The historic Companies Bill which had received the President’s assent on 29th August, 2013 became the Companies Act, 2013, (hereinafter the “new Act”) by notification in the Official Gazette, on 30th August, 2013. Furthermore, the Ministry also made effective 98 sections of the same by notification in the Official Gazette, w.e.f. 12th September, 2013. The Ministry laid the rules for the remaining sections of the new Act in different tranches for public opinions. Till date, the Ministry had released the rules in four phases together with the related draft forms.
The new Companies Act, 2013 read with the draft rules prescribes the formation of different Committees of the Board of Directors of the Company for different purposes.
The Committees mandated by the new Act are:
1. CORPORATE SOCIAL RESPONSIBILITY(CSR) COMMITTEE-Section 135
2. AUDIT COMMITTEE-Section 177
3. NOMINATION & REMUNERATION COMMITTEE-Section 178
4. STAKEHOLDERS RELATIONSHIP COMMITTEE-Section 178
It is to be noted that none of the above sections have been made effective as yet. In this article, we will briefly look into the structure and requirement of the CSR Committee.
CORPORATE SOCIAL RESPONSIBILITY(CSR) COMMITTEE:
The guiding principle behind this Committee is the Corporate Social Responsibility of a Company. CSR is a way of conducting business, by which corporate entities visibly contribute to the social good. Socially responsible companies do not limit themselves to using resources to engage in activities that increase only their profits. They use CSR to integrate economic, environmental and social objectives with the company’s operations and growth.
Section 135(1) of the new Act states that a Company having:
- Net Worth of Rupees Five Hundred Crore or more, or
- Turnover of Rupees One Thousand Crore or more or a
- Net Profit of Rupees Five Crore or more
during any financial year, shall constitute a Corporate Social Responsibility Committee of the Board.
Now, what is meant by “Net Worth” ,“Turnover” and “Net Profit.” Subsection 57 of Section 2 of the new Act defines Net Worth as “the aggregate value of the paid-up share capital and all reserves created out of the 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.”
Section 2 (91) further defines Turnover as “the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year.” W.e.f. 12th September, 2013, the above two subsections have already became effective.
The draft CSR rules define Net Profit as the net profit before tax as per books of accounts excluding profits arising from branches outside India.
Such a Committee shall consist of three or more directors, out of which at least one director shall be an independent director. Subsection 3 of Section 135 of the new Act states the role of the Committee which will be to formulate, recommend and oversee the Corporate Social Responsibility Policy of the Company. The Ministry has further laid down the activities which are required to be undertaken by a Company for the same in Schedule VII to the new Act. It has further released draft rules, which once notified will be known as the Corporate Social Responsibility Rules, 2013 and shall be applicable from the FY 2014-15. These rules prescribe the process and requirements of the CSR Policy of a Company.
In the next article we shall briefly look into the Committees as mandated in Section 178 of the new Act.
P.S: This article is based on the research and contains the views of the author on the above subject. The author does not assure error free content and cannot be held liable for any errors in the article. The users and readers are advised to cross check with the concerned Act before acting upon this article.
P.P.S: This is my first article contribution to the CCI. Hopefully everyone likes it.
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