Corporate Social Responsibility (CSR) is the human face of business and it recognises the solemn duty the business owes to the society. In a way it stands for the external conscience of the corporate sector based on a noble value system. This is one duty the business is expected to do and it usually does on a voluntary basis.
Government has incorporated the essence of this social compulsion into a legally binding commitment in the newly enacted The Companies Act, 2013. Sec 135 and Schedule VII of the new Companies Act 2013 contains the enabling provisions in this regard. The government has put out the Companies (Corporate Social Responsibility Policy) Rules, 2014 pertaining to CSR in the public domain inviting comments and suggestions thereon.
The following categories of companies registered under the Companies Act would be covered by the provisions relating to CSR:
• A company having a net worth of Rs.500 Crores or more
• A company with a turnover of Rs. 1000 Crores or more
• A company with a net profit of Rs. 5 Crores during any financial year
Companies which meet the above financial criteria will have to spend at least 2% of their average net profits of the past three years on any of the specified CSR activities. Rules also specify the methodology of calculating the net profits for the purpose of CSR outlay. As per the draft Rules unspent amounts can be rolled over to the subsequent years, though it is unclear whether excess spent in a particular year can be carried forward and adjusted in subsequent years.
A committee of the Board of Directors of the company with at least three or more Directors with one or more Independent Director/s shall oversee the working of CSR activities. The Committee shall be charged with the responsibility of helping the Board to formulate a CSR Policy, the activities to be undertaken, preparing the budgets for various activities and monitor the implementation of the CSR policy of the company.
The Board of Directors on its part have to review the recommendations made by the CSR Committee, approve a CSR Policy, publicize the policy and ensure that the company spends the mandatory 2% of the profits every year on approved activities. The Directors’ Report shall carry prescribed details about CSR activities as per the Rules.
A company which is mandated to spend on CSR as per Sec 135 of the Act fails to do so shall explain the reason for its inability to do so in any year.
Schedule VII gives a list of activities which can be undertaken by the company who is mandated to spend on CSR. They include:
• Eradicating extreme hunger and poverty
• Promotion of Education
• Promoting gender equality and empowering women
• Reducing child mortality and improving maternal health
• Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases
• Ensuring environmental sustainability
• Employment-enhancing vocational skills
• Social Business Projects
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 Such other matters as may be prescribed.
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