INTRODUCTION
Let’s begin with the meaning of Corporate Social Responsibility (CSR). When the companies get bigger in size, apart from the economic responsibility of earning profits, there are some social responsibilities which the companies shall also consider in order to fulfil the expectations of society.
CSR is a concept whereby companies not only consider their profitability and growth, but also take care of the interests of society and the environment by taking responsibility for the impact of their activities on the society, the environment and communities in which they operate.
CSR refers to the belief that businesses have an obligation to society, beyond their commitments to their investors. In addition to generating profits, businesses are expected to have some accountability towards the society.
APPLICABILITY
Section 135 (1) of the Companies Act 2013 is applicable to every company having:
- Net worth of rupees five hundred crore or more, or
- Turnover of rupees one thousand crore or more or
- Net profit of rupees five crore or more during the immediately preceding financial year.
Here we must note that, the Section reads as “EVERY COMPANY”, therefore it includes every type of company (including Section 8 Company) and a foreign company having its branch office or project office in India which fulfills the criteria, shall comply with the provisions of Section 135 of the Act.
CONSTITUTION OF CORPORATE SOCIAL RESPONSIBILITY COMMITTEE (CSR COMMITTEE)
All such companies to whom this section applies shall constitute a CSR Committee of the board consisting of three or more directors, out of which at least one director shall be an independent director.
Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its CSR Committee two or more director.
A private company having only two directors on its Board shall constitute its CSR Committee with two such directors.
In case of foreign company, the CSR Committee shall comprise of at least two persons of which one person shall be the person resident in India authorised to accept notices and any document on behalf of the Company and the other person shall be nominated by foreign company.
Moreover, please note that where the amount to be spent by a company does not exceed fifty lakh rupees, the requirement for constitution of the CSR Committee shall not be applicable and the functions of such Committee provided under this section shall be discharged by the Board of Directors of such company.
ROLE OF CSR COMMITTE
Following are the roles and responsibilities of CSR Committee:
- Formulate a CSR Policy indicating the activities as per Schedule VII to the Act;
- Recommend the policy to Board of the Company;
- Recommend the amount of expenditure on the activities and projects mentioned in schedule VII;
- Monitor CSR Policy by way of instituting a transparent monitoring mechanism for implementation of CSR projects or programmes or activities undertaken by the company.
RESPONSIBILITY OF BOARD
(a) After taking into account the recommendations made by the CSR Committee, approve the CSR Policy for the company.
(b) Ensure that the activities as are included in CSR policy of the company are undertaken by the company.
(c) The Board’s Report prepared under Section 134, shall contain the disclosures of the Composition of CSR Committee and also about the CSR project undertaken by the company and expenditure made.
(d) If a company fails to pay amount allocated for CSR, then such company shall make such disclosure in the Board’s Report. Such company shall also specify the reason of failure to spend CSR Fund.
MINIMUM CSR EXPENDITURE
As per Section 135 (5), at least 2% of the average net profits of the company during three immediately preceding financial years must be spent against CSR as provided in CSR Policy.
- What if the company has not completed 3 financial years?
Where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years.
- What if the company fails to spent CSR amount?
If the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
- What if the company spent an excessive amount in CSR activities?
If the company spends an excessive amount in CSR activities, such company may set off such excess amount against the requirement to spend up to immediate succeeding three financial year subject to the conditions that –
(i) the excess amount available for set off shall not include the surplus arising out of the CSR activities, if any.
(ii) the Board of the company shall pass a resolution to that effect.
CONSEQUENCES OF FAILURE OF SPENDING CSR FUNDS
It shall be noted that if any amount remains unspent which related to the ongoing project* then such unspent amount shall be transferred to the funds specified in Schedule VII, within a period of 6 months of the expiry of the Financial Year.
* “Ongoing Project” means a multi-year project undertaken by a Company in fulfilment of its CSR obligation having timelines not exceeding 3 years excluding the Financial Year in which it was commenced and shall include such project that was initially not approved as a multi-year project but whose duration has been extended beyond one year by the Board based on reasonable justification.
Further, it shall be noted that if any amount remains unspent pursuant to any ongoing project which has been undertaken by the Company in pursuance of its CSR policy then such amount shall be transferred by the Company within period of 30 days from the end of the Financial Year to a special account to be opened by the Company in any Scheduled Bank which shall be called as the Unspent Corporate Social Responsibility Account.
The amount in Unspent CSR Account shall be spent by the Company towards the CSR obligation within a period of 3 Financial Year from the date of such Transfer.
If the Company fails to do so, then the Company shall transfer the such amount to a Fund specified in Schedule VII, within a period of 30 days from the date of completion of Financial Year
CSR THROUGH TRUST, SOCIETY AND SECTION 8 COMPANY
As per sub-rule (1) of rule 4 of Companies (Corporate Social Responsibility Policy) Rules, 2014, the Companies can spend its CSR expenditure by itself or through:
(a) Company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961 (43 of 1961), established by the company, either singly or along with any other company, or
(b) Company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government; or
(c) Any entity established under an Act of Parliament or a State legislature; or
(d) Company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.
FILING OF FORM CSR 1
Every entity covered under sub-rule (1) of rule 4 of Companies (Corporate Social Responsibility Policy) Rules, 2014 that intends to undertake any CSR activity will have to register itself with the Central Government by filing the form CSR-1 electronically with the Registrar of Companies with effect from April 1, 2021.
On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically.
FILING OF FORM CSR-2
According to Rule 12 (1B) of Companies (Accounts) Rules, 2014 – every company covered under the provisions of sub-section (1) to section 135 shall furnish a report on Corporate Social Responsibility in Form CSR-2 to the Registrar for the preceding year (2020-2021) and onwards as an addendum to form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the case may be.
CONSEQUENCES OF DEFAULT UNDER SECTION 135
If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.
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