Corporate Social Responsibility

ABSTRACT

The fundaments of CSR rest on the fact that not only public policy but even corporate should be responsible enough to address social issues. The eligible companies are required to spend in every financial year, at least two percent of the Average Net Profits(Net profit include profits from overseas branch and dividend received from other companies in India) of the company made during the three immediately preceding financial years in pursuance of its CSR policy. If the company fails to contribute such amount to CSR , the company is required to only disclosure reasons for not contributing in director’s report. As per section 134 of the companies Act, 2013, if a company fails to disclose such information, it shall be punishable with fine which shall not be less than fifty thousand rupees which could extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or fine or both.

CSR is known as corporate conscience, corporate citizenship, social performance or sustainable business / responsible business. CSR involves both internal as well as external stakeholders. Internal stakeholders include the employees of the company where as external stakeholders include community & environment, customers, vendors. Shareholders, government etc. Benefits of CSR can be listed as : brand positioning, enhanced corporate image and reputation, satisfaction of economic & social contribution to society, increased ability to attract, motivate & retain employees, enhanced sales & market share, increased investors &  financial  analysts.  There already are mandatory  CSR reporting requirements in several countries, including Sweden, Norway, the Netherlands, Denmark, France, and Australia.

INTODUCTION TO CSR

One of the key changes in the companies Act,2013 is the introduction of corporate social Responsibility( herein referred as CSR) making India the first country to mandate CSR through a statutory provision. CSR should not be confused with charity or donations by a company, nor it is completely for profits or as a business venture; rather, it is an amalgamation of economic and social development principles of a company[1]. Small or Medium Enterprises (SMEs) should be asked to promote CSR by taking into account their respective fiscal capacity and not over-stretching their rather limited resources[2]. The Companies Act, 2013 has formulated Section 135, Companies (Corporate Social Responsibility) Rules, 2014 and Schedule VII which prescribes mandatory provisions for Companies to fulfil their CSR. The section applies to the following classes of companies during any financial year viz Net worth of Rs. 500 Crore or more OR Turnover of Rs. 1000 crore or more OR Net Profit of Rs. 5 crore or more.

However, if a company ceases to meet the above criteria for 3 consecutive financial years then it is not required to comply with CSR Provisions till such time it meets the specified criteria. The companies specified shall constitute CSR committee of the Board; CSR committee shall consists of three or more directors out of which atleast one director shall be an independent director. The Contents of CSR policy shall be disclosed in Board’s report. It shall also be placed on the company’s website, if any, in a manner to be prescribed by the central government. The Board shall ensure that the activities as are included in the CSR policy as specified in schedule vii are undertaken by the company.

COMPOSITION OF CSR COMMITTEE

The CSR committee shall consist of three or more directors, out of which one director shall be an independent director. If a company is not required to appoint an independent director, then it can have two or more directors. A private company having only two directors on its board shall constitute its CSR committee with two such directors. With respect to foreign company, the CSR committee shall comprise of at least two persons of which one person shall be a resident in India and another person shall be nominated by foreign company.

LOCAL AREA

Under the new Companies Act, 2013, the company that is interested to do CSR should give preference to the local areas along with the areas where the company operates. If the company wants, it can even have association with 2 or more companies. The CSR policy should also be prepared by the committee to include the projects and programme which is to be undertaken along with the focus on integrating business models with social and environmental priorities. The company can also make the annual report of CSR activities in which they mention the average net profit for the 3 financial years and also prescribed CSR expenditure but if the company is unable to spend the minimum required expenditure the company has to give the reasons in the Board Report for non compliance so that there are no penal provisions are attracted by it[3].

CSR CONTRIBUTION & EXPENDITURE

For a contribution to qualify as a CSR contribution, the nature of contribution is to be kept in mind. It should be ensured that CSR expenditure complies with company’s CSR Board approved CSR policy and the legal provisions. The expenditure includes all expenditure including contribution to corpus for projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR committee.

CSR POLICY

A list of CSR projects or programs which a company plans to undertake falling within the purview of the schedule vii of the Act, specifying modalities of execution of such project or programs and implementation schedule for the same. Monitoring process of such projects or programs. The activity should not be undertaken in pursuance of normal course of business of company. The board shall ensure that the activities included by the company in its CSR policy are related to the activities mentioned in schedule vii of the Act. The Policy should mandate required or a minimum of 2% of the net profits of the company to be used for social responsibility[4].

