Procedure and Applicability of Corporate Social Responsibility Provisions By CS Snigdha Jain


Dear Professional Colleagues,

Many questions arise in the mind of Professionals when Corporate Social Responsibility (CSR) Provisions become applicable to a company like How to constitute a CSR Committee? How to formulate CSR Policy, to determine CSR Budget, etc.

I endeavour here to brief out a procedure to be followed on the applicability of CSR Provisions to a Company. Before going through the procedure first let us go through its vital provisions.

WHEN CSR BECOME APPLICABLE TO A COMPANY?

According to Section 135 of Companies Act, 2013 when any company whether its Public Company or Private Company falls under any of the following conditions in any financial year, it has to comply with CSR Provisions:


 
HOW MUCH AMOUNT THE COMPANY HAS TO SPEND AS CSR EXPENDITURE?

The Company is required to spend at least two per cent of average net profits of the company made during the three immediately preceding financial years.

PROCEDURE

Step1: Board Meeting

The Board of Directors will constitute

A. A CSR Committee consisting of three or more Directors out of which at least one director shall be an independent director and a company which is not required to appoint an independent director pursuant to sub-section (4) of section 149 of the Act, shall have its CSR Committee without such director; A private company having only two directors on its Board shall constitute its CSR Committee with two such directors;

B. The Board will decide

  • The Chairman of CSR Committee,

  • Quorum and minimum number and frequency of meetings of CSR Committee to be held.

Step 2: CSR Committee Meeting

A. Formulate CSR Policy and will recommend it to Board which shall include:

  • Identification of CSR projects subject to the condition that it will cover subjects enumerated in SCHEDULE VII of Companies Act 2013.

  • Monitoring the process of projects.

B. Will recommend to the Board amount of expenditure to be incurred by the Company during the financial year.
 
Step 3: Board Meeting
 
The Board will consider and approve the CSR Policy & CSR Budget as recommended by CSR Committee and shall spend amount accordingly.
 
At the time of approval of Directors Report & financial statements:
 
Step 4: CSR Committee
 
CSR Committee will consider and approve Annual Report on CSR (which will be a part of Directors Report) in its meeting and will recommend the same to the Board. The Annual report on CSR includes the following:

  • A brief outline of the Company’s CSR Policy.

  • The composition of the CSR Committee.

  • Average net profit of the Company for the last three financial years.

  • Prescribed CSR Expenditure.

  • Details of CSR spend for the financial year.

Step 5: Board Meeting

The Board will consider and approve the Director's report.
 
Note: If the Company fails to spend such an amount, the Board in its report shall specify the reasons for not spending the amount.
 
Further step by step process for quick reference in the form a chart is reproduced hereunder.

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