In India, the concept of Corporate Social Responsibility is actually not new, however, the Indian government through the Ministry of Corporate affairs on April 1st, 2014 notified Section 135 together with the Companies Rules, 2014 of the Companies Act, 2013, which makes it mandatory for some categories of companies to comply with the Corporate Social Responsibility provisions.
Corporate Social Responsibility (CRS) is a business model which shapes how a company can be socially and ecologically accountable to its operating environment and community. For instance, Companies can meet these responsibilities by providing a means to reduce waste and pollution, contributing to the educational programs of the community, and by developing environmentally-friendly operating procedures.
It is important to mention at the juncture that CSR is not a mere donation or a charity. Rather, it is a model which companies leverage to contribute to its immediate operating environment. Companies that fulfill these responsibilities are very popular among customers and its operating community.
Section 135 of the Companies Act, 2013 makes it mandatory relying on the Companies (Corporate Social Responsibility) Rules, 2014 for all the companies operating in India to fulfill their corporate social responsibility in their operating environment.
In view of the importance of CSR, this article will explore the provisions of the Companies Act with respect to the Corporate Society Responsibilities of the Companies operating in India. So ride with us while we walk you through this all-important subject matter.
THE APPLICABILITY OF THE PROVISIONS GOVERNING CSR-
The Corporate Social Responsibility’s provisions are applicable to the following:
- All companies with its subsidiaries or holdings meeting the following in the preceding financial year:
- Over Rs. 500 Crore in Net worth; or
- Over Rs. 1000 crore in turnover; or
- Over Rs. 5 crore in net profit.
Foreign companies operating in the country must comply with the provisions of the Corporate Social Responsibility Rules, 2014 provided it meets the above-listed criteria. However, any company that does not meet the criteria above for a period of three years shall not be obliged to comply with the provisions of the CSR.
CORPORATE SOCIAL RESPONSIBILITY COMMITTEE-
All companies operating in the country that complies with the CSR provisions shall constitute a Board of CSR committee consisting of the following:
- Three or more Directors, one of which must be a director independent of the others. But, if the company decides not to appoint such an independent director, then the committee should consist of not less than 2 directors.
- Two directors for a private company with only 2 directors.
- 2 or more individuals for a foreign-based company, one of which must be an Indian resident.
RESPONSIBILITIES OF THE CSR COMMITTEE
The CSR committee’s responsibilities are as follows:
- Recommend and formulate to the Board of Directors a policy which will detail all the activities the company intends to undertake.
- Recommend the expenses the company will spend on the activities so mentioned in the CSR policy.
- Periodically monitors the compliance level of the company with respect to the CSR policy
- Establish a transparent mechanism to effectively monitor the implementation of the company’s programs or activities.
BOARD OF DIRECTOR’S RESPONSIBILITIES
The Board of director of all companies complying with the CSR provisions shall:
- Approve the policy recommended to it by the CSR committee and also disclose the policy in all the board’s report
- Ensure that all the company’s activities are captured in the CSR policy submitted to it by the CSR committee.
- Ensure that the CSR policy is achieved by approving the spending of at least 2% per annum of the Company’s total profit made within the last three financial years.
Please note that the company will concentrate the CRS activities only at its operating community and shall mention in its board report any reasons whatsoever why it failed to spend all the amount budgeted for CSR.
The Corporate Social Responsibility policy of a company shall contain the following:
- A list of programs or projects and how to implement the programs or projects, as well as the schedules of execution.
- A measure to monitor the progress of the programs or projects
- A clause clearly stating that any surplus after the project implementation shall not be considered to be the company’s profit.
The following are what should make up a company’s CSR activities:
- With respect to the company’s CSR policy, the company shall undertake all the CSR activities, excluding all routine business activities
- The company’s board of directors may decide to implement the CSR activities using any of the following:
- A registered society or registered trust singly/jointly owned by the company or section 8 company
- A registered society or registered owned by the state or central government or any company established by an Act of the parliament
- A registered society or registered trust other than the two categories mentioned above ( a&b), but must have a track record of performance handling similar projects or programs within the last three years.
- The programs or activities not considered as CSR activities are:
- Expenses for the benefits of the company’s employees and their dependents
- Donations directly or indirectly to any political party
DISPLAY OF THE COMPANY’S CSR ACTIVITIES ON ITS OFFICIAL WEBSITE
The board of directors of the company shall ensure that the company’s CSR activities are published on the company’s official website (only if it is available), as well as in the board’s report.
OTHER MAJOR POINTS TO NOTE
- A foreign company’s balance sheet to be filed in line with Section 381(1)(b) must contain a report on the company’s CSR.
- The company’s board of directors will ensure that the company’s CSR activities as contained in its CSR policy relates to the subjects as contained in Schedule Vll of the Companies Act, 2013.
SCHEDULE VII OF THE COMPANIES ACT, 2013
The following are the content of schedule Vll of the Companies Act, 2013 which a company’s CSR policy must capture:
- Eradicating poverty, hunger, and malnutrition, healthcare improvement, contributing to the government-owned Swach Bharat Kosh scheme, provision of drinking water.
- Promoting literacy such as special education, vocational education among women, children, disabled, and the elderly.
- Gender equality promotion, women empowerment, building homes for orphans, women, and old people. Also, building day care centers for the less privileged.
- Protecting the environment, fauna and flora, ensuring ecological balance, protecting the welfare of animals, agroforestry, maintaining soil, water and air quality, including contributing to Clean Ganga Fund established by the government for river Ganga rejuvenation
- National heritage, culture, and art protection such rebuilding important national monuments. Setting up public libraries for members of the public
- Catering for the widows/dependents of slain members of the armed forces
- Contribution to promote national sports like Olympics sports and Paralympic sports
- Contribution to the National Relief Fund of the Prime Minister or any other funds set up by the Central government for similar purposes.
- Provision of funds to promote incubation centers across academic institutions.
- Development of slum areas
- Projects to impact rural areas
AMENDMENT TO THE CSR POLICY
A company’s board of directors can singlehandedly or leverage the CSR committee’s recommendation to amend the corporate social responsibility of the company as the board deems fit in accordance with the provisions of the Companies Act, 2013.