Article by- Sushant Chaturvedi
What is CSR? How is it defined as per the Companies Act, 2013?
Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable — to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society including economic, social, and environmental. To engage in CSR means that, in the normal course of business, a company is operating in ways that enhances society and the environment, instead of contributing negatively to it.The concept of CSR rests on the ideology of give and take. Companies take resources in the form of raw materials, human resources etc from the society. By performing the task of CSR activities, the companies are giving something back to the society.
Section 135 of the Companies Act, 2013, talks about Corporate Social Responsibility –
“135. Corporate Social Responsibility.—
- Every company having net worth of rupees
-five hundred crore or more,
-or turnover of rupees one thousand crore or more or
-a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
- The Board’s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
- 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.
- The Board of every company referred to in sub-section (1) shall —
(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and
(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
- The Board of every company referred to in sub-section (1), 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: Provided that 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:
Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
Explanation.—For the purposes of this section ―average net profit shall be calculated in accordance with the provisions of section 198.”
What constitutes CSR?
Schedule VII of the Companies Act, 2013 lists Activities which may be included by companies in their Corporate SocialResponsibility Policies(Now amended)
Activities relating to:—
(i) eradicating extreme hunger and poverty;
(ii) promotion of education;
(iii) promoting gender equality and empowering women;
(iv) reducing child mortality and improving maternal health;
(v) combating human immunodeficiency virus, acquired immune deficiency
syndrome, malaria and other diseases;
(vi) ensuring environmental sustainability;
(vii) employment enhancing vocational skills;
(viii) social business projects;
(ix) 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
(x) such other matters as may be prescribed.
The Ministry of Corporate Affairs has recently notified Section 135 and Schedule VII of the Companies Act as well as the provisions of the Companies (Corporate Social Responsibility Policy) Rules, 2014 (CRS Rules) which has come into effect from 1 April 2014. This has resulted in a change in the subjects listed under Schedule VII of what constitutes CSR, the list is more detailed and specific now, they also elaborate on what the old provision stated.
According to the notification, Schedule VII now stands as:
(l) In Schedule VIl, for items (i) to (x) and the entries relating thereto, the following items and entries shall be substituted, namely :-
(i) eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water:
(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;
(iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water;
(v) protection of national heritage, alt and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional and handicrafts;
(vi) measures for the benefit of armed forces veterans, war widows and their dependents;
(vii) training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;
(viii) contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Caste, the Scheduled Tribes, other backward classes, minorities and women;
(ix) contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government
(x) rural development projects.”
The present increase shows the Government’s intention of expanding the meaning and scope of Corporate Social Responsibility. It also shows that the Government is inclined to tilt the urban rural divide in terms of investment in rural areas and has added a special provision of Rural Development Projects which can be construed in a very wide ambit by the Corporations. This provision can especially be used by Infrastructre, Energy and Agro Based companies already having strong presence in the rural areas to not only further the development of those areas but add more works to their Corporate Social Responsibility kitty.