The concept of Corporate Social Responsibility has been introduced by Companies Act, 2013. Section 135 of the Companies Act, 2013 deals with provisions related to Corporate Social Responsibility. Ministry of Corporate Affairs (MCA) has, vide its notification dated February 27, 2014 notify the provisions of Corporate Social Responsibility to be applicable w.e.f. April 01, 2014.
CSR PROVISION – SECTION 135 OF COMPANIES ACT 2013
The topic of Corporate Social Responsibility has been regulated by Section 135 of the Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014. These rules were also notified by MCA w.e.f. April 01, 2014 vide its notification dated February 27, 2014.
CRITERIA FOR APPLICABILITY FOR SECTION 135:
According to Section 135, all companies which fulfils following will have to follow the provisions of section 135 of the companies act 2013:
- 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.
CONSTITUTION OF CSR COMMITTEE:
Composition of CSR committee should be as under:
1. three or more directors, (A Private company having only 2 Directors on its Board shall constitute its CSR Committee with 2 such directors only)
2. out of which at least one director shall be an independent director. (in case of a Private Company if there is no independent director, then any 3 directors may be members of CSR committee.)
FUNCTIONS OF CSR 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.
MEETING OF CSR COMMITTEE
Law is silent w.r.t. number of CSR Committee meetings in a year. So it is dependent on the requirement of the Company.
QUORUM OF CSR COMMITTEE MEETING
For CSR Committee Quorum Law is silent again. It is recommended to apply same quorum provisions as are applicable to board meetings under section 174 of the Companies Act, 2013.
ROLE AND RESPONSIBILITY OF CSR COMMITTEE
As per section 135(3), Corporate Social Responsibility Committee shall,—
- 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, as amended from time to time;
- Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
- Monitorb. the Corporate Social Responsibility Policy of the company from time to time.
- The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the Company.
RESPONSIBILITY OF BOARD REGARDING CSR COMMITTEE AND POLICY
As per section 135(4), the Board of every company on which CSR provisions are applicable shall—
- 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 CSR Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and
- Ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
DRAFT RESOLUTIONS
Constitution Of Corporate Social Responsibility Committee:
“RESOLVED THAT pursuant to the provisions of Section 135 of the Companies Act, 2013,read read with Companies (Corporate Social Responsibility Policy) Rules, 2014, a Corporate Social Responsibility (CSR) Committee of the Board of Directors of the Company, be and is hereby constituted comprising of the following members of the Board of Directors of the Company as members of CSR Committee:
- Mr RAJIV, Chairman
- AMIT, Member
- SHYAM, Member
RESOLVED FURTHER THAT the terms of reference of CSR Committee shall, inter-alia, include the following:
- To formulate and recommend to the Board, a CSR policy which shall indicate the activities to be undertaken by the Company as per the Companies Act, 2013;
- To review and recommend the amount of expenditure to be incurred on the activities to be undertaken by the company;
- To monitor the CSR policy of the Company from time to time;
Any other matter as the CSR Committee may deem appropriate after approval of the Board of Directors or as may be directed by the Board of Directors from time to time.
RESOLVED FURTHER THAT the quorum for the CSR Committee Meeting shall be one-third of its total strength (any fraction contained in that one-third be rounded off as one) or two members, whichever is higher.”
To Approve And Recommend The Policy Of Corporate Social Responsibility Of The Company
“RESOLVED THAT pursuant to the applicability of Section 135 of the Companies Act, 2013, the Draft Policy of the Corporate social responsibility of the company as placed before it, be and is hereby approved.;
FURTHER RESOLVED THAT the said Policy of Corporate Social Responsibility of the Company, be and is hereby recommended to the Board of Directors of the company to approve the same;
FURTHER RESOLVED THAT Mr…………………………. be and is hereby authorised to do all such as acts, deeds and things which are necessary to give effect to the above said resolution.”
SOME OTHER KEY POINTS:
- CSR projects or programmes or activities undertaken in India only shall be considered as CSR Expenditure.
- Projects or programmes or activities that benefit only the employees of the Company and their families shall not be considered as CSR activities.
- Contribution of any amount directly or indirectly to any political party shall not be regarded as a CSR activity.
- Any expenditure incurred for building CSR capacity, whether own or that of eligible Implementing Agency, shall not exceed five percent of total CSR expenditure, in one particular financial year.
- Surplus arising out of CSR projects or programmes or activities shall not form part of the business profit of the Company.
- The CSR Committee may invite Executives, Advisors, representatives of Social Organizations, Auditors of the Company and such other person (s) as it may consider necessary to attend the meeting.
- The Board of every company referred to in sub-section (1) shall,—
- 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
- ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
- The Board of Directors 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:
- 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 clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
- Average net profit” shall be calculated in accordance with the provisions of section 198.
- Financials “during any financial year” means last audited balance sheet i.e. March 31, 2013. In other words audited financial figures for the FY 2012-13 should be considered for the purpose ofNet Worth, Turnover and Net Profit keeping in view the applicability date of April 01, 2014 for CSR provisions.
- As per section 135(2), the Board’s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
- No restriction if CSR Committee meeting conduct business by circulation.
- No time limit prescribed for constitution of CSR Committee. It is advisable to do it in the first board meeting after April 01, 2014 or after 31st
- CSR Policy will be formulated and recommended by CSR Committee to the Board for its approval.
- CSR Policy shall indicate the activities to be undertaken by the Company as specified in Schedule VII, as amended from time to time;
- A list of CSR projects or programs that the company plans to undertake falling within the purview of Schedule VII of the Act, specifying the process of execution of such project or project and the implementation schedule of the same.