Corporate Social Responsibility (CSR) can be defined as a Company’s sense of responsibility towards the community and environment in which it operates. CSR assumes significance as it permits companies to engage in projects or programs related to activities related to social welfare and improvement enlisted under the terms of Companies Act, 2013.
CSR is not charity or mere donations. It’s a way of conducting business, by which corporate entities visibly contribute to the social good. CSR is said to increase reputation of a company’s brand among its customers and society.
Companies Act, 2013 has formulated Section 135, Companies (Corporate Social Responsibility) Rules, 2014 and Schedule VII which prescribes mandatory provisions for Companies to fulfill their CSR.
APPLICABILITY OF CSR PROVISIONS
Every Company including its holding or subsidiary, foreign company having its branch office if fulfills below mentioned criteria:
- Net worth of Rs. 500 Crore or more, or
- Turnover of Rs. 1000 Crore or more, or
- Net Profit of Rs. 5 Crore or more
during the immediately preceding financial year
Note: If a company ceases to meet the above criteria for 3 consecutive financial years then it is not required to comply with CSR Provisions till such time it meets the specified criteria.
Every Company is required to constitute a CSR Committee, consisting of below mentioned directors:
Three Directors, Out of that, one should be an independent director
Consisting of 2 directors in case of a private company having only two directors on its Board
Consisting of at least 2 persons in case of a foreign Company of which one person shall be its authorised person resident in India and another nominated by the foreign company
ROLE OF BOARD OF DIRECTORS
The board plays an vital role in CSR activities, as mentioned below:
- Approve CSR policy.
- Ensure its implementation.
- Disclose the contents of CSR policies in its report.
- Place the same on Company’s website.
- Ensure that statutory specified amount is spend by the company on CSR activities.
Note: There is no penalty if the specified amount is not spend on CSR activities. In such case, the board’s report should specify the reason for such short spending.
Companies covered under section 135 of the Companies Act, 2013 are required to spend at least 2% of their Average Net Profits during the three immediately preceding financial years.
The section postulates that “net profit” shall be calculated in accordance with the provisions of section 198.
Corporate Social Responsibility POLICIES
- The CSR committee shall formulate and recommend CSR policy to the Board.
- The policy shall indicate the activities to be undertaken by the company as specified in Schedule VII.
- The CSR Committee shall recommend the amount of expenditure to be incurred on the activities referred in CSR Policy
- The CSR Policy of the company shall be monitored by CSR committee from time to time.
- As per schedule VII, the following activities may be included by companies in their CSR policies
- Eradicating hunger, poverty and malnutrition, promoting preventive health care and 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 hostels 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 socially and economically backward groups.
- 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.
- Protection of national heritage, art 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.
- Measures for the benefit of armed forces veterans, war widows and their dependents.
- Training to promote rural sports, nationally recognized sports, para Olympic sports and Olympic sports.
- 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 Caste, 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 projects.