Corporate Social Responsibility (CSR) Policy

The Ministry of Corporate Affairs, Government of India has notified the Section 135 of the Companies Act, 2013 along with Companies (CSR Policy) Rules, 2014 and other notifications related thereto which makes it mandatory (with effect from 1st April, 2014) for certain companies who fulfill the criteria as mentioned under Sub Section 1 of Section 135 to comply with the provisions relevant to CSR.
Corporate social responsibility may be referred to as “corporate citizenship” and can involve incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change.
The companies on whom the provisions of the CSR shall be applicable are contained in Sub Section 1 of Section 135 of the Companies Act, 2013. According to the section, the companies having Net worth of INR 500 crore or more; or Turnover of INR 1000 crore or more; or Net Profit of INR 5 crore or more during the immediately preceding financial year shall be required to constitute a Corporate Social Responsibility Committee of the Board having three or more directors, out of whom at least one director shall be an independent director.
Provided that where a company is not required to appoint an independent director, it shall have in its CSR Committee two or more directors (Inserted by the Companies (Amendment) Act, 2017, with effect from 19-9-2018). The companies under this section will be performing following activities:
• The companies shall be required to Constitute CSR Committee of the Board. The CSR Committee shall be comprised of 3 or more directors, out of which at least one director shall be an independent director. Provided that where a company is not required to appoint an independent director, it shall have in its Corporate Social Responsibility Committee two or more directors.
• The Board’s report shall disclose the compositions of the CSR Committee.
• All companies in every financial year shall spend at least two percent of their average net profits made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years in pursuance of its Corporate Social Responsibility Policy. It has been clarified that the average net profits shall be calculated with the provisions of Section 198 of the Companies Act, 2013. Also, proviso to the Rule provide 3(1) of the CSR Rules that the net worth profit of a foreign company of the Act shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of the Companies Act, 2013.
• Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities
The companies shall be required to incorporate an annual report on CSR containing a brief outline of company’s CSR Policy, Composition of CSR committee, company’s net profit for last three immediately preceding financial years, prescribed CSR Expenditure, details of CSR spent during the financial year and need to mention the reason in case the company has failed to spend prescribed CSR Expenditure.
Any amount remaining unspent, pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII (contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women), within a period of thirty days from the date of completion of the third financial year.
If the company fails to spend such amount, the Board shall, in its report specify the reasons for not spending the amount and unless the unspent amount relates to any ongoing project referred above, transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.
Any contravention of this provision, the company shall be punishable with fine of fifty thousand rupees but it may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall be fifty thousand rupees but which may extend to five lakh rupees, or with both.
The CSR committee shall be required to formulate and recommend to the board a CSR policy which shall monitor the company’s activities, recommend the expenditure to be incurred on activities and timely monitor the company’s CSR policy. The CSR Committee will consist of three Directors, who shall meet at least twice in a year to discuss and review the CSR activities and policy.
The Policy recognizes that CSR is not just compliance; it is to support initiatives that improve the lives of underprivileged by eradicating basic problems like hunger, poverty etc.; promoting education, promoting gender equality, increasing provisions of hospitals, implementing rural development projects, protection of national heritage and above all, ensuring environmental sustainability etc.
Scope of CSR policy is to provide education and required training to all; ensuring proper drinking water supply through hand pumps, tube wells and taking proper steps for its maintenance; organizing health care camps to educate people about chronic diseases, managing and maintaining environment and pros and cons of addiction etc.; prominent steps to save environment; provide electricity and latest technologies in rural areas and proper training to farmers; and several more essential steps for the growth and development of the country.
The investment in CSR should be project based which are to be implemented by specialized agencies comprising of NGOs, elected local bodies like panchayats, academic organizations, trusts, missions, Government, Semi Government and autonomous Organizations, Mondals and Samitis etc.
The Board of Directors on its own and/or on the recommendation of CSR committee can amend its policy as and when required deemed fit. Any or all provisions of CSR Policy would be subjected to revision/amendment in accordance with the regulations on the subject as may be issued from relevant statutory authorities, from time to time.