Corporate Social Responsibility

‘Corporate Social Responsibility’ is corporate initiative to assess & take responsibility for the company’s effects on the environment & its impact on social welfare.

What is Corporate Social Responsibility?

CSR is the process by which an organization thinks about and evolves its relationships with
stakeholders for the common good.

And demonstrates its commitment in this regard by adoption of appropriate business processes and strategies. Thus, CSR is not charity or mere donations.
Further, CSR is a way of conducting business, by which corporate entities visibly contribute to the social
good.

‘Corporate Social Responsibility’ means and includes but is not limited to :

1. Projects or programs relating to activities specified in schedule VIII or
2. Projects or program relating to activities undertaken by the board of directors of a company in pursuance of recommendation of the CSR Committee of the board as per declared CSR policy of the company.

Which company are required to perform corporate social responsibility?

Every company including its holding or subsidiary , and a foreign company defined u/s 2(42) of the act. Having its branch office or project office in India which fulfils the criteria specified u/s 135(I) of the companies act shall comply the provisions of section 135 of the act and these rules.

Further, that net worth , turnover or net profit of a foreign company of the act shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance with the provisions of section 381(1)(a) & 198 of the act .

Further, as per the section 135 of the companies act 2013 every company having either,

• net worth of ₹500 crore or more , or

• turnover of ₹1,000 crore or more

• a net profit of ₹5 crore or more

during the immediate preceding financial year shall constitute a CSR committee of board. Further, Board committee consist of three or more directors(including at least one independent director) .

However, if a company is not required to appoint an independent director u/s 149(4) of the Companies Act. Then its CSR Committee shall be formed with 2 or more directors.

What is the role of CSR Committee?

The CSR Committee shall –

a) formulate and recommend to board –

• a CSR Policy indicating the activities to be undertaken by the company in the areas or subject specified in Schedule VII;
• the amount of expenditure to be incurred on the above activities and

b) monitor the CSR Policy of the company from time to time.

Role of board of directors

Board shall disclose-

a) The composition of CSR Committee in its report

b) Approve the recommended CSR Policy for the company

c) Disclose the contents of such policy in its report and place it on the company’s website

d) Ensure that the activities included in CSR Policy of the company are duly executed by the company

e) Ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years [or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years], by giving preference to the local area and areas around it where it operates .

f) If the company spends an amount in excess of the requirements. Then it may set off such excess amount against the requirement to spend for such number of succeeding financial years. And in such manner, as may be prescribed.

g) Any amount remaining unspent, pursuant to any ongoing project, undertaken by a company in pursuance of its CSR Policy, shall be transferred by the company within thirty days from the end of the financial year to a special account (opened by the company in that behalf for that financial year in any scheduled bank) to be called the Unspent CSR Account.

h) If a company defaults in complying with section 135(5) and 135(6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent CSR Account, as the case may be, or one crore rupees, whichever is less.

Important Points on CSR Activities

1. The CSR activities shall be undertaken by the company, as per its stated CSR Policy, as projects or programs or activities (either new or ongoing).
2. A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR Committees of respective companies are in a position to report separately on such projects or programs in accordance with these rules.
3. The CSR projects or programs or activities undertaken in India only shall amount to CSR expenditure.
4. The CSR projects or programs or activities that benefit only the employees of the company and their Families shall not be considered as CSR activities in accordance with section 135 of the Act
5. Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through Institutions with established track records of at least three financial years but such expenditure (including expenditure on administrative overheads) shall not exceed five percent of total CSR expenditure of the company in one financial year.
6. Contribution of any amount directly or indirectly to any political party, shall not be considered as CSR activity.