CORPORATE SOCIAL RESPONSIBILITY is a concept whereby companies not only consider their profitability and growth, but also take care of the interests of society and the environment by taking responsibility for the impact of their activities on society, the environment, and the communities in which they operate. CSR refers to the belief that businesses have an obligation to society, beyond their commitments to their investors.
In addition to generating profits, businesses are expected to have some accountability towards society.
Section 135 (1) of the Companies Act 2013 is applicable to every company having:
- 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 the immediately preceding financial year.
Here we must note that, the Section reads as “EVERY COMPANY”, therefore it includes every type of company (including Section 8 Company) and a foreign company having its branch office or project office in India that fulfills the criteria, shall comply with the provisions of Section 135 of the Act.
A. Every company on which CSR is applicable shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more director, out of which at least one director shall be an independent director. However, if a company is not required to appoint an independent director u/s 149(4) then two or more director is required.
B. The Board’s Report under sub-section (3) of Section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
C. 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. 1 The Board of every company referred to in sub-section (1) shall, √ The Board of every company referred to in sub-section (1) shall,—
√ The Board of every company 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.
√ 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.
√ If the company fails to spend such amount, the Board shall, in its report made under sub-section (3) of section 134, specify the reasons for not spending the amount.
√ Inclusion and Exclusion CSR Activity is defined under Schedule VII of Companies Act 2013.
ROLE OF CSR COMMITTEE
The following are the roles and responsibilities of CSR Committee:
- Formulate a CSR Policy indicating the activities as per Schedule VII to the Act;
- Recommend the policy to the Board of the Company;
- Recommend the amount of expenditure on the activities and projects mentioned in Schedule VII;
- Monitor CSR Policy by way of instituting a transparent monitoring mechanism for the implementation of CSR projects or programs or activities undertaken by the company.
RESPONSIBILITY OF BOARD
(a) After taking into account the recommendations made by the CSR Committee, approve the CSR Policy for the company.
(b) Ensure that the activities as are included in the CSR policy of the company are undertaken by the company.
(c) The Board’s Report prepared under Section 134, shall contain the disclosures of the Composition of the CSR Committee and also about the CSR project undertaken by the company and expenditures made.
(d) If a company fails to pay the amount allocated for CSR, then such a company shall make such disclosure in the Board’s Report. Such a company shall also specify the reason for failure to spend CSR Funds.
CONSEQUENCES OF FAILURE OF SPENDING CSR FUNDS
It shall be noted that if any amount remains unspent related to the ongoing project* then the such unspent amount shall be transferred to the funds specified in Schedule VII, within a period of 6 months of the expiry of the Financial Year.
“Ongoing Project” means a multi-year project undertaken by a Company in fulfillment of its CSR obligation having timelines not exceeding 3 years excluding the Financial Year in which it was commenced and shall include,
such project that was initially not approved as a multi-year project but whose duration has been extended beyond one year by the Board based on reasonable justification.
Further, it shall be noted that if any amount remains unspent pursuant to any ongoing project which has been undertaken by the Company in pursuance of its CSR policy then such amount shall be transferred,
by the Company within period of 30 days from the end of the Financial Year to a special account to be opened by the Company in any Scheduled Bank which shall be called as the Unspent Corporate Social Responsibility Account.
The amount in Unspent CSR Account shall be spent by the Company towards the CSR obligation within a period of 3 Financial Year from the date of such Transfer.
If the Company fails to do so, then the Company shall transfer the such amount to a Fund specified in Schedule VII, within a period of 30 days from the date of completion of Financial Year
FILING OF FORM CSR 1
Every entity covered under sub-rule (1) of rule 4 of Companies (Corporate Social Responsibility Policy) Rules, 2014 that intends to undertake any CSR activity will have to register itself with the Central Government by filing the form CSR-1 electronically with the Registrar of Companies with effect from April 1, 2021.
On the submission of Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically.
FILING OF FORM CSR-2
According to Rule 12 (1B) of Companies (Accounts) Rules, 2014 – every company covered under the provisions of sub-section (1) to section 135 shall furnish a report on Corporate Social Responsibility in Form CSR-2 to the Registrar for the preceding year (2020-2021) and onwards as an addendum to form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the case may be.