CORPORATE SOCIAL RESPONSIBILITY
The fundamental of Corporate Social Responsibility rests on the fact that not only the government but the corporate should also be responsible enough to address social issues. The concept of Corporate Social Responsibility is not new in India; however, it has undergone several changes.
Initially it was all about charity and moral values and was practiced just for the betterment of the society around. Further, it got connected with the betterment of the organization along with that of the society.
Now, in the present scenario the basic objective of CSR is to maximize the company’s overall impact on the society and stakeholders. A growing number of corporates feel that CSR is not just another form of indirect expense but is important for protecting as well as enhancing the goodwill and reputation, capability to defend attacks and increasing business competitiveness.
What is Corporate Social Responsibility (CSR):
A company when functions in a society and earns profits, there arises a need to take up certain voluntary responsibilities to be fulfilled for the welfare of the same society. This is basically a concept related to serve in the field of Social work and development. Example: Eradicating hunger, poverty and malnutrition, Promoting education, promoting gender equality etc.
In other words, CSR is the concept of actively contributing to the Social, Economic and Environmental Development of the community in which we operate, ensuring participation from the community and thereby create value for the nation.
*The CSR activities does not include normal course of business of a company.
Applicability of Corporate Social Responsibility:
Section 135 of the Companies Act, 2013 deals with Corporate Social Responsibility.
Every company having:
Net worth of Rupees Five Hundred Crores (Rs. 500 Cr.) or more;
Turnover of Rupees One Thousand Crores (Rs. 1000 Cr.) or more;
A Net Profit of Rupees Five Crores (Rs. 5 Cr.) or more during any financial year.
“Any Financial Year” means ‘any of the 3 preceding financial year’
Provisions in Companies Act :
- Section 135 of the Companies Act, 2013 gives a detailed explanation on all the DO(s) and DON’T(s) relating to Corporate Social Responsibility.
- Section 198 of the Companies Act, 2013 should be referred for calculating the “average net profit” for the purpose.
Compliances under CSR:
a) Constitute a CSR Committee: A Company is required to constitute a CSR Committee of the Board consisting of three or more directors, out of which at least one director should be an independent director. However, in case of a private limited company no independent director is required and also if a company is having only two directors on the board, the same shall stand sufficient to constitute its CSR Committee. However, the role of the Committee is advisory and not directive in nature.
b) Formulate a Corporate Social Responsibility Policy: This policy should provide an overview of the areas in which the Company can allocate the amount that the Company needs to spend as per the law and the action plan to be taken. Further, there should also be a mechanism designed to report the execution and progress of the policy. The policy shall include:-
i) A detailed list of CSR projects or programs which a company plans to undertake.
ii) Ways of monitoring process of such projects or programs.
iii) The surplus arising out of the projects undertaken for CSR purpose should not be used in the normal course of business.
iv) The amount of expenditure to be incurred on the CSR activities.
c) Compulsory Expenditure under CSR: Every Company is required to spend at least 2% of the average net profit earned by the Company during immediately preceding three years, in every financial year.
d) Allocation of project: The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through a registered trust or a registered society or a company established under Section 8 of the Act by the company, either singly or along with its holding or subsidiary or associate company, or along with any other company or holding or subsidiary or associate company of such other company, or otherwise who shall have an established track record of three years in undertaking similar programs or projects.
e) Penalty: There are no specific penal provisions for Non-compliance of Section 135 of the Act. However, certain penalties can be levied under the following provisions, i.e.
Section 134(o) requires the Company to give complete disclosure of its CSR policy as well as specify the reason for not spending the decided amount, if any.
Section 134 (8) specifies the penalties for not discharging the above mentioned duty and it says that:
- the Company shall be punishable with : INR 50,000</= FINE</= INR 25,00,000; and
- Every officer of the Company in default shall be punishable with:
IMPRISONMENT for a term which may extend to 3 years; or
FINE which shall not be less than INR 50,000 but which may extend to INR 5,00,000
Also, as per Section 450 and 451, respectively, the following penal provisions will also be attracted:
- Fine u/s 450 may extend to ten thousand rupees (Rs. 10,000/-), and where the contravention is continuing one, a further fine to one thousand rupees (Rs. 1,000/-) for every day after the first during which contravention continues.
- U/s 451 the defaulter is punished either with fine or with imprisonment and where the same offence is committed for the second or subsequent occasions within a period of three years, then, that company and every officer thereof who is in default shall be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.
-Author is a Company Secretary