Corporate Social Responsibility under the Companies Act, 2013 enables the companies to engage in social welfare activities and to take part in the development of the society.
Corporate Social Responsibility (CSR) or giving back to society is as older as civilization. It is based on the “trusteeship concept” whereby business group are looked upon as trustees of the resources they draw from society and thus are expected to return them back manifold.
CSR is extremely important for sustainable development of all stakeholders (all the people, on whom the business has an impact, including the society at large).
Proponents of CSR argue that companies make more long term profits by operating with a perspective, while critics argue that CSR distracts from the economic role of businesses. Nevertheless, the importance of CSR cannot be undermined.
Companies Act, 2013 has introduced the concept of Corporate Social Responsibility – CSR in the Act itself and even though the Act advocates it strongly but it has still prescribed a “comply or explain” approach only. This means as per the new norms, the two per cent spending on CSR is not mandatory but reporting about it is mandatory. In case, a company is unable to spend the required amount, then it has to give an explanation for the same.
The Corporate Social Responsibility Policy is strictly applicable to every company including its holding or subsidiary and a foreign company, having its branch office or project office in India having:
The net worth of rupees 500 crores or more;
Turnover of rupees 1000 crore or more;
Net profit of rupees 5 crores or more during ANY financial year.
This requirement is applicable irrespective of the nature of the activities carried out by the company. And, the company meeting the above financial criteria shall mandatorily constitute a CSR Committee.
Constitution and functions of CSR Committee
The CSR Committee of the Board shall consist of three or more directors, out of which at least one shall be an independent director.
Foreign companies shall constitute CSR Committee with at least two persons in which one must be a resident person, authorised to accept notices/ documents served on the foreign company and the other as nominated by the foreign company.
Unlisted public company (UPC) or a private company, which otherwise does not require an independent director on its board, shall not need an independent director for the purposes of this committee.
Any private company which only has two directors on its board shall have the said two directors in the CSR committee.
Functions of CSR Committee
- Formulation and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the projects/activities to be undertaken by the Company in areas or subject, as specified in Schedule VII.
- Reviewing with the CSR management, the quarterly financial statements before submission to the Board for approval.
- Recommend the amount of expenditure to be incurred on CSR projects/activities undertaken.
- To constitute Management Committee for implementation and execution of CSR initiatives/ activities.
- Shall institute a transparent monitoring mechanism for implementation of CSR projects/activities undertaken by the company.
- Reviewing performance of the Company in the areas of CSR.
- Submit an annual report of CSR projects/activities to the board.
- Monitoring CSR Policy from time to time.
Role of the Board in CSR
The role of the Board in Corporate Social Responsibility is:
- Approve the CSR Policy of the company after considering the recommendations given by the committee;
- To disclose the contents of such a policy in its report and to place it on the company’s website, if prescribed;
- To ensure that the company spends, in every financial year, at least 2% of the average net profits made during the three immediately preceding financial years, in pursuance, of its CSR Policy;
- The Board shall specify in its report the reasons for not spending the amount if the company fails to spend such amount.