Corporate Social Responsibility- CSR

Why in news?

• The Centre has now mandated corporate India to furnish a comprehensive report on their corporate social responsibility (CSR) activities, specifying a 11-page form (CSR-2) for this purpose. It is expected to give the government a comprehensive picture of the CSR funds spent and activities carried out.

What is Corporate Social Responsibility (CSR)?

• Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public.
• Companies make a concerted effort to operate in ways that enhance rather than degrade society and the environment.
• CSR helps both society and the brand image of companies.
• Corporate responsibility programs are a great way to raise morale in the workplace.

How is it regulated in India?

• India is one of the first countries in the world to make CSR mandatory for companies following an amendment to the Companies Act, 2013 (Companies Act) in 2014.
• Under the Companies Act, businesses can invest their profits in areas such as promoting rural development in terms of healthcare, sanitation, education including skill development, environmental sustainability, etc.
• Section 135(1) of the Act prescribes thresholds to identify companies which are required to constitute a CSR Committee – those, in the immediately preceding financial year of which:
  • Net worth is Rs 500 Crore or more; OR
  • Turnover is Rs 1000 Crore or more; OR
  • Net profit amounts to Rs 5 Crore or more.
• As per the Companies (Amendment) Act, 2019, CSR is applicable to companies before completion of 3 financial years.

Amount to be spent:

• Companies are required to spend, in every financial year, at least 2% of their average net profits generated during the 3 immediately preceding financial years.
• For companies that have not completed 3 financial years, average net profits generated in the preceding financial years shall be factored in.

Treatment of unspent amounts:

• Amounts to be utilised towards a CSR activity, but unspent must be parked in a special account as prescribed under the provision within 30 days of the end of the relevant financial year.
• The unspent amount must be utilised by the company for the particular CSR activity within a period of 3 financial years from the date of such transfer, failing which, it must be transferred to any fund provided for in schedule VII of the Companies Act namely inter alia the Clean Ganga Fund, Swachh Baharat Kosh, Prime Minister’s National Relief Fund.
• Any unspent amount which does not relate to an ongoing CSR activity must be transferred to a fund provided for in Schedule VII within a span of 6 months of the end of the relevant financial year.

Fines and Imprisonment:

• Provision for penalty in the form of fine on the company and officers in default, between Rs 50,000 – Rs 25,00,000, has been inserted in case of failure in compliance with Section 135.
• Additionally, every officer in default may also be imprisoned for a term of up to 3 years.

PRACTICE QUESTION:

Consider the following statements regarding Corporate Social Responsibility (CSR) in India:

1. As per the Companies (Amendment) Act, 2019, CSR is applicable only after five years of incorporation of a company.

2. Every company with a net profit are required to constitute a CSR Committee

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer