 17 Verse 20 of BG simply provides that the charity done should be done in the mode of goodness wherein the person doing charity shall do it to expect nothing in return. It further provides that the charity done should be as per the person’s capacity.
The concept of giving back to society by the company can also be found under the Companies Act, 2013. With the commencement of the Companies Act, 2013 a new concept of Corporate Social Responsibility (CSR) has been introduced which is similar to what we have discussed above. With the introduction of the CSR concept, India can be regarded as the first country wherein it is mandatory to undertake CSR activities as mentioned in Schedule VII. Non-compliance of the same is met with consequences.
Section 135 of the Companies Act, 2013 read with Companies (Corporate Social Responsibility) Rules, 2014 and Schedule VII casts an obligation upon such Companies, as prescribed under section 135(1) of the Companies Act, 2013 to undertake Corporate Social Responsibility (CSR) activities.
As per the provision of sec 135(1) of the Companies Act, 2013 following are the classes of the companies which are required to under CSR activities.
Companies having;
- Net worth of Rs. 500 crores or more or
- Turnover of Rs. 1000 crores or more or
- Net profit of Rs. 5 crores or more.
Such companies as mentioned above are required to constitute a CSR Committee, consisting of 3 or more directors with at least 1 independent director. For private companies, CSR Committee can also be formed with 2 or more directors wherein the appointment of the independent director does not apply, to undertake CSR activities.
Sec 135(2) provides that the composition of the CSR Committee shall be disclosed in the Board report
Sec 135(3) details the functions of the CSR Committee. CSR Committee shall:
- formulate and recommend to the Board, a Corporate Social Responsibility Policy as per Schedule VII
- recommend the amount of expenditure to be incurred on the activities referred above and
- monitor the Corporate Social Responsibility Policy of the company from time to time
Under section 135(5) of the Companies Act, 2013 the companies as mentioned in sub-section 1 are under an obligation to spend at least two percent of the average net profits of the company made during the three immediately preceding financial years or in case of the companies which has attracted the provision specified in section 135(1) and has not completed three financial years than in such case, since its incorporation.
Schedule VII:
Following are the activities which can be undertaken by the companies as specified under sec 135(1) of the Companies Act, 2013 towards its obligation of undertaking CSR activities:
a) Eradicating hunger, poverty, and malnutrition, [“promoting health care including preventive health care”] and sanitation [including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water
b) Promoting education, including special education and employment enhancing vocation skills, especially among children, women, elderly, and the differently abled and livelihood enhancement projects.
c) 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.
d) Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining the quality of soil, air and water [including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga].
e) 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 art and handicrafts;
f) Measures for the benefit of armed forces veterans, war widows and their dependents, [ Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows];
g) Training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports
h) Contribution to the prime minister’s national relief fund [or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)] or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;
i) (a) Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and(b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
j) Rural development projects
k) Slum area development.
l) Disaster management, including relief, rehabilitation and reconstruction activities.
No activities other than those mentioned above shall qualify for the purpose of sec 135 of the Companies Act, 2013.
Corporate Social Responsibility incorporated under sec 135 of the Companies Act, 2013 can be considered one of the best reforms indeed. It can be said that it is an important instrument through which the company’s brand reputation increases and at the same time society also benefits from it. CSR thus can be said to be balancing the interest of both the companies as well as society at large.
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