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The concept of CSR (Corporate Social Responsibility) was introduced under the Companies Act, 2013 with the enforcement of Section 135 under the Act. Companies have certain responsibilities towards the stakeholders including the society in which it operates. Thus, the companies which cross the prescribed threshold are required to spend, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years.

In accordance with section 135, the companies to whom the CSR provisions are applicable, are required to formulate a CSR Policy approved by their board of directors on due recommendation of its CSR Committee. The contents of the CSR Policy must be mentioned in the Directors’ report in the prescribed manner and the policy should also be uploaded on the company’s website. Further, the companies shall ensure that the CSR activities undertaken by them are within the purview of approved CSR Policy.

Keeping in view the dynamic CSR environment, the MCA (Ministry of Corporate Affairs) vide its Company Law notifications dated 22nd January, 2021, had introduced substantial amendments to the CSR provisions under the Companies Act, 2013.

The key changes inter-alia includes mandatory impact assessment for bigger projects, enhanced disclosures, treatment of unspent CSR amount, revised criteria for implementing agencies, mandatory CSR registration number for NGOs, formulation of CSR Annual Action Plan, etc.

Under the amended rules, the CSR Policy is defined as ‘a statement containing the approach and direction given by the board of a company, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as formulation of the annual action plan’.

Amendment of CSR Policy and Formulation of CSR Annual Action Plan by Companies under Companies Act, 2013

The CSR Annual Action Plan

According to the new rules, the CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following, namely:-

a) the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;

(b) the manner of execution of such projects or programmes;

 

(c) the modalities of utilization of funds and implementation schedules for the projects or programmes;

(d) monitoring and reporting mechanism for the projects or programmes; and

(e) details of need and impact assessment, if any, for the projects undertaken by the company:

Therefore the companies are required to formulate an annual action plan of its CSR activities to be undertaken during the financial year. The plan may be formulated in the beginning of the financial year itself, covering the criteria mentioned above.

However the Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect.

 

Components of a good CSR Policy

A good CSR Policy may include the following while its formulation or amending the existing policy due to these amendments:

i) Preamble and Objects of the Policy.
ii) Effective Date/ Date of Amendment.
iii) Definitions used in the policy.
iv) Functions of CSR Committee.
v) CSR Projects/ Activities to be undertaken.
vi) Areas of Focus.
vii) CSR Budget.
viii) Guidelines for shortlisting and selection of proposals/NGOs.
ix) Annual Action Plan.
x) Transfer of Unspent Amount to Separate CSR Account.
xi) Mode of implementation/ Monitoring mechanism.
xii) Need and Impact Assessment.
xiii) Capital Assets.
xiv) Review of the CSR Policy.

The policy may among other things also include guidance on audit of CSR activities, deviations reporting, etc. as a part of good governance.

Summary: In light of the substantial amendments made to the CSR norms under the Companies Act, 2013, the companies may take necessary steps to align their existing CSR Policy with these changes and also to consider formulating an annual action plan.

The author is a Corporate Consultant and he may be reached at pcshgc@gmail.com

Disclaimer: This Article or any references contained therein, are meant for knowledge sharing and educational purposes only. It shall not be construed as rendering of any professional advice, in any manner, whatsoever. We reserve the right to modify, delete the content or rectify any inadvertent errors, at any time.

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