Corporate Social Responsibility | Company Law - CLAT PG PDF Download

Introduction of CSR in Companies Act 2013

• The Companies Act 2013 introduced Corporate Social Responsibility (CSR) as a new provision, emphasizing the concept of give and take between companies and society.
• Ideology of CSR: CSR is based on the idea that companies, which take resources from society, should give back through various activities.

Implementation of CSR Provisions

Notification by Ministry of Corporate Affairs: Section 135 and Schedule VII of the Companies Act, along with the Companies (Corporate Social Responsibility Policy) Rules, 2014, were notified and came into effect on April 1, 2014.

Applicability of CSR

• Threshold Limits: CSR provisions apply to companies meeting at least one of the following criteria:
• Net worth: Rs 500 crore or more
• Turnover: Rs 1000 crore or more
• Net profit: Rs 5 crore or more
• Applicability to Foreign Companies: CSR provisions also apply to branch and project offices of foreign companies in India.

CSR Committee and Policy

• Spending Requirement: Qualifying companies must spend at least 2% of their average net profit from the last three financial years on CSR activities.
• Constitution of CSR Committee: Companies are required to form a CSR Committee comprising three or more directors.
• Role of CSR Committee: The Committee is responsible for:
• Formulating and recommending a CSR Policy to the Board.
• Indicating the activities to be undertaken.
• Recommending the amount of expenditure.
• Monitoring the CSR Policy.
• Board Approval: The Board must consider the recommendations of the CSR Committee and approve the CSR Policy.

Definition of CSR

• CSR, as defined under the CSR Rules, encompasses various projects or programs related to activities specified in the Schedule.
• Companies have the flexibility to engage in projects or programs aligned with the activities listed in the Schedule or as per their CSR policy, provided these activities are covered in the Schedule.

Activities Under CSR

• Companies can fulfill their CSR obligations through various activities, including:
• Eradicating extreme hunger and poverty.
• Promotion of education.
• Promoting gender equality and empowering women.
• Reducing child mortality and improving maternal health.
• Combating diseases like HIV/AIDS, malaria, and ensuring environmental sustainability.
• Social business projects and contributions to government relief funds for socio-economic development.
• Funds for the welfare of Scheduled Castes, Scheduled Tribes, other backward classes, minorities, and women.

Local Area Preference

• Under the Companies Act, CSR activities should give preference to local areas where the company operates.
• Companies can also collaborate with other companies for CSR activities, provided they can report individually.
• The CSR Committee is responsible for preparing the CSR Policy, which includes the list of projects and programs to be undertaken, focusing on integrating business models with social and environmental priorities.

Annual Report and Compliance

• Companies must include their average net profit for the last three financial years and prescribed CSR expenditure in the annual report of CSR activities.
• If a company fails to meet the minimum required CSR expenditure, it must provide reasons for non-compliance in the Board Report to avoid penal provisions.