Corporate Social Responsibility (CSR)-Companies Bill 2012

Corporate Social Responsibility (CSR)

The Companies Bill, 2012 passed by Lok Sabha recently would come into force after its approval by Rajya Sabha and assent by the President of India. The new law will have far reaching effects.

In recent years, increasing attention has been given to the concept of Corporate Social Responsibility (CSR), defined in terms of the responsiveness of businesses to stakeholders’ legal, ethical, social and environmental expectations.

CSR is not new to India, companies like TATA and BIRLA have been imbibing the case for social good in their operations for decades long before CSR become a popular cause. Inspite of having such life size successful examples, CSR in India is in a very nascent stage. It is still one of the least understood initiatives in the Indian development sector. It is followed by a handful of public companies as dictated by the very basis of their existence, and by a few private companies, with international shareholding as this is the practise followed by them in their respective foreign country. Thus the situation is far from perfect as the emphasis is not on social good but rather on a policy that needs to be implemented.

Companies Bill 2012 has specific requirements for the formation of CSR committee who look  for the CSR policy matters expenditure etc.

Extracts of Companies Bill 2012 on CSR

Section 135(1) said that “Every company having net worth of rupees five hundred crore or more, or

turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board

consisting of three or more directors, out of which at least one director shall be an independent director”.

Constitution of CSR Committee

Section 135 (1) says that Every company with net worth of INR 5,000 million or more or turnover of INR 10,000 million or more or a net profit of INR 50 million or more during any financial year to constitute a CSR Committee consisting of three or more directors, out of which at least one director shall be an independent director.

135(2) said that “ The Board's report under sub-section (3) of section 134 shall disclose the

composition of the Corporate Social Responsibility Committee”.

Composition of CSR Committee

Composition of CSR committee shall be disclosed by Board in the Board’s report under section 134(3).

135 (3) The Corporate Social Responsibility Committee shall,—

(a)    Formulate and recommend to the Board, a Corporate Social Responsibility 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 the activities referred to in clause (a); and

(c)     Monitor the Corporate Social Responsibility Policy of the company from time to time.

Function of Committee as defined under section 135(3)

(d)   The Committee to recommend CSR policy and

(e)   CSR expenditure and

(f)      Also monitor the CSR policy.

135 (4) The Board of every company referred to in sub-section (1) shall,—

(a)    after taking into account the recommendations made by the Corporate Social  Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and

(b)   ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

 Role of Board of directors  

Section 135(4) makes sure that recommendation made b y CSR committee is considered by company and ensures that those activities which are included in CSR policy will be undertaken by company.

135 (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

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.

Provided further that if the company fails to spend such amount, the Board shall, in its

report made under clause (o) of sub-section (3) of section 134, specify the reasons for not

spending the amount.

Amount for CSR activities-Appropriation of Profit

Board of such a company shall ensure that in every financial year, at least 2 percent of its average net profit made during three immediately preceding financial years is spent in pursuance of its CSR policy; reasons for failure to spend such amount will have to be explained in Board’s report.

Area of Operation

The company to give preference to local area where it operates and surrounding areas for spending amount earmarked for CSR activities.

The requirement of reporting failure would motivate companies to undertake these activities. If done properly, such activities may have significant positive impact in the local area.

 Explanation.—For the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198.