Corporate Social Responsibility (CSR) is a concept recognized under the Companies Act of India. The concept of CSR is encapsulated under the provisions of Section 135 of the Companies Act of India, 2013.
CSR refers to the duty imposed on companies by law i.e the Companies Act of India to set apart a portion of its profits to take care of its host community.
The Companies Act of India has faced various amendments up to 2019, hence the need to look at the impact of this amendment on CSR as provided under Section 135 of the Act.
Corporate Social Responsibility under India’s Companies Act of 2013-
CSR as earlier observed was in 2013 under Section 135 of the Companies Act. The Government of India under the Act mandates companies of particular stratification to contribute a minimum of 2% of its net profit for the use and benefit of the company’s host community following the CSR rules and regulations.
Some of the acts recognized by the Act and CSR Rules to which the 20% net profit will be applied to as follows:
- Any act which is geared towards the eradication of hunger, poverty, and malnutrition.
- Acts which promotes good health and sanitary condition in India particularly in the host community.
- Any activity which promotes education, skill acquisition and employment opportunities for the citizens.
- Programs which fosters growth, sustainability and gender equality in the society.
- Any act which stands to the benefit of the armed forces of India and sporting activities.
It has been earlier mentioned that the CSR is imposed on a given class of companies. The following companies are required to participate in the CSR Scheme under the Companies Act, they are:
- All Companies in India with net worth not below Indian Rupees 500 Crores,
- All Companies in India with an Annual return not below the tune of Indian Rupees 1,000 Crores,
- All Companies in India with a net profit not below India Rupees of 5 Crores.
Funds for the CSR-
As earlier stated, the funding of CSR is from 2% net profit of the eligible companies. According to the CSR Rules, the company will be required to set aside an amount equal to 2% of the average net profits. The net profit is assessed within a time of 3 fiscal years from the last CSR activities.
Corporate Social Responsibility under the Companies Act of 2019-
The 2019 amendment of the Companies Act led to the following innovation:
- Under Section 135 (5)(a) of the Act, where a company that is eligible to participate in the CSR has not completed at three (3) Financial Year such company is still mandated to make a contribution of its 2% profit for some years it has carried on the business.
- Where companies are unable to spend the entire 2% of its net profit under the Act, the remnant is to be transferred to a reserve account such as the Prime Minister’s National Relief Fund. See generally the Proviso in Section 135 above and subsection 5(b) and Section 135 (6).
- Where any company fails to comply with the provisions of subsections 5 and 6 of the Act, the erring company and its officers are punishable with a fine to the tune of fifty thousand rupees which may be increased to twenty-five lakh and five years imprisonment or both.
The amendment made to the Companies Act in 2019 is best described as progressive and positive. A company can no longer rely on the defence that it is yet to reach a three (3) Financial Year before it can participate in CSR likewise the punishment imposed on the offenders will go along way to ensure compliance to the law.