Corporate Social Responsibility (CSR) can be defined as a Company’s sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies can fulfil this responsibility through waste and pollution reduction processes, by contributing educational and social programs, by being environmentally friendly and by undertaking activities of similar nature. CSR is not charity or mere donations. 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. CSR is said to increase reputation of a company’s brand among its customers and society.
The Companies Act, 2013 has formulated Section 135, Companies (Corporate Social Responsibility) Rules, 2014 and Schedule VII which prescribes mandatory provisions for Companies to fulfil their CSR. This article aims to analyse these provisions (including all the amendments therein).
Applicability of CSR Provisions:
- On every Company including its holding or subsidiary having:
Net worth of Rs. 500 Crore or moreduring the immediately preceding financial year, or
Turnover of Rs. 1000 crore or moreduring the immediately preceding financial year, or
Net Profit of Rs. 5 crore or moreduring the immediately preceding financial year
A foreign company having its branch office or project office in India, which fulfils the criteria specified above
However, 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 on which CSR is applicable is required to constitute a CSR Committee of the Board:
Consisting of 3 or more directors, out of which at least one director shall be an independent director. However, if a company is not required to appoint an independent director, then it shall have in 2 or more directors in the Committee.
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
The CSR Policy of the company shall, inter-alia, include the following namely:-
A list of CSR projects or programs which a company plans to undertake specifying modalities of execution of such project or programs and implementation schedules for the same
Monitoring process of such projects or programs
A clause specifying that the surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of the company.
The CSR activities shall be undertaken by the company, as per its CSR Policy, excluding activities undertaken in pursuance of its normal course of business.
The BoD may decide to undertake its CSR activities approved by the CSR Committee, through
- a section 8 company or a registered trust or a registered society, established by the company, either singly or alongwith any other company, or
- a section 8 company or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature
- a section 8 company or a registered trust or a registered society, other than those specified in clauses (a) and (b) above, having an established track record of 3 years in undertaking similar programs or projects;