Corporate social responsibility Companies Act 2013

IRJMST

Vol 6 Issue 6 [Year 2015]

ISSN 2250 – 1959 (0nline) 2348 – 9367 (Print)

Corporate social responsibility Companies Act 2013

Jyoti Beniwal Govt. P.G.College Bhiwani Introduction CSR in India India`s new Companies Act 2013 (Companies Act) has introduced several new provisions which change the face of Indian corporate business" Companies Act 2013 (Companies Act) has introduced several new provisions which change the face of Indian corporate business. One of such new provisions is Corporate Social Responsibility (CSR). 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. Definition of the term CSR: The term CSR has been defined under the CSR Rules which includes but is not limited to: 

Projects or programs relating to activities specified in the Schedule; or



Projects or programs relating to activities undertaken by the Board in pursuance of recommendations of the CSR Committee as per the declared CSR policy subject to the condition that such policy covers subjects enumerated in the Schedule.

This definition of CSR assumes significance as it allows companies to engage in projects or programs relating to activities enlisted under the Schedule. Flexibility is also permitted to the companies by allowing them to choose their preferred CSR engagements that are in conformity with the CSR policy. CSR Committee and Policy Every qualifying company requires spending of at least 2% of its average net profit for the immediately preceding 3 financial years on CSR activities. Further, the qualifying company will be required to constitute a committee (CSR Committee) of the Board of Directors (Board) consisting of 3 or more directors. The CSR Committee shall formulate and recommend to the Board, a policy which shall indicate the activities to be undertaken (CSR Policy); recommend the amount of International Research Journal of Management Science & Technology http://www.irjmst.com

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IRJMST

Vol 6 Issue 6 [Year 2015]

ISSN 2250 – 1959 (0nline) 2348 – 9367 (Print)

expenditure to be incurred on the activities referred and monitor the CSR Policy of the company. The Board shall take into account the recommendations made by the CSR Committee and approve the CSR Policy of the company. Under the Companies Act, preference should be given to local areas and the areas where the company operates. Company may also choose to associate with 2 or more companies for fulfilling the CSR activities provided that they are able to report individually. The CSR Committee shall also prepare the CSR Policy in which it includes the projects and programmes which is to be undertaken, prepare a list of projects and programmes which a company plans to undertake during the implementation year and also focus on integrating business models with social and environmental priorities and process in order to create share value. The company can also make the annual report of CSR activities in which they mention the average net profit for the 3 financial years and also prescribed CSR expenditure but if the company is unable to spend the minimum required expenditure the company has to give the reasons in the Board Report for non compliance so that there are no penal provisions are attracted by it. Entities Covered by the CSR The threshold coverage levels for CSR are low. Companies are subject to the CSR requirements if they have, for any financial year: 

a net worth of at least Rs. 5 billion



a turnover of at least Rs. 10 billion



net profits of at least Rs. 50 million

Companies meeting these thresholds are required to develop a CSR policy, spend a minimum amount on CSR activities and report on these activities, or prepare to explain why they didn't. Required Amount of CSR Spending An entity or business that meets these specified thresholds must spend on CSR activities no less than two percent of its average net profit for its preceding three financial years. Net profit means a company’s profits as per its profit and loss account prepared in accordance with the New Act, but excludes profits from a company’s operations outside India or dividends received from an Indian company that has itself met its CSR requirements.

International Research Journal of Management Science & Technology http://www.irjmst.com

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IRJMST

Vol 6 Issue 6 [Year 2015]

ISSN 2250 – 1959 (0nline) 2348 – 9367 (Print)

135. Corporate Social Responsibility (1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. (2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee. (3) The Corporate Social Responsibility Committee shall,— a)

formulate and recommend to the Board, a Corporate Social Responsibility

Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII; b)

Recommend the amount of expenditure to be incurred on the activities

referred to in clause (a); and c)

Monitor the Corporate Social Responsibility Policy of the company from time

to time. (4) The Board of every company referred to in sub-section (1) shall,— a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and b) Ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company. (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy: 

Provided that the company shall give preference to the local area and areas around it. where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:



Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount. International Research Journal of Management Science & Technology http://www.irjmst.com

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IRJMST

Vol 6 Issue 6 [Year 2015]

ISSN 2250 – 1959 (0nline) 2348 – 9367 (Print)

Explanation — For the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198. Permitted CSR Activities There is a long list of permissible areas for CSR funding. They include such purposes as ending hunger and poverty; promoting public health; supporting education; addressing gender inequality; protecting the environment; and funding cultural initiatives and the arts. All CSR funds must be spent in India. The New Act encourages companies to spend their CSR funds in the areas where they operate, but money cannot be spent on activities undertaken that are part of the normal course of the company’s business or on projects for the exclusive benefit of employees or their family members. Contributions of any amount to a political party are not a permitted CSR activity. However, the New Act has an exception allowing companies to use their CSR funds to support development projects initiated by the prime minister or central government. It is important to note, as discussed further below, that such projects in India have had a troubling tendency to become vehicles for political patronage, and they can raise legal issues in other jurisdictions if they come to be seen as political payoffs. Reference 1. Chahoud, Dr. Tatjana; Johannes Emmerling; Dorothea Kolb; Iris Kubina; Gordon Repinski; Catarina Schläger (2007). "Corporate Social and Environmental Responsibility in India Assessing the UN Global Compact's Role 2.

state of CSR in India&ei = hWSDTufLEILYrQeR7pyXDg&usg = AFQjCNGUyiBLgV0n1v NfFp0q XbEEH suytw &cad

=rja "Executive summary and recommendations: CSR in

India-perspectives for busines 3. Sathish, Ramya. "Corporate Social Responsibility in India - Putting Social-Economic Development on a Fast Track". 4. The Flag Off of CSR Rules: India Inc.’s To-Do List for Compliance to Section-135". Forbes. 4 March 2014. Retrieved 7 March 2014. 5. http://www.sebi.gov.in/cms/sebi_data/attachdocs/1344915990072.pdf 6. Making Sense of Corporate Social Responsibility" 7. http://www.mca.gov.in/SearchableActs/Section135.htm International Research Journal of Management Science & Technology http://www.irjmst.com

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