Saturday, 29 January 2022

Corporate Social Responsibility Under Companies Act,2013

 It is true that the focus of every business is to earn an adequate profit because earning an adequate profit will help them to survive and grow. But we cannot ignore the aspect that the business uses the resources of society and from the help of society, it grows. Thus, it is necessary to give back to the society that will serve society. There was no such concept of corporate social responsibility in the Companies Act,1956 but this concept of corporate social responsibility was introduced in the Companies Act,2013.

What is corporate social responsibility?

According to this concept, the sole purpose of a company should not be only focused on earning profit but also to focus towards contributing to society. A company is dependent on society and it is the duty of the company to give back to society. Every company making a considerable amount of profit is bound to serve society. Such a company has to utilize their profit in such a way so that society develops and grow towards prosperity. 

Section 135 of the Companies Act lays down the provision regarding corporate social responsibility. 

On which company CSR shall be applicable?

A company including its subsidiary company and its holding company having a net worth of Rs 500 crores or more, having a turnover of Rs 1000 crores or more, and having a net profit of Rs 5 crores or more. Such companies are required to spend at least 2% of their net profit earned for the last three financial years towards corporate social responsibility. If the company fails to spend 2% of the profit, then the company should transfer such unspent money to an unspent CSR account at any scheduled bank. If the company fails to transfer the amount, then it will be penalized under Section 135(7) of the Indian Companies Act,2013.

The companies who will fail to comply with the above provisions are required to constitute a CSR committee consisting of three or more directors and if such a company is mandatory to appoint one independent director, then one of such directors shall be an independent director.

Activities that are not allowed under CSR activities-

  1. All the activities that are carried out in the normal course of business.

  2. No contributions shall be made to any political party under Section 182 of the Indian Companies Act,2013.

  3. No sponsorship activities allowed from CSR fund.

  4. Any statutory obligations that are carried outside of India.

What all functions are to be performed by the CSR committee-

  1. Primary function of the CSR Committee is to monitor the CSR policy of the company from time to time and to maintain a check and balance on such activities.

  2. To recommend the amount of money for expenditure for CSR purposes.

  3. To recommend all the CSR activities to the board which should be within the purview of Schedule VII of the Companies Act,2013.

What is the role of the Board of Directors-?

  1. The BOD must ensure the proper implementation of the policy.

  2. The BOD must disclose all the activities to the public.

  3. Maintaining a check and balance on the CSR reports.


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