Monday, January 7, 2013

Corporate Social Responsibility Provisions in the Companies Bill, 2012

The Companies Bill, 2012 has brought certain requirements related to Corporate Social Responsibility which have to be met by all companies which meet the specified criteria.

Relevant Provision: Clause 135

Applicability: Every company which meets any of the following criteria:
(1)    Net worth of Rs. 500 crore or more
(2)    Turnover of Rs. 1000 crore or more
(3)    Net profit of Rs. 5 crore or more
during any financial year shall.

Corporate Social Responsibility Committee of the Board:
(1)    Composition:
a.       Minimum 3 Directors
b.      At least 1 Independent Director
(2)    Disclosure:
The Board's Report under section 134(3) shall disclose the composition of the Corporate Social Responsibility Committee.
(3)    Duties:
a.       Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;
b.      Recommend the amount of expenditure to be incurred on these activities;
c.       Periodic monitoring of the CSR Policy of the company

Duties of the Board of Directors:
The Board of Directors shall:
a.       After taking into account the recommendations made by the CSR Committee, approve the CSR Policy for the company;
b.      Disclose contents of such Policy in its report and also place it on the company's website in such manner as may be prescribed;
c.       Ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
d.      Ensure that the company spends, in every financial year, at least 2 percent of the average Net Profits of the company made during the 3 immediately preceding financial years, in pursuance of its CSR Policy:
i.        Provided that the 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.
ii.      Provided further that if the company fails to spend such amount, the Board shall, in its report under section 134(3)(o), specify the reasons for not spending the amount.

Activities as mentioned in Schedule VII:
The following activities may be included by companies in their CSR Policy:
(i)                  Eradicating extreme hunger and poverty;
(ii)                Promotion of education;
(iii)               Promoting gender equality and empowering women;
(iv)              Reducing child mortality and improving maternal health;
(v)                Combating HIV, AIDS, malaria and other diseases;
(vi)              Ensuring environmental sustainability;
(vii)             Employment enhancing vocational skills;
(viii)           Social business projects;
(ix)              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;
(x)                Such other matters as may be prescribed.

Note: “Average Net Profit” shall be calculated in accordance with the provisions of section 198.