Corporate Social Responsibility under the Companies Act, 2013 enables the companies to engage in social welfare activities and to take part in the development of the society.
Applicability of CSR
The Corporate Social Responsibility Policy is strictly applicable to every company including its holding or subsidiary and a foreign company, having its branch office or project office in India having:
- The net worth of rupees 500 crores or more;
- Turnover of rupees 1000 crore or more;
- Net profit of rupees 5 crores or more during ANY financial year.
This requirement is applicable irrespective of the nature of the activities carried out by the company. And, the company meeting the above financial criteria shall mandatorily constitute a CSR Committee.
Constitution and functions of CSR Committee
The CSR Committee of the Board shall consist of three or more directors, out of which at least one shall be an independent director.
Foreign companies shall constitute CSR Committee with at least two persons in which one must be a resident person, authorised to accept notices/ documents served on the foreign company and the other as nominated by the foreign company.
Unlisted public company (UPC) or a private company, which otherwise does not require an independent director on its board, shall not need an independent director for the purposes of this committee.
Any private company which only has two directors on its board shall have the said two directors in the CSR committee.
The main functions of the CSR Committee include:
- Formulation of recommendation to the Board regarding the activities to be undertaken by the company as specified in the Act,
- Recommend the amount of expenditure incurred on the activities recommended by the committee, and
- Monitor the CSR policy of the company from time to time.
Role of the Board in CSR
The role of the Board in Corporate Social Responsibility is:
- Approve the CSR Policy of the company after considering the recommendations given by the committee;
- To disclose the contents of such a policy in its report and to place it on the company’s website, if prescribed;
- To ensure that the company spends, in every financial year, at least 2% of the average net profits made during the three immediately preceding financial years, in pursuance, of its CSR Policy;
- The Board shall specify in its report the reasons for not spending the amount if the company fails to spend such amount.