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Corporate Social Responsibility under Companies Act, 2013

Meaning
Corporate Social Responsibility (CSR) means and includes but is not limited to:
  1. Projects or programs relating to activities specified in Schedule VII to the Act or
  2.  Projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule Vll of the Act.”
Companies (Corporate Social Responsibility Policy) Rules, 2014

Corporate social responsibility is more or less an act of company whereby it presents its concern & commitment towards the society in large in connection with the sustainability & development. CSR is basically a moral and ethical conduct towards the society in large by a company.

According to section 135 of the Companies Act,2013, CSR is compulsory for all companies whether government or private and applies to:
  • every company
  • its holding company
  • its subsidiary company
  • foreign company
     
Provided they meet the following fiscal criteria:
  • Net Worth > 500 Crore
  • Turnover > 1000 Crore
  • Net Profit > 5 Crore

Importance of CSR
  • CSR shows to the public that a company is considerate towards the environment and society. This in turns increase their public image.
  • Companies which undertake CSR Activities and are more active in the developmental projects are more favoured by customers and potential customers. This in turns makes companies stand out from their competitors in the market.
  • CSR activities also provide free publicity in the society.
  • CSR boosts a company’s brand value and builds a strong relationship with its customers who generally feel more inclined towards that company.

CSR activity towards the society
A company has a CSR duty towards various strata of the societies. Some of those are towards:
  1. Society
    • to promote overall development of the society
    • to contribute towards promotion of education and employment and social health of society in large.
    • To minimize environmental pollution in the area (whether air, soil, water, sound, etc)
    • To be cautious towards maintaining an ecological balance.
    • To carry on business with moral and ethical standards.
       
  2. Government
    • To pay appropriate amount of taxes and to pay them timely
    • To comply with the rules and regulations as under law.
    • To cooperate with government for overall development.
    • To not take misuse the laws by taking advantages of various loopholes.
       
  3. Shareholders
    • To work towards bringing profit towards the company
    • To not misuse shareholder’s fund
    • To not manipulate the company’s accounts
    • To provide a reasonable rate of return
    • To promote and build the goodwill of the company
    • To ensure accounting principles are followed especially for the growth of the company.

       
  4. Employees
     
    • To provide a safe working environment especially towards women
    • To timely and regularly pay wages and salary to the workers without any unreasonable cut.
    • To provide facilities for promotion and growth.
    • To recognise the work of employees and reward them accordingly.
    • To promote overall development and growth of employees and their personal objectives.
    • To provide them with a redressal mechanism within the company.
       
  5. Consumers
    • To supply good quality products
    • To supply goods which are not harmful towards society.
    • To provide after sale services.
    • To provide a mechanism for consumer grievances
    • To adopt a fair pricing technique.
    • To not monopolize the market and provide a fair competition.

CSR committee
If a company fulfils the requirements of Section 135 of the Companies Act, 2013 then they are required to form a CSR committee to fulfil their CSR obligations under law.
  1. Constitution of the CSR Committee
    • Minimum 3 directors are necessary to form a CSR Committee.
    • One among these directors must be an independent director.
    • However in unlisted public companies or private companies where an independent director is not required, their CSR committees can be without any independent director
    • In Private companies which have only 2 directors, CSR Committees shall have only 2 directors.
    • In a foreign company, the CSR committee shall have atleast 2 persons. Among these, one person shall be a resident of India who must be authorized to accept on behalf of such foreign company. The other person shall be nominated by the foreign company accordingly.
       
  2. Duties of CSR Committee
    • Policy creation to implement the CSR activities according to the Schedule VII of the Companies Act, 2013
    • Allocate and audit money for CSR activities.
    • Oversee the execution of the CSR activities for which money has been allocated so that it is not misused.
    • Regular assessment of profits of the company and ensure that atleast 2 percent of it is spent on CSR activities annually
    • Issue an annual report on various CSR activities undertaken by the company.
    • Ensure local issues and regions are prioritized or promotion of local regions and people.
    • Ensure that CSR polices are made public by issuing them on company’s official website in accordance with the format approved by the committee.

CSR activities as per schedule VII
The various CSR activities under Schedule VII according to Section 135 of the Companies Act 2013 and Companies (Corporate Social Responsibility Policy) Rules 2014 are:
  1. Eradicating hunger, poverty & malnutrition
  2. Promoting preventive health care & sanitation & making available safe drinking water
  3. Promoting livelihood enhancement projects as well as education & employment among children, women & the differently abled.
  4. Promoting gender equality and empowerment of women, setting up orphanages, old age homes, day care centers and other facilities for senior citizens.
  5. Promoting measures for reducing inequalities faced by SEBCs, OBCs, SCs and STs.
  6. Providing proper hospital facilities and medicines at a subsidized rate and to improve maternal health to reduce child mortality
  7. Providing hospital and dispensary facilities with a focus on proper sanitation in order to fight various health related diseases and issues like human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases.
  8. Ensuring sustainability and an ecological balance in the environment, safeguarding flora & fauna, animal welfare, agro forestry, conservation of natural resources & maintaining quality of soil, air & water.
  9. Enhancement of vocational skills by employment
  10. Protection of national heritage, art & culture by working towards restoration of historically important buildings & sites & works of art.
  11. Promotion & development of traditional Indian arts & handicrafts.
  12. Introducing measures for welfare of veterans of armed forces, war widows & their dependents.
  13. Training to promote rural/nationally recognized/Olympic sports.
  14. Contribution to PM‘s National Relief Fund or any other Central Government for development of socio-economic issue and SCs, STs, OBCs and minorities.
  15. Contributing towards Central Government approved technology incubators within academic institutions like universities and colleges.
  16. Development of slum and rural areas.

Fines and Penalties for Non-Compliance
Failure of a company to comply with CSR spending provisions or transferring and utilizing the unspent amount out of the CSR funds, a company will be punishable with a fine which may increase to Rs. 25 lakh but not less than Rs. 50,000.

The Act also provides for punishment of company officers who default in compliance. It states that every such officer of the company will be liable to for a punishment with a fine which may increase to Rs. 5 lakh but not less than Rs. 50,000 or imprisonment for a maximum term of three years of with both.

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