Corporate social responsibility (CSR)
refers to business practices involving initiatives that benefit society. Corporate Social Responsibility is not a new concept in India,
WHAT TO DO WHEN CSR IS APPLICABLE
As per the section 135 of Companies Act- 2013, the companies having Net worth of INR 500 crore or more; or Turnover of INR 1000 crore or more; or Net Profit of INR 5 crore or more during any financial year, shall be required to spend 2% of its average net profit in activities stated in Schedule- VII.
500 CroresNET WORTH
5 CroresNET PROFIT
WHAT TO DO WHEN CSR IS APPLICABLE
Once a company is covered under the ambit of the CSR, it shall be required to comply with the provisions of the CSR. The companies covered under the Sub section 1 of Section 135 shall be required to do the following activities:
- As provided under Section 135(1) itself, the companies shall be required to Constitute Corporate Social Responsibility Committee of the Board "hereinafter CSR Committee". The CSR Committee shall be comprised of 3 or more directors, out of which at least one director shall be an independent director.
- The Board's report shall disclose the compositions of the CSR Committee.
- All such companies shall spend, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial Net worth > INR 500 crores OR Turnover > INR 1000 crores 1 Net profit > INR 5 crores 2 OR years, in pursuance of its Corporate Social Responsibility Policy. It has been clarified that the average net profits shall be calculated in accordance with the provisions of Section 198 of the Companies Act, 2013. Also, proviso to the Rule provide 3(1) of the CSR Rules that the net worth, turnover or net profit of a foreign company of the Act shall be computed in accordance with balance sheet. company for 3 consecutive years, ceases to be covered under the ambit of section 135(1), it shall not be required to fulfil the conditions relating to the constitution of CSR Committee and other related provisions.
CSR Committee is the Corporate Social Responsibility Committee of the Board referred to in section 135 of the Act. The CSR Act mandates companies to appoint a CSR committee comprising at least 3 members of the board of which at least should be independent.
But the companies mentioned in the rule 3 of the CSR rule, 2014 shall constitute CSR committee as under-
- An unlisted public company or a private company under sub section (1) Of section 135 which is not required to appoint an independent director pursuant to subsection (4) of section 149 of the Act, shall have its CSR Committee without such director.
- A private company having only 2 directors on its Board shall constitute its CSR Committee with 2 such directors.
With respect to a foreign company covered under these rules, the CSR Committee shall comprise at least two persons of which one person shall be as specified under
clause (d) of subsection (1) of section 380 of the Act and another person shall be nominated by the foreign company.company for 3 consecutive years, ceases to be covered under the ambit of section 135(1), it shall not be required to fulfil the conditions relating to the constitution of
CSR Committee and other related provisions.
The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR Projects or Programs or Activities mistaken by the companies.
Role of CSR Committee
The CSR Committee constituted in pursuance of Section 135 of the Companies Act, 2013 shall be required to carry out the following activities:
- 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 in clause (a); and
- Monitor the Corporate Social Responsibility Policy of the company from time to time.
Scope and Functions of CSR Committee-
The CSR committee will recommend a formal CSR Policy, this document and will recommend particular CSR activities, set forth a budget, describe how the company will implement the project, and establish a transparent means to monitor progress.
CSR Policy relates to the activities to be undertaken by the company as specified in schedule VIIth to the Act and the expenditure there on, excluding activities undertaken in pursuance of normal course of business of a company.
The CSR Policy of the company shall inter-alia include the following, namely:
- A list of CSR projects or programmes which a company plans to undertake falling within the purview of the schedule VIIth of the Act, specifying modalities of execution of such project or programmes and implementation of schedule of the same, and
Monitoring process of such projects or programmes.
Board of Directors shall ensure that activities included by a company in its CSR Policy are related to the activities included in schedule VIIth of the Act.The CSR Activities does not include the activities undertaken in pursuance of normal course of business of companies
- The CSR Policy of the Company shall specify that the surplus arising out of the CSR projects or programmes or activities shall not form part of the business profile of a company.