Corporate Social responsibility (hereinafter referred as ‘CSR’) is an initiative laid down mandatory for every company that falls under the provisions prescribed by Indian law. This article discusses about the Corporate Social Responsibility (CSR) in India and mandatory requirements of CSR for companies. It gives a detailed analysis of how CSR is governed by Indian law and what all legal provisions must be followed in order to formulate a good CSR activity in society.
What is Corporate Social Responsibility (CSR) in India?
Corporate Social Responsibility is made mandatory by Indian law for Companies registered under Section 135 of Companies Act, 2013. CSR is a responsibility that every company registered under the act has to follow.
It is a self-regulating model that businesses have to comply with in order to become socially accountable to the company, its stakeholders and towards society. It is mandatory for every company to comply with the Indian laws.
CSR activities help in to maintaining a kind impact in the environment. It is a responsibility that companies possess towards the community and environment. As per Indian law, companies falling under the prescribed criteria have to spend at least 2% of the average net profit. CSR gives companies a chance to make a kind impact and show their sincere responsibility in the society.
Corporate Social Responsibility (CSR) in India- Objectives
One of the major objectives of conducting CSR activity is to give back the community the space and resources that it provides to them. It adds value to the community by organizing activities that are essential for maintaining community standards. It is something that benefits the society. Every contribution made by the organizations brings a fruitful change that society needs. However, if we talk about CSR being a great addition to society. It also serves the purpose of being a great business model for organizations. CSR is a business activity that welcomes your potential customers and increases the investment rate of the company. CSR formulates the business environment in a manner where the organization becomes known and makes business profitable.
Advantages of Corporate Social Responsibility (CSR) in India
Increases face value of brand
Builds positive reputation about the business in society
Possesses great abilities to attract new and potential customers
Develops employee retention rate and also attracts new employees
Gives a chance to companies to showcase their business in the market
Makes society a better place to live in
Companies that needs to conduct CSR Activities
Section 135 of Companies Act, 2013 deals with the provisions of CSR. As per section 135, it is mandatory for every company having either;
A net worth of Rs 500 crore or more,
Or turnover of Rs 1000 crore or more,
Or net profit of Rs 5 crore or more
During the preceding financial year should constitute a committee. That committee shall be responsible for CSR activities. Law governs the process of these activities. Each and every company stated above has to comply with the provisions of law.
Mandatory Legal Requirements that Company has to fulfil with respect to Corporate Social Responsibility
If the company falls under the criteria mentioned above, the committee should consist of three or more directors including one independent director. If it is a listed company having at least one-third of total directors as independent directors with respect to sub-section (4) of Section 149, it shall have two or more directors. There are a number of mandatory legal requirements that a Company has to fulfil with respect to successfully operating a CSR activity as per law.
As per the section, it is mandatory for the company to:
Formulate a CSR policy mentioning all the activities which company would undergo during its operations
Recommend the amount that would be spent on the activities. It is mandatory for the company to spend at least 2% of the amount from the net profit
Monitor the policy on a timely basis
Power of Board
Once the policy is made, the Board shall-
Take the recommendations and approve the policy and disclose the contents of the policy in its board report made under Section 134 of this act
Ensure that company must undertake the said provisions.
Board has to ensure that company is at least spending 2 % of the average net profit of every financial year. Moreover, where the company is new, it shall spend 2% of the average net profit during the immediately three preceding financial years.
It is advisable that the company shall give its first preference to local areas surrounding the areas where it operates. If a company fails to spend the amount committed, it shall state the reason in the Board Report for such or any non-compliance. The unspent amount shall be deposited to the “Unspent Corporate Social Responsibility Account’ in any bank and shall be used within a period of three financial years from the date of such transfer.
Punishment for Non-compliance
If a company fails to comply with the provisions stated in Section 135, the company is liable to punishment stated in sub-section (6) of Section 135 which states that fine not to be less than Rs 50,000/- which may extend to Rs 25 lakh. Every officer involved in such non-compliance will have to see an imprisonment for the term of three years or fine not less than Rs 50,000 which may extend to Rs 5 lakh or both.
The MCA holds the power to give directions to comply with the said provisions on any non-compliance.
Law of land governs the activities of CSR. It makes it mandatory for companies to follow the provisions set by Indian law via Companies Act, 2013. CSR provides a platform to companies to showcase their concern towards society and get the aimed recognition back. It is a great return on investment technique parallel to bringing a change in society. Indian law governs these activities in a well-informed way. This makes it easy for companies to comply on a regular basis as prescribed.
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LegalWindow.in is a professional technology driven platform of multidisciplined experts like CA/CS/Lawyers spanning with an aim to provide concrete solution to individuals, start-ups and other business organisation by maximising their growth at an affordable cost.