Corporate Social Responsibility (CSR) is a concept where company for the betterment of society and a cleaner environment, CSR promotes responsible business practices and contribute towards betterment of society. This article elucidates the essence of CSR as stipulated under the Companies Act, 2013, encompassing eligibility criteria, the role of CSR committees, and permissible CSR activities.
♦ Criteria of CSR applicability
The criteria of CSR applicability is based on turnover, net worth and profit.
Criteria are as follows:
1. Companies with a net worth of Rs. 500 crore or more, or
2. Companies with a turnover of Rs.1000 crore or more, or
3. Companies with a net profit of Rs. 5 crore or more.
Companies falling under this criteria are mandated to spend at least 2% of their average net profits made during the preceding three financial years on CSR activities.
♦ Committee and its Duties
CSR Committee:
Companies that meet the above criteria must constitute a CSR Committee which shall constitute of attest three directors, including one independent director and committee must formulate and recommend the company’s CSR policy to the board of Directors for approval.
Duties of CSR Committee are:
1. Formulate and recommend to the board, an annual action plan in pursuance of its CSR policy.
2. Monitor the corporate social Responsibility policy from time to time.
3. Review the impact assessment reported undertaken through independent agencies and present the same before the Board.
4. Review and recommend to the Board the business responsibility report and the Annual Report on CSR activities which is required to be included in the Board’s Report of the Company.
5. Take all necessary actions as may be required or desirable with regards to CSR activities/Policy of the Company.
♦ Applicability of provisions of CSR on Section 8 companies:
CSR provisions are also applicable to Section 8 companies which are registered for a charitable purpose as Section 135 (1) of the Act states that every company having specified net worth, turnover or net profits must establish a CSR committee.
♦ Role and Responsibility of Board of Directors:
The Board of Directors of every company on which CSR is applicable shall on consideration and recommendation made by CSR Committee approve the CSR Policy for Company and should disclose contents of CSR Policy in Board Report.
Board should ensure that the CSR activities are to be included in CSR Policy in board report and to ensure that company spends on every financial year at least 2% of the average net profits of the company made during the 3 immediately preceding financial years in pursuance of its CSR Policy.
The Board of Directors shall also disclose contents of CSR policy in its Board repost and same shall be displayed on the company’s website (if any).
♦ Activities that can be undertaken as CSR activities:
Schedule VII of the Act, indicates the activities that can be undertaken as CSR and mandates expenditure for the following activities:
1. Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and differently abled and livelihood enhancement projects.
2. Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water.
3. Promoting gender equality, empowering women, setting up homes and hostels for women and orphans.
4. Protection of national heritage ,art & 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.
5. Training to promote rural sports, nationally recognized sports, paraolympic sports and Olympic sports.
6. Contribution to Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Schedules Castes, the Scheduled Tribes, and other backward classes, minorities and women.
7. Slum Area Development
8. Rural development projects.
9. Contributions or funds provided to technology incubators locates within academic institutions which are approved by the Central Government.
10. Measures for the benefit of armed forces veterans, war widows and their dependents.
11. Ensuring environmental sustainability, ecological balance, protection of flora and fauna ,animal welfare, agro forestry, conservation of natural resources and marinating quality of soil, air and water including contribution to the ‘Clean ganga fund set up by the Central Government for rejuvenation of river Ganga.
♦ Filling requirement under CSR:
Form CSR 2:
Every company for which CSR provision applies, is require to file Form CSR 2 which is report on Corporate Social Responsibility .
Note: The composition of the CSR committee, CSR policy and projects should be displayed on the company website for access of public.
♦ Excess or unspent amount treatment on CSR Activities:
Where a company spends an amount in excess of the required 2% of net profits, such excess amount may be set off against the same requirement to spend up to the immediate succeeding 3 financial years subject to the following conditions:
1. The excess amount available for set-off not include the surplus arising out of the CSR activities if any and
2. The board of directors shall pass a resolution to the effect.
♦ Non-Compliance consequences:
Under Section 135(7) of the Companies Act, any failure of a company to adhere to the CSR provisions entails penalties. The penalty amount is determined as the lesser of the following:
- Twice the amount the company was obligated to transfer to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account.
- INR 1 Crore.
Furthermore, each officer of the company found in default is subject to a penalty calculated as the lesser of the following amounts:
- 1/10th of the amount the company was required to transfer to the specified Fund in Schedule VII or the Unspent Corporate Social Responsibility Account.
- Two lakh rupees.
Conclusion: In alignment with the Companies Act, 2013, Corporate Social Responsibility (CSR) underscores the imperative for companies to contribute meaningfully to societal welfare and environmental sustainability. By adhering to CSR mandates, including the constitution of CSR committees and adherence to prescribed CSR activities, companies can foster a positive impact while upholding their legal obligations. Non-compliance with CSR provisions may entail penalties, accentuating the significance of CSR governance within corporate frameworks.
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