CORPORATE SOCIAL RESPONSIBILITY IN INDIA

AUTHOR- Sakshi Kashyap, Faculty of Law, Delhi University.

Ø INTRODUCTION

Social, cultural, environmental issues have now become part of our lives. Huge profits are the sole performance indicator for the corporates.

Corporate body are expected to behave responsible towards the society, where they operate and draw resources form.

CSR is the way companies manage their businesses to produce an overall positive impact on society through economic, environmental and social actions, because for survival of the business depends on long term prosperity of the society.

India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014.

Ø APPLICABILITY

As per section 135 of the Companies Act 2013, the CSR provision will be applicable companies which fulfils any of the following criteria during the immediately preceding financial year: –

· Companies having net worth of rupees five hundred crore or more; or

· Companies having turnover of rupees one thousand crore or more; or

· Companies having a net profit of rupees five crore or more

The Companies (Corporate Social Responsibility Policy) Rules, 2014 have widen the ambit for compliance obligations to include the holding and subsidiary companies as well as foreign companies whose branches or project offices in India which fulfils the criteria specified above.

According to the CSR Rules, the CSR provision will also be applicable to every company including its holding or subsidiary, and a foreign company having its branch office or project office in India having 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.

Whereas, the CSR Rules specify that a company which does not satisfy the specified criteria for a consecutive period of three financial years is not required to comply with the CSR obligations, implying that a company not satisfying any of the specified criteria in a subsequent financial year would still need to undertake CSR activities unless it ceases to satisfy the specified criteria for a continuous period of three years.

Companies that trigger any of the aforesaid conditions must constitute a Corporate Social Responsibility Committee of the Board to formulate and monitor the CSR policy of a company. Section 135 of the Act requires the CSR Committee to consist of at least three directors, including at least one independent director.

Where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors. [1]

Ø EXPENDITURE

Board of the company shall 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. This amount will be CSR expenditure.

As per Clarification issued by MCA on 18th June, 2014; following may be noted with regard to provisions mentioned under section 135: l One-off events such as marathons/ awards/ charitable contribution/ advertisement/sponsorships of TV programmes etc. do not be qualified as part of CSR expenditure. l Expenses incurred by companies for the fulfilment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) are not count as CSR expenditure under the Companies Act

Ø DISCLOSURE

It is mandatory for the companies in Board’s Report, an annual CSR Report. The Board Report attached to the financial report shall an annual report on CSR activities.

In case, the company has been unable to spend the minimum required, it shall disclose the reason of not doing so.

Ø EFFECT

Since the applicability of mandatory CSR provision in 2014, CSR spending by corporate India has increased significantly. In 2018, companies spent 47 percent higher as compared to the amount in 2014-15, contributing US$1 billion to CSR initiatives, according to a survey.

Listed companies in India spent INR 100 billion (US$1.4 billion) in various programs ranging from educational programs, skill development, social welfare, healthcare, and environment conservation, while the Prime Minister’s Relief Fund saw an increase of 139 percent in CSR contribution over last one year. [2]

Ø CSR IN THE ERA OF COVID

The Finance Minister Nirmala Sitharaman confirmed that spending of CSR funds for COVID-19 is eligible CSR activity, which can be considered as a win-win situation for both government & companies. But FAQ clarifies that the fund given to Chief Minister’s Relief Fund does not qualify as CSR.

“In view of the spread of novel coronavirus in India, its declaration as pandemic by the WHO, and decision of Government of India to treat this as notified disaster, it is hereby clarified that spending of CSR funds for COVID-19 is eligible CSR activity,” Sitharaman said on Twitter. “Keeping in view of the spread of novel Corona Virus (COVID-19) in India, its declaration as pandemic by the World Health Organisation (WHO), and decision of Government of India to treat this as a notified disaster. It is hereby clarified that spending of CSR funds for COVID-19 is eligible CSR activity,” Ministry of Corporate Affairs notified on Monday.

Whereas, apart from contribution towards PM Cares, the contribution made in respect of state disaster management authority to fight against COVID-19 will also be included in CSR.

However, it has been clarified that wages provided to the workers is a part of contractual obligation and cannot be considered as amount spent on CSR.

NOTE: Item no. (I) and (XII) As per Schedule VII of the Companies Act, 2013, contribution to any fund set up by the central government for socio-economic development and relief qualifies as CSR expenditure.

Ø REFERENCE

[1] Company Law by ICSI

[2] https://www.india-briefing.com/news/corporate-social-responsibility-india-5511.html/