Corporate Social Responsibility & Companies Act 2013 - The new Law!

The concept of Corporate Social Responsibility (CSR) is not new to Indians.  History reveals that even in the pre independence phase, Indian merchants who made huge money in their businesses gave considerable importance to CSR through Philanthropy. 

Many corporate giants in India make have their own policies in order to contribute their share to the social welfare. 

Now the Companies Act 2013 has brought provisions relating to CSR.  Section 135 of the Companies Act 2013 along with Schedule VII of the Act provides for Provisions relating to CSR.  It is significant to note that this section for the first time makes CSR mandatory for certain companies and there are no corresponding provisions in the previous Act.

Provisions relating to CSR in Companies Act 2013:

Section 135 of the Companies Act 2013 (along with Schedule VII of the Act) deals with provisions relating to CSR. Also the Central Government has issued Companies (Corporate Social Responsibility Policy) Rules, 2014. The provisions were notified and the same are effective from 01.04.2014.

Applicability:

Section 135 is applicable to the following Companies:

1. Companies having Net worth of Rs. 500 Crores or More
2. Companies having Turnover of Rs. 1000 Crores or more.
3. Companies having Net Profit of Rs. 500 Crores or more.

Any Company which attains any of the above criteria in any financial year shall comply with the provisions of Section 135.

From the above it is very clear that the provisions relating to CSR apply to all the Companies (Whether Listed, Unlisted or private) if the Company attains any of the above mentioned criteria in a particular financial year.

Also the eligibility is based on the financial position of the Company. Therefore if at a financial year if a Company does not fall under any of the conditions prescribed, then the provisions of CSR does not apply for that year.  

CSR Committee:

According to section 135, A company that fits under any of the above criterion shall constitute a Corporate Social Responsibility Committee (CSR Committee) of the Board of Directors.

The Committee shall contain at least 3 or more Directors and at least one of whom shall be Independent Directors. Section 149 (6) of the Act has to be taken into consideration for the definition of an Independent Director.

According to the Companies (CSR) Rules 2014, an unlisted public company or Private Company need not appoint an independent director in the Committee. In case of a Private Company with 2 Directors, the CSR Committee can be constituted only with the 2 directors.

According to Section 135 (2), the Composition of the CSR Committee shall be mentioned in the Report prepared in accordance with Section 135 (3).

Functions of the CSR Committee:

According to Section 135 (3), the CSR Committee shall perform the following roles:

a)      Formulation of CSR policy indicating the activities to be undertaken and recommending the same to the Board of Directors. Section 135 stipulates that the committee shall include any of the activities prescribed under Schedule VII to  be undertaken as a part of CSR.

b)      Recommend amount to be spent on such activities

c)      Monitoring CSR policy from time to time.

Activities listed for CSR:

Schedule VII enlists the following activities to be undertaken by the Company as a part of its CSR policy.

1. eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water:
2. promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;
3. promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
4. Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water;
5. protection of national heritage, alt and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts:
6. measures for the benefit of armed forces veterans, war widows and their dependents;
7. training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic sports;
8. contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;
9. contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government
10.  rural development projects.

Minimum Amount to be spent on CSR Activities:

Every Company to which the provisions of CSR apply shall in any financial year, spend at least 2 % of the average net profits of past 3 years.

Duties and Responsibilities of the Board of Directors of the Company:

1. Approval of CSR policy
2. Disclosure of the same in the Directors Report and place it in the Company’s website if any
3. Ensure that the statutory amount prescribed is spent on the CSR activities 

In event of failure in implementing the CSR policy, the Board shall disclose the reasons for failure of the same in its Report.

Manner of conducting CSR activities:

According to Rule 4 the Companies (CSR) Rules 2014, CSR activities can be undertaken in the following manner:

1. Activities can be undertaken by the Company itself other than its normal course of business.
2. Activities can be undertaken through a Trust or a registered society established by the company after following the prescribed Conditions.
3. Collaboration with other Companies 

Activities that does not constitute CSR:

1. Activities undertaken outside India
2. Activities undertaken for the benefit of the employees and their families
3. Contribution of funds to any political party directly or indirectly.

 My personal opinion: The provisions relating to CSR has brought new trend to the Corporate environment. On one hand it gives a positive feeling that we are going back to our origin by bringing our philanthropic values back. On the other hand, many may of the areas that are enlisted in the schedule are duties of the state which the government must do as a mandate. Secondly as there is no proper awareness about the law, lot of Anti national powerful NGO's misuse this opportunity and the funds may be deviated illegally without the same being used for genuine small NGO's.

I personally feel that some kind of authority is required to check the overall mechanism at regional or at state level.

SAVITHA.G