Corporate Social Responsibility (CSR) As Per Companies Act, 2013

Corporate Social Responsibility (CSR) As Per Companies Act, 2013

Corporate Social Responsibility (CSR): Corporate Social Responsibility (CSR) is defined as an organisation’s sense of responsibility towards both the environment and the community in which it operates.

Organisations fulfill this responsibility through the processes of waste and pollution reduction, by venturing activities of educational and social programs, contributions to the academic and social programs, and by being environmentally friendly.

Corporate Social Responsibility is not charity or mere donations; instead,  it is a concept whereby the companies or organisations integrate social concerns in their business operations and visibly contribute to the social good to better their stakeholders and society voluntarily.

These organisations do not limit themselves to using resources to engage in activities that increase only profits; instead, they use CSR to integrate social, economic, and environmental objectives and operations and growth.

Corporate Social Responsibility is often stated to increase an organisation’s brand reputation in society and its customer base.

Section 135 of the Companies Act, 2013, Companies (Corporate Social Responsibility) Rules, 2014, and Schedule VII prescribes mandatory provisions for organisations to accomplish their Corporate Social Responsibility.

The article aims to analyse these provisions relating to The Companies Act, 2013 and the amendments.

Corporate Social Responsibility (CSR) Committee

Every Organisation on which Corporate Social Responsibility is applicable must comprise a CSR Committee of the Board where it boards three or more directors. At least one shall be an independent director.

However, if an organisation sees no need to appoint an independent director, then it comprises two or more directors in the Committee.

Two directors are considered in a private company comprising only two directors on its Board Committee.

Two directors are considered in a foreign organisation, of which one person shall be nominated as the authorised person resident in India and the other appointed by the foreign company.

Functions Of Corporate Social Responsibility (CSR) Committee

The Corporate Social Responsibility Committee shall perform the following functions-

  1. The primary function of the CSR is to formulate and recommend to the CSR Committee a CSR Policy, which indicates the list of activities to be undertaken by the Organisation.
  2. The CSR Committee must recommend the total expenditure amount to be incurred on the activities referred to in clause (i)
  3. The Committee must monitor the CSR Policy of the company on a timely basis.
  4. The CSR Board must institute a transparent monitoring mechanism for all the company’s programs, activities, or project implementations.

Responsibility Of Board Of Directors

The board of directors of every socially responsible company is responsible for-

  • Consideration of recommendations enforced by CSR Committee; approval of the CSR policies enlisted for the company; and the disclosure of the contents of such policy in the board report
  • The BoD is responsible for ensuring that the activities included in the CSR Company Policy undertaken by the Organisation.
  • Disclosing the CSR Committee composition in the board report
  • Responsible for ensuring that the company spends at least 2% of the average net profits during its financial year made during the three immediately preceding financial years, in pursuance of the Organisation’s CSR Policy. The CSR projects or activities or programs undertaken in India shall amount to the overall CSR Expenditure.

Corporate Social Responsibility (CSR) Policy

A company’s CSR Policy shall, inter-alia, comprising the following-

  • A list of the activities or projects, or programs which a company schemes to undertake specifying the modalities of execution of the listed projects or programs and the implementation schedules for the same
  • The monitoring process of the enlisted activities, projects or programs
  • A clause under the policy highlighting that the surplus emerging from the CSR projects or programs or activities shall not be included in the company’s annual business profit.

Corporate Social Responsibility (CSR) Activities

  • As per the CSR Policy, the Corporate social responsibility activities needs to be undertaken by the company, excluding activities undertaken in pursuance of its ordinary course of business
  • As approved by the CSR Committee, the board of directors may decide to undertake its CSR activities-
    1. A  registered trust or a section VIII company or any registered society, set up by the organisation, either along with another company or single-handedly
    2. A  registered trust or a section VIII company or a registered society, established by either the State Government or the Central Government or any entity established that falls under the Act of Parliament or a State legislature
    3. A  registered trust or a section VIII company or a registered society, other than fall under the clauses (a) and (b) mentioned above; must hold an established track record of three years in ventures of such similar programs or projects
  • collaboration with other companies-
    1. for undertaking any CSR projects, programs, or activities in a manner that the CSR Committees of the respective companies are in a position to report separately on such projects or programs
  • The CSR projects or programs or activities to be different from the CSR Activities:
  • The expenses met should be for the benefit of the company employees and their families alone
  • Direct or indirect contribution of any amount to any political party

Schedule 7

The list of activities which may be included by companies in their Corporate Social Responsibility Policies relating are as follows:

  1. Active partake of livelihood enhancement projects and the promotion of education, including employment enhancing vocational skills, special education, especially among elderly, women, children, and the differently-abled.
  2. Eradication of poverty, hunger, and malnutrition; promotion of healthcare facilities including preventive health care and sanitation measures inclusive of the Swachh Bharat Kosh contributions set up by the Central Government to promote sanitation and the availability of safe and clean drinking water.
  3. Protection of national art, heritage, and culture including undertaking projects like the restoration of buildings and sites of historical importance and works of art; emplacing public libraries and the development and promotion of traditional art and handicrafts
  4. Undertaking beneficial measures for war widows, armed force veterans, and their dependents
  5. Slum Area Development
  6. Projects regarding Rural development
  7. Contributions or funds furnished to technology incubators located within academic institutions and approved by the Central Government
  8. Ensuring activities towards environmental sustainability and protection of fauna and flora.

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