Insight on Corporate Social Responsibility

INTRODUCTION

The Companies Act, 2013 (“Act”) has brought major changes not only towards the legal and secretarial welfare but also towards social welfare which could be widely justified by incorporating the provisions of Corporate Social Responsibility (“CSR”) in the new Act.

CSR is basically a concept whereby Companies decide voluntarily to contribute to a better society and a cleaner environment. CSR is represented by the contributions undertaken by Companies to society through its business activities and its social investment. This is also to connect the Concept of sustainable development to the company’s level.

CSR is as old as civilization. It is based on the “trusteeship concept” whereby business houses are looked upon as trustees of the resources they draw from society and thus are expected to return them back manifold. CSR is extremely important for sustainable development of all stakeholders (all the people, on whom the business has an impact, including the society at large). Proponents of CSR argue that Companies make more long term profits by operating with a perspective, while critics argue that CSR distracts from the economic role of businesses. Nevertheless, the importance of CSR cannot be undermined.

The Companies Act, 2013, which has already been notified partially, gives this concept of CSR its due weightage. Section 135 of the Act contains provisions exclusively dealing with CSR. In the present write up, we have highlighted the important provisions relating to CSR as contained in the Act and also the provisions contained in the draft rules on the Act.

PROVISIONS OF COMPANIES ACT, 2013 (ALONG WITH DRAFT RULES) ON CSR Applicability:

1. The Companies fulfilling any of the below criterias are required to constitute CSR committee:
   • Net worth of Rs. 500 crores or more, or
   • Turnover of Rs. 1000 crores or more, or
   • Net Profit of Rs. 5 crores of more.
2. The above mentioned CSR Committee should consist of at least 3 directors out of which atleast 1 should be an independent director.
3. Board’s Report under subsection (3) of section 134 shall disclose composition of CSR Committee.
4. CSR rules shall come into force on the date of their publication in the official gazette and shall be applicable from the financial year 2014-15.

FUNCTIONS OF CSR COMMITTEE

1. Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the Company as may be specified.
2. Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
3. Monitor the CSR Policy of the Company from time to time.

RESPONSIBILITY OF THE BOARD OF DIRECTORS

The Board of directors shall be responsible to ensure that at least 2% of average net profit of last 3 preceding years is spent on CSR activities every year. ‘Net Profit’ shall mean net profit before tax as per books of accounts and shall not include profits arising from branches outside India. The Board shall also be required:

1. To approve the CSR Policy after considering recommendations of CSR Committee.
2. To disclose CSR policy and initiatives in Board’s report and Company’s website
3. To ensure that activities reflected in CSR policy are actually undertaken by Company.
4. To report the reasons in the Board’s report, if the Company does not spend 2% of net profits as required.

CONTENTS OF CSR POLICY

The CSR Policy should specify the following:

1. The Projects and programmes that are to be undertaken.
2. The List of CSR projects/programmes which a Company plans to undertake during the year of implementation, modalities of execution in the areas/sectors chosen and implementation schedules for the same.
3. That the surplus arising out of the CSR activity will not be part of business profits of a Company.
4. The corpus would include the following:
   1. 2% of the average net profits,
   2. any income arising there from
   3. Surplus arising out of CSR activities.

ACTIVITIES RELATING TO CSR:

1. Eradicating extreme hunger and poverty;
2. Promotion of education;
3. Promoting gender equality and empowering women;
4. Reducing child mortality and improving maternal health;
5. Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;
6. Ensuring environmental sustainability;
7. Employment enhancing vocational skills;
8. Social business projects;
9. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and
10. Such other matters as may be prescribed.

CSR Initatives:

In India there are an existent but small number of companies which practice CSR. This engagement of the Indian economy concentrates mainly on a few old family owned companies, and corporate giants such as the Tata and Birla group companies which have led the way in making corporate social responsibility an intrinsic part of their business plans. These companies have been deeply involved with social development initiatives in the communities surrounding their facilities. However CSR is on the rise all over the world and in India now due to which there are a number of forums created for CSR which can showcase the CSR practices and case studies of corporates. They also highlight projects which seek support and funding from CSR budgets.

CONCLUSION

The Companies Act, 2013 has introduced the concept of CSR in the Act itself and even though the Act advocates it strongly but it has still prescribed a “comply or explain” approach. This means that as per the new norms, the two per cent spending on CSR may not be mandatory but reporting about it is mandatory. In case, a company is unable to spend the required amount, then it has to give an explanation for the same.

 

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Disclaimer: The entire contents of this document have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.