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2020

Corporate Social Responsibility (CSR) of Companies in India

Corporate Social Responsibility CSR of Companies in India

The Companies Act, 2013 lays down the provisions requiring corporate to mandatorily spend a prescribed percentage of their profits on certain specified areas of social upliftment in discharge of their social responsibilities. Broadly, Corporate Social Responsibility implies a concept, whereby companies decide to contribute to a better society and a clearer environment – A concept, whereby the companies integrate social and other useful concerns in their business operations for the betterment of its stakeholders and society in general.

What is Corporate Society Responsibility?

As per Companies (CSR Policy) Rules, 2014 CSR means and includes but is not limited to:

  • Projects or programs relating to activities areas or subjects specified in Schedule VII to the Act;

Or

  • Projects or programs relating to acivities undertaken by the board of directors of a company in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the conditions that such policy include activities, areas or subjects specified in Schedule VII of the Act.

Applicability of CSR Provisions:

According to section 135 of the Companies Act, 2013 following companies are required to carry our CSR Activities.

  • An Indian Company;
  • A Holding or subsidiary company of such company;
  • A foreign company having its branch office or project office in India.

If these companies fulfill below criteria:

Net Worth OR Turnover OR Net Profit
Rs 500 crore or more Rs 1000 Crore or more Rs 5 crore or more

Net Worth: As per Section 2(57) of Companies Act, 2013, “Net worth” means the aggregate value of the paid-up share capital and all reserves created out of profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.

Contribution towards CSR Activities:

The companies Act also provides for the minimum amount that a company needs to spend on CSR activities in a financial year.

  • Total Spend: The Company needs to spend at least 2% of the average net profit of the company made during the three immediately preceding financial years in pursuance of the CSR Policy.
  • Administrative Activities: A company also needs to spend some amount on the administration of CSR projects. However, the total expenditure on the administrative activities should not exceed 5% of total amount spent on CSR Activities.

Notes:

  • Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities.
  • If the company fails to spend such amount, the Board shall, in its report, specify the reasons for not spending the amount.

CSR Committee:

A CSR Committee must be formed by the company to carry out CSR projects. Following points must be kept in mind in relation to formation of CSR Committee.

Members of CSR Committee:

  • The Committee must have three or more directors as its members.
  • Where a company is required to appoint independent director, such independent director must be a member of CSR Committee.
  • Where a private company is having two directors in its board, the CSR committee of such company shall comprise of two directors only.
  • In case of a foreign company covered under these rules, the CSR Committee shall comprise at least two persons of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company.

Duties of CSR Committee:

The CSR Committee shall assume following duties:

  • Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in Schedule VII;
  • Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
  • Monitor the CSR Policy of the Company from time to time.

Monitoring & Disclosure:

  • The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.
  • The Board’s report must disclose the composition of the CSR Committee.

CSR Policy:

Every company which requires carrying out CSR activities must form a well-defined CSR policy. The CSR policy must have following contents:

  • List of CSR projects or programms which a company plans to undertake
  • Monitoring process of such projects or programs;
  • The CSR activities should not include the activities undertaken in pursuance of normal course of business of a company.
  • Provided further that the Board of Directors shall ensure that the activities included by a company in its CSR Policy are related to the areas or subjects specified in Schedule VII of the Act.
  • Any surplus arising out of the CSR projects or programs or activities should not form part of the business profit of company.

CSR Activities prescribed under Schedule VII:

Activities which may be included by companies in their CSR Policies (i.e. Activities as specified under Schedule VII) are as follows:

  • Eradicating hunger, poverty and malnutrition, promoting health care including preventing healt care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water;
  • Promoting education, including special education and employment enhancing vocation skills especially among children, women , elderly and the differently abled and livelihood enhancement projects;
  • Promoting gender equality, empowering women, setting up homes and hotels for women and orphans; setting up old age homes, day care centers and such other facilities for senior citizens and measures for reducing inequalities faced by social and economically backward groups.
  • Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air, and water including contribution to the Clean Ganga Fund set up by the Central Government for rejuvenation of the river Ganga;
  • Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of arts; setting up public libraries, promotion and development of traditional arts and handicrafts;
  • Measures for the benefits of armed forces veterans, war windows and their dependents;
  • Training to promote rural sports, nationally recognized sports, Paralympics sports and Olympic sports;
  • Contribution to 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 Casts, the Scheduled Tribes, other backward classes, minorities and women.
  • Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government;
  • Rural Development Projects;
  • Slum area development.

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