CORPORATE SOCIAL RESPONSIBILITY | COMPANIES ACT 2013
India`s new Companies Act
2013 (Companies Act) has introduced several new provisions which
change the face of Indian corporate business. One of such new provisions is
Corporate Social Responsibility (CSR). The concept of CSR rests on the
ideology of give and take. Companies take resources in the form of raw
materials, human resources etc from the society. By performing the task of CSR
activities, the companies are giving something back to the society.
Ministry of Corporate Affairs has recently
notified Section 135 and Schedule VII of the Companies Act as well as the
provisions of the Companies
(Corporate Social Responsibility Policy) Rules, 2014 (CRS Rules)
which has come into effect from 1 April 2014.
Applicability: Section 135 of the Companies Act provides the
threshold limit for applicability of the CSR to a Company i.e. (a) net worth of
the company to be Rs 500 crore or more; (b) turnover of the company to be Rs
1000 crore or more; (c) net profit of the company to be Rs 5 crore or more.
Further as per the CSR Rules, the provisions of CSR are not only applicable to
Indian companies, but also applicable to branch and project offices of a
foreign company in India.
CSR Committee and Policy: Every qualifying company requires spending of at
least 2% of its average net profit for the immediately preceding 3 financial
years on CSR activities. Further, the qualifying company will be required to
constitute a committee (CSR Committee) of the Board of Directors (Board)
consisting of 3 or more directors. The CSR Committee shall formulate and
recommend to the Board, a policy which shall indicate the activities to be
undertaken (CSR Policy); recommend the amount of expenditure to be
incurred on the activities referred and monitor the CSR Policy of the company.
The Board shall take into account the recommendations made by the CSR Committee
and approve the CSR Policy of the company.
Definition of the term CSR: The term CSR has been defined under the CSR Rules
which includes but is not limited to:
- Projects or programs relating to activities specified in the Schedule; or
- Projects or programs relating to activities undertaken by the Board in pursuance of recommendations of the CSR Committee as per the declared CSR policy subject to the condition that such policy covers subjects enumerated in the Schedule;
This definition of CSR assumes significance as
it allows companies to engage in projects or programs relating to activities
enlisted under the Schedule. Flexibility is also permitted to the companies by
allowing them to choose their preferred CSR engagements that are in conformity
with the CSR policy.
Activities under CSR: The activities that can be done by the company to
achieve its CSR obligations include eradicating extreme hunger and poverty,
promotion of education, promoting gender equality and empowering women, reducing
child mortality and improving maternal health, combating human immunodeficiency
virus, acquired, immune deficiency syndrome, malaria and other diseases,
ensuring environmental sustainability, employment enhancing vocational skills,
social business projects, contribution to the Prime Minister's National Relief
Fund or any other fund set up by the Central Government or the State
Governments for socio-economic development and relief and funds for the welfare
of the Scheduled Castes, the Scheduled Tribes, other backward classes,
minorities and women and such other matters as may be prescribed.
Local Area:
Under the Companies Act, preference should be given to local areas and the
areas where the company operates. Company may also choose to associate with 2
or more companies for fulfilling the CSR activities provided that they are able
to report individually. The CSR Committee shall also prepare the CSR Policy in
which it includes the projects and programmes which is to be undertaken,
prepare a list of projects and programmes which a company plans to undertake
during the implementation year and also focus on integrating business models
with social and environmental priorities and process in order to create share
value.
The company can also make the annual report of
CSR activities in which they mention the average net profit for the 3 financial
years and also prescribed CSR expenditure but if the company is unable to spend
the minimum required expenditure the company has to give the reasons in the
Board Report for non compliance so that there are no penal provisions are
attracted by it.
MHCO COMMENT
The introduction of CSR provision in the Companies Act
is a welcome step and all companies which satisfy the CSR criteria will have to
undertake CSR activities under the new CSR regime during current financial
year. This step will boost much required social projects with some professional
management of the private sector.
(The views
expressed in this update are personal and should not be construed as any legal
advice. Please contact us directly on +91 22 40565252 or contact@mhcolaw.com
for any assistance.)
