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Business should not only be responsible morally to the stakeholders but also to the society, environment and towards a sustainable planet at large. It is not at all possible for government alone to meet all the demand. In such cases, the gap is assumed by the social sector. Social sector plays a predominant role in respect of the social needs of the people. That is why the social sector is termed as ‘non-government organizations’.

India’s new company’s act 2013 has introduced several new provisions which change the face of Indian corporate business. The concept of CSR rests on the ideology of give and take. Companies take resources in the form of raw materials, human resources etc from the society. By performing the task of CSR activities, the companies are giving something back to the society.

Corporate social responsibility (CSR) has been brought by Section 135 schedule VII of the act. The companies (corporate social responsibility policy) rules, 2014 (hereinafter referred to as the rules) has been made effective from 1st April, 2014 by virtue of a notification dated 27 February, 2014.

Applicability: In the last four years corporate social responsibility in India has acquired new impetus with the company’s act 2013. The Act states that company with the net worth of rupees five hundred core or more; turnover of rupees one thousand core or more; earning a net profit of rupees five core or more during any financial year must spend a minimum amount on corporate social responsibility. If any of the above financial strength criteria are met, the CSR provisions and related rules will be applicable to the company. These companies are required to form CSR committee consisting of its directors. This committee will formulate and recommend type of CSR activity to be undertaken by the board; recommend the amount of expenditure to be incurred and also monitor the CSR policy.

CSR committee and policy: The companies mentioned in the rule 3 shall constitute CSR committee as unlisted public or private company u/s 135(1) not required to appoint independent director pursuant to sec.149 (4); Private company having two directors only composes committee with such two directors and In case of foreign company shall comprise of two person of which one person shall be specified u/s380 (1)(d) of this act, another person shall be nominated by foreign company.

The board of directors shall ensure that activities included by a company in its corporate social responsibility policy are related to the activities included in schedule VII of the act. As per r6 of the rules, CSR policy of the company shall include be following:

  • A list of CSR projects/programs which a company plans to undertake, which may also focus on integrating business models with social & environmental priorities specifying modalities of execution in the areas/sectors chosen &implementation schedule.
  • Monitoring process of such projects programs.

The CSR policy of the company shall specify that the surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company.

Role of Board of Directors

The board plays an important role in CSR activities. The role of Board is as follows:

  • 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 spent by the company on CSR activities.  

It’s important to note that 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.

CSR - Spending

Few important points of CSR spending we should understand are as follows:

The companies covered by section 135 are required to spend at least 2% of their average net profits during the three immediately preceding financial years. Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities. Where the company fails to spend such amount, the Board shall, in its report, specify the reasons for not spending the amount. The CSR Committee shall recommend the amount of expenditure to be incurred on the activities referred in CSR Policy.

A company can undertake its CSR activities through a registered trust or society, a company established by the company by its holding, subsidiary or Associates Company under s8 of the act or otherwise, provided that the company has specified the activities to be undertaken, the modalities for utilization of funds as well as monitoring mechanism. If the entity through which the CSR activities are being undertaken is not established by the company or its holding, subsidiary or associate company, such entity would need to have an established track record of three years in undertaking similar programs or projects.

The activities that can be undertaken by a company to fulfill its CSR obligation include eradicating extreme hunger and poverty, promotion of education, promoting gender equality and empowering women, reducing child mortality and improving maternal health, combating human immunodeficiency virus, acquired, immune deficiency syndrome, malaria and other diseases, ensuring environmental sustainability, employment enhancing vocational skills, social business projects, contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women and such other matters as may be prescribed.

Important point relating to CSR

Tax treatment under CSR spend will be in accordance with the income tax. A company may set up organization which is registered as a trust or Section 8 Company or society or foundation or any other form of entity operating within India to facilitate implementation of its CSR activities in accordance with its stated CSR policy. A company may collaborate or pool resources with other companies to undertake CSR activities & any expenditure in occurred on such collaborative efforts would qualify for computing CSR spending. Only activities which are not exclusively for the benefit of employees of the company or their family member shall be considered as CSR activity. Company shall give preference to the local area & area around it where it operates for spending the amount earmarked for corporate social responsibility activities.

Conclusion

With new CSR regulation, the task of Companies has increased. They are not only required to spend money but are also required to follow the disclosure and other statutory requirement. It would take some time for companies to get used to these new regulations. But this new regulations is good from social equality and development of underprivileged. As far as these new regulation benefits society in large, it’s always welcome.

The author can also be reached at ca.balram_bansal@yahoo.com; ca.balrambansal@gmail.com


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Category Corporate Law, Other Articles by - Balram Bansal 



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