ROLE OF THE BOARD

  1. Ensure that the activities undertaken by the committee are duly complied with.
  2. Ensure that the company spends in every financial year, at least two percent of the average net profit of the company made during the three immediately preceding financial years in pursuance of its corporate social responsibility policy.
  3. The company shall give preference to local area and areas around it where it operates for spending the amount earmarked for CSR activities as per CSR policy
  4. If the company fails to spend such amount, the Board shall in its report made under section 134(3) (0) specify the reasons for not spending the amount.
  5. The Board shall also place the contents of policy on the website of the company (if any) in prescribed form under companies ( corporate social Responsibility policy) Rules, 2014.

CSR ACTIVITIES

The companies Act,2013 does not prescribe the methodology by which CSR activities are to be undertaken by the company. Companies have been given flexibility to decide the activity within the framework, choose programs, implement in the manner it desires, monitor it and ensure compliance of its own CSR policy. Eradicating hunger and poverty, promotion of education, promoting gender equality and empowering women, improving maternal health, providing vaccines to people against the deadly virus. The CSR activities may be undertaken by way of following methods:

  1. By charity: Company can donate money to various charitable trust, societies, NGO, etc who work for social economic welfare of society
    1. By contract: Company can hire an NGO or any other agency like that which can carry out the projects on behalf of company
    1. By itself: Company can take up a project on its own or create its own trust and use its own staff for its proper working /monitoring or through other trusts/ societies.

SCHEDULE VII

It describes the activities to be undertaken by the company :

  1. Eradicating hunger, poverty and malnutrition, providing preventive health care & sanitation and making available safe drinking water.
  2. Promoting education including special education & employment enhancing vocation

skills specially among children, woman, elderly and the differently abled

  1. Rural development projects
  2. Training to promote rural sports, nationally recognized sports, paralympic sports & Olympic sports
  3. Ensuring environment sustainability, ecological balance, protection of flora &

Fauna, animal, welfare, agroforestry, conservation of natural resources & maintaining quality of soil, air and water

  • Protection of national heritage, art & culture including restoration of building & sites of historical importance and works of art, setting uppublic libraries, promotion & development of traditional arts & handicrafts.
  • Measures for the benefits of armed forces veterans, war widows & their dependents.
  • Funds provided to technology incubators located within academic institution which are approved by central government.
  • Promoting gender equality, empowering woman, setting up homes & hostels for woman and orphans, setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by society & economically backward groups.

COVID-19 & CSR RULES 2021

Under 2021 Rules, it excludes all those activities which fall under the normal course of business. Due to the pandemic, the companies are engaged in R&D of the covid-19 vaccine whether it is covishield or covaxin, providing the same to its employers as well the employee plus the people who are related to employers and employees. A circular dated 10th April. 2020 stated that CSR activity included the all covid-19 activities like R&D, distribution of vaccine, distribution of masks and hand sanitizer, making people aware of the virus like wearing a mask in public, maintaining social distancing, using of hand sanitizer in public or washing of hands for 20 seconds. The details of the same has to be disclosed in the annual report. For example, Mahindra Group’s chairman offered to convert its resorts to temporary care facilities and also pledged to create a fund to help smaller companies.

CONCLUSION

Ever since its inception, large corporate houses in India have been involved in serving the community. Through donations & charity events, many other organizations have been doing their part for the society. A growing number of corporate feel that the CSR is not just another form of indirect expense but is important for protecting goodwill & reputation, defending attacks and increasing business competitiveness. Also , corporate join hands with NGO and use their expertise in devising programs which addresses wider social problems. The programe is put into practice by the employees who are crucial to this process.

CSR programs range from community development to development in education, environment & healthcare. As of 2021, due to the pandemic, companies like STAR India pledged financial support of Rs 50 crores. The need of the hour is to provide critical healthcare supplies and equipment to save lives. Big companies like TATA Group are providing 200-300 tonnes of oxygen every day to several states and hospitals.


[1] Prachi Hajare-Corporate Social Responsibility in India, https://pscnotes.in/corporate-social-responsibility-in-india/ visited on 16-06-2021 at 17:35hrs.

[2] Saurabhk-Corporate Social Responsibility under Companies Act, CSR laws in India – Provision under the Companies Act, 2013 – iPleaders visited on 17-06-21 at 16:05hrs.

[3] Mansukhlal Hiralal & Company- Corporate Social Responsibility – Indian Companies Act 2013, Corporate Social Responsibility – Indian Companies Act 2013 – Corporate/Commercial Law – India (mondaq.com) visited on 17-06-2021 at 16:50hrs.

[4] Prachi Hajare-Corporate Social Responsibility in India, https://pscnotes.in/corporate-social-responsibility-in-india/ visited on 16-06-2021 at 17:35hrs.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

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