The Ministry of Corporate Affairs
had introduced Corporate Social Responsibility Voluntary Guidelines in 2009.
Mandatory corporate social responsibility has now been incorporated in the Companies
Act, 2013.
Every company having a net worth
of rupees five hundred crore or more, or turnover of rupees one thousand crore
or more or net profit of rupees five crore or more during any financial year.[1]
Every company to which this
provision becomes applicable shall constitute a committee of the board of the
company consisting of three or more directors, of which at least one
shall be an independent director.[2]
An unlisted public company or a private company which is not required to
appoint an independent director under the provisions of the Companies Act shall
have its CSR Committee without such director.[3]
A private company having only two directors on its board shall constitute its
CSR Committee with two such directors.[4]
The board shall disclose the composition of the CSR Committee in its report
under Section 134(3) of the Companies Act.[5]
The CSR Committee shall:[6]
·
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.
·
Recommend the amount of expenditure to be
incurred on the activities referred to above.
·
Monitor the CSR Policy of the company from time
to time.
The board of every company shall[7]
(a) after taking into account the recommendations of the CSR Committee, approve
the CSR Policy and disclose the contents of the CSR Policy in its report and
also place it on the company’s website[8],
if any. (b) ensure that the activities as are included in the CSR Policy are
undertaken by the company.
The board’s report of a company
to which these CSR provisions apply, shall include an annual report on CSR
containing particulars specified in the Annexure to the Companies (Corporate
Social Responsibility Policy) Rules, 2014.[9] Annexure to the CSR Rules has given the
format for the annual report on CSR initiatives to be included in the board
report and includes inter alia a brief outline of the CSR Policy, web-link to
the CSR Policy, composition of the CSR Committee, average net profit of the
company for last three financial years, threshold limit (2% of the average net
profit of the last three financial years), details of CSR activities/projects
undertaken, reasons for not spending the amount if the company has failed to
spend 2% of the average net profit of the last three financial years and a
responsibility statement of the CSR Committee that the CSR Policy implementation
and monitoring thereof is in compliance in letter and spirit with the CSR
objectives.
The board of every company must
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 years.[10] The
company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for CSR activities.[11]
If the company fails to spend such amount, the board shall in its report under
clause (o) of Section 134(3), specify the reasons for not spending such amount.[12]
Schedule VII of the Companies Act
has provided an indicative list of the activities which may be included in the
company’s CSR Policy. The list provides for activities relating to:
o Eradicating
extreme hunger and poverty;
o Promotion
of education;
o Promoting
gender equality and empowering women;
o Reducing
child motility and improving maternal health;
o Combating
human immunodeficiency virus, acquired immune deficiency syndrome, malaria and
other diseases;
o Ensuring
environmental sustainability;
o Employment
enhancing vocational skills;
o Social
business projects;
o Contribution
to the Prime Minister's National Relief Fund or any other fund set up by the
Central Government or the State Governments for socio-economic development and
relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes,
other backward classes, minorities and women; and
o Such
other matters as may be prescribed.
[1]
Section 135(1) of the Companies Act
[2]
Section 135(1) of the Companies Act
[3]
Rule 5(1)(i) of the CSR Rules
[4]
Rule 5(1)(ii) of the CSR Rules
[5]
Section 134(3) of the Companies Act provides for the statements laid before a
company in general meeting by the board of directors.
[6]
Section 135(3) of the Companies Act
[7]
Section 135(4) of the Companies Act
[8]
Rule 9 of the CSR Rules
[9]
Rule 8 of the CSR Rules
[10]
Section 135(5) of the Companies Act
[11]
First proviso to Section 135(5) of the Companies Act
[12]
Second proviso to Section 135(5) of the Companies Act
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