Saturday, May 10, 2014

CSR- Corporate Social Responsibility- Some Important Issues in Brief

With effect from April 1, 2014 under Section 135 and Schedule VII of the Companies Act 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014

1. Every company including a private limited , which either has
a)    a net worth of Rs 500 crore or
b)   a turnover of Rs 1,000 crore or
c)    net profit of Rs 5 crore,
needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility activities.

The CSR compliance obligations  are also applicable to :
a)    The holding and subsidiary companies ,(however it needs more clarification).
b)   Foreign companies whose branches or project offices in India fulfill the specified criteria.

2.The net worth, turnover and net profits : These are to be computed in terms of Section 198 of the 2013 Act as per the profit and loss statement prepared by the company in terms of Section 381 (1) (a) and Section 198 of the 2013 Act.
It is clarified that if net profits are computed under the Companies Act, 1956 they needn't be recomputed under the 2013 Act.
Net Profits for this purpose to exclude:
a. Profits from any overseas branch of the company, including those branches that are operated as a separate company.
 b. Dividends received from other companies in India which need to comply with the CSR obligations would not be included in the computation of net profits of a company.

3. CSR Activitities- Nature of :
The CSR activities must be with respect to any of the activities mentioned in Schedule VII of the 2013 Act and include :
      i.        Eradicating hunger, poverty and malnutrition, promoting preventive healthcare
     ii.        Promoting education and promoting gender equality
    iii.        Setting up homes for women, orphans and the senior citizens, measures for reducing inequalities faced by socially and economically backward groups
   iv.        Ensuring environmental sustainability and ecological balance
    v.        Animal welfare
   vi.        Protection of national heritage and art and culture
  vii.        Measures for the benefit of armed forces veterans, war widows and their dependents
 viii.        Training to promote rural, nationally recognized, Paralympic or Olympic sports
   ix.        Contribution to the prime minister's national relief fund or any other fund set up by the Central Government  for socio economic development and relief and welfare of  SC, ST, OBCs, minorities and women, contributions or funds provided to technology incubators located within academic institutions approved by the Central Government and
    x.        Rural development projects. 

4. Local Area Preference : For CSR activities to be undertaken, preference is to be given to local areas and the areas around where the company operates.

5. CSR activity does not cover for computing CSR expenditure:
a)    Expenditure for projects undertaken in the normal course of business
b)   Contribution to any political party and
c)    Activities out of  India.

6. CSR policy and CSR Committee : Under Section 135 of the 2013 Act to formulate and monitor the CSR policy of a company, a CSR Committee of the Board is to be constituted consisting  of minimum :
a) Three (3) directors, including an independent director.
b)  Two (2) Directors ( for unlisted public companies and private companies that are not required to appoint an independent director)
. A company can undertake its CSR activities through a registered trust or society, a company :
                      i.        Established by its holding, subsidiary or associate company or otherwise, provided that the company has specified the activities to be undertaken, the modalities for utilization of funds as well as the reporting and monitoring mechanism.
                     ii.        If such entity is not established by the company or its holding, subsidiary or associate company, such entity should have :
a) an established track record of three (3) years undertaking similar activities  and
b) the expenditure for such activities does not exceed 5% of the total CSR expenditure of the company in a single financial year.
 `iii. In collaboration with each other for jointly undertaking CSR activities, provided that each of the companies are able individually to report on such projects.

8. Board Report  Disclosure :The report of the Board of Directors need to include an annual report on the following in the format prescribed in the CSR Rules:
a)    a brief outline of the CSR policy
b)   the CSR activities of the company
c)    the composition of the CSR Committee,
d)    the average net profit for the last three financial years and
e)    the prescribed CSR expenditure.
f)     the reasons ,If the company has been unable to spend the minimum required on its CSR initiatives, for not doing so .

9. Web –Disclosure of CSR Policy: Where a company has a website, the CSR policy of the company would need to be disclosed on such website.