CSR Applicability, Constitution of CSR Committees and its Functions By CS Nikunj Prakash


With the introduction of Companies Act 2013, which brought the concept of Corporate Social Responsibility (CSR) through Section 135 to encourage the Companies to recognize and contribute a certain amount towards its Social Responsibility.

Corporate Social Responsibility (CSR) is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders.
 
APPLICABILITY OF CSR

1. This section applies to a Company (including a Foreign Company) only if it satisfies one or more of the following conditions, in immediately preceding F.Y.
 
  1. Net Worth of the Company is Rs 500 Cr or more; or
  2. Turnover of the Company is Rs 1000 Cr or more; or
  3. Net profit of the Company is Rs 5 Cr or more
Any company qualifying any of the above criteria shall ensure that it spends in every financial year at least 2% of average net profit of the company made during the three immediately preceding Financial year. Net profit shall be calculated in accordance with the provision of Section 198.

The company shall give preference to the local area for spending the amount for CSR Activity.

If a company fails to spends such amount the Board shall in its report specify the reason for not spending
 
CONSTITUTION & COMPOSITION OF CSR COMMITTEE

Every Company to which Sec 135 applies, shall constitute the CSR Committee.
The CSR committee shall be constituted with 3 or more directors, out of which at least one director shall be an Independent Director.
 

Type of Companies

Board of CSR Committee

Listed Companies

3 or more Director at least one Independent Director

Public Company

3 or more Director at least one Independent Director

 

Note: If the company is not required to appoint Independent Director, it shall have in its Corporate Social Responsibility Committee two or more director as per the proviso of Sub Section (1) of Sec 135.

Private Companies

2 Directors

Branch / Project Office of a Foreign Companies

At least 2 person of which one shall be person resident in India authorised to accept on behalf of the company service of process any notices or other documents served on the company and another person shall be nominated by the foreign company as per clause (d) of Sub Section (1) of Section 380.


CSR COMMITTEES FUNCTIONS

In accordance with section 135, the functions of the CSR committee include:

(a) formulating and recommending to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

(b) recommending the amount of expenditure to be incurred on the CSR activities.

(c) monitoring the Corporate Social Responsibility Policy of the company from time to time.

(d) Further, the rules provide that the CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

The CSR Committee shall formulate and recommend to the Board, a policy which shall indicate the activities to be undertaken (CSR Policy); recommend the amount of expenditure to be incurred on the activities referred and monitor the CSR Policy of the company. The Board shall take into account the recommendations made by the CSR Committee and approve the CSR Policy of the company.
 
Here, I would like to bring the attention to Rule 4 of Companies (Corporate Social Responsibility Policy) Rules 2014, which states that a Company may decide to undertake its CSR activities through;
 
1. Section 8 Company or Registered Trust/Registered Society – Established by the Company either singly or jointly.
 
2. Section 8 Company or Registered Trust/Registered Society – Established by Central Government /State Government or entity established under an act of Parliament.
 
However, if Company decides to undertake its CSR Activity through a Company established under Sec 8 or a Registered Trust or registered society other than those specified in above Sub Rule then such Section 8 Company or Trust or Society shall have an established track record of three years in similar programme or projects.
 
3. The company may collaborate with other companies for CSR Activity in such a manner that CSR Committee of respective companies is in position to separately report on that projects.
 
Which also mean that the other companies with whom we are collaborating for CSR activity have to be a company qualifying for CSR as per Sec 135.
 
4. Activity undertaken by the company is included in the CSR Policy of the Company as specified in Schedule VII.

5. CSR projects/programs/ activities undertaken in India, only amount to CSR activity.

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