BY- GAURAV LAW COLLEGE DEHRADUN

                                       

INTRODUCTION

The Companies Act, 2013 lays down regulations that mandate firms to invest a fixed portion of their profits on the fulfilment of their social commitments in certain particular areas of social growth. Corporate Social Responsibility (CSR) is typically the concept by which businesses decide to dedicate themselves to a better environment and a cleaner planet by integrating social and other beneficial problems into their corporate operations in order to benefit their clients and society at large. CSR is contained in Section 135 of the Act and the main function of the section 135 is that every company should have a dedicated CSR committee who work whole heartedly towards their accountability.

The Companies (CSR Policy) Rules, 2014 provide a detailed overview of the CSR, which states that the CSR means and covers, but is not limited to:

  • Projects or services relating to areas or objects of operation listed in the Act’s Schedule VIIor
  • Projects or projects identifying with activities performed by the board of directors of an organization in consistence with the suggestions of the board of directors of the CSR, as depicted in the CSR Policy of the organization, subject to the condition that such approach covers the assignments, regions or subjects set out in Schedule VII of the Act.

Which company is required to set up a CSR committee?

It is provided in the Section 135(1) of the Act that every company having:

  1. Net value of 500 crore rupees or more, or
  2. Turnover of 1,000 crore or more rupees, or
  3. Net profit of 5 crore or more rupees

Any company having any of the 3 above mentioned conditions fulfilled during the immediately preceding financial year shall have the power to constitute a CSR Committee of the Board. And CSR will be ceased if any of the above thresholds cannot be fulfilled for three consecutive years.

COMPOSITION OF CSR COMMITTEE

CSR committee shall consist of at least 3 directors, from which at least one director shall be an independent director. In case, there is unavailability of the third director, then according to subsection (4) of section 149, a company is not required to nominate an independent director, it shall have two or more directors on the Corporate Social Responsibility Committee.

OBJECTIVE OF CSR COMMITTEE

There are basically three main objectives of the CSR committee, which are:

  1. Formulation of CSR policy: It aims that a company must also create its own CRS policy which should be in line with Schedule VII of the Act. Schedule VII contains some good activities that a company should follow. CSR policy should contain activities like the company needs to do CSR where they are operating their business instead of where they are registered, or that the company should allocate all their CSR funds and focus on some particular activities rather than distributing their limited funds to all the activities.
  2. Determination of the amount to be spent: Law says that a company must allocate 2% of its average net profit of immediately preceding years but it is the minimum amount a company can allocate to its CSR.
  3. Monitor the CSR policy: CSR policy evolves and changes from time to time according to the favourable conditions, so the committee shall monitor the policy and review it time-to-time.

DUTY OF BOARD OF DIRECTORS

Board of directors have the duty to go through and review the recommendations given on the CSR policy by the CSR committee of the company in order to approve them and display on the company’s website. And the board also ensures that the included CSR policies are getting followed in the company properly or not.

ACTIVITIES UNDER SCHEDULE VII

This schedule enlists all the activities that companies can include while framing their CSR policies. It is an exhaustive list of the activities, which includes activities relating to:

  1. Eradicating hunger, poverty, malnutrition, promotion of health care and sanitation including the fund set up by Central government of India called Swachh Bharat Kosh for promotion of sanitation and making safe drinking water available.
  2. Promoting various kinds of education and skills for enhancing employment, etc.
  3. Activities which promotes gender equality, women empowerment, setting up of old age homes, orphanages,and other facilities for socio-economic weaker groups.
  4. Activities which ensures sustainability of environment, ecological balance, protection of different species of plants and animals, natural resource conservation including contribution to the fund set up by Central Government of India called Clean Ganga.
  5. Preservation of monuments, art and heritage of the country, setting up public libraries,etc.
  6. Steps to support the armed services, the CAPF, members of the CPMF, widows of battle and their dependents.
  7. Training for the promotion of rural, Paralympic and Olympic sports.
  8. “Contribution to the prime minister’s national relief fund 8[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;”[1]
  9. Contribution to:
  10. Incubators funded by any government or agency or PSU.
  11. Government funded universities
  12. Indian Institute of Technology (Technology incubators)
  13. National labs
  14. Bodies engaged in conducting research aimed at promoting Sustainable Development Goals established under the auspices of
  15. “Indian Council of Agricultural Research
  16. Indian Council of Medical Research
  17. Council of Scientific and Industrial Research
  18. Department of Atomic Energy
  19. Defence Research and Development Organisation
  20. Department of Biotechnology
  21. Department of Science and Technology
  22. Ministry of Electronics and Information Technology”[2]
  23. Projects for rural development
  24. Development of slum areas which are declared as ‘slum’ by any government or competent authority.
  25. Disaster management

There are latest amendments in the Schedule VII that are already included in the topic above.

AMOUNT TO BE SPENT ON CSR

It’s contained in Section 135(5) of the act, according to which “The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years[3]

UNSPENT CSR AMOUNT AS ON ENDING OF A FINANCIAL YEAR

There can be two cases about the unspent CSR amount:

  1. If the amount doesn’t relate to any ongoing CSR project: In such a case, according to Section 135(5), the money left unspent shall be transferred to PM National Relief Fund or PM CARES Fund within a time period of 6 months of the ending of a financial year.
  2. If the amount relates to any ongoing CSR project:In such a case, according to Section 135(6), the money left unspent shall betransferred to ESCROW Bank account called “Unspent CSR Account” within 30 days and spend it in next 3 financial years, failing which transfer the leftover amount to the PM NRF or PM CARES within the 30 days after the end of 3rd financial year.

PUNISHMENT FOR NON-COMPLIANCE OF THE CSR RULES

If any company violates provisions given under section 135(5) and 135(6), then there shall be punishment which is as follows:

  • The company violating the provisions shall be liable for a fine from 50,000 rupees to 25,00,000 rupees.
  • The officer on default shall also be liable for the punishment of imprisonment which shall be less than equal to 3 years, or a fine from 50,000 rupees to 5,00,000 rupees, or both.

CONCLUSION

CSR wasn’t there in the act of 1956; it was added to the act in 2013. It lays down clear cut guidelines for the companies meeting a particular requirement for spending a particular part of their earning for the betterment of society at large as it was felt that all the capable companies must engage in such activities for the greater good of the people. The act properly specifies the requirements to be met for setting up a CSR committee, how many directors should be therein the board of directors, what are the duties of the directors, what is the role of the committee, etc.

The activities which falls under CSR are given inside the Schedule 7 of the act, and the list contained in that schedule is an exhaustive list which means companies can also perform activities of the similar kind. But the list covers major areas in which a company can contribute in for CSR, so in one way or the other the similar activities performed by the companies shall fall under one of the categories mentioned in the Schedule.

The Act clearly states the provisions about what should be done of the unspent amount for CSR whether related to ongoing CSR activities or not. It also describes the punishment for non-compliance of the CSR rules by the company, there was no particular punishment for the non-compliance before the act of 2013, but strict punishment is now there for the company as well as for the officer in default in case of non-compliance of the CSR rules and policies framed by the committee.


CITATIONS

[1] Companies Act 2013, 18 of 2013, Schedule 7(viii)

[2] Companies Act 2013, 18 of 2013, Schedule 7(ix)(b)

[3]Companies Act 2013, 18 of 2013, Section 135(5)

An Analysis of Corporate Social Responsibility under Companies Law

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