The article has been written by Ritika Goel, a 2nd year LLB student from Faculty of Law- Delhi University.
INTRODUCTION
Corporate Social Responsibility (CSR) regulations in India require certain companies to mandatorily undertake CSR activities and spend at least 2% of their average net profit of the immediately preceding three financial years on CSR activities. A company having:
- a net worth of Rupees 500 crore or more; or
- a turnover of Rupees 1000 crore or more; or
- a net profit of Rupees 5 crore or more
is required to comply with the CSR provisions specified under Section 135 of the Companies Act, 2013. The Act read along with the Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”). Foreign companies having a branch office or project office in India are also required to fulfil CSR obligations if they meet the criteria specified above.
Companies required to comply with the CSR Rules are required to establish a CSR committee whose primary function is to formulate an annual plan and recommend it to the board of directors. The CSR committee is also responsible for formulating the CSR policy, recommend the amount to be incurred for CSR activities and monitoring the CSR policy of the company. An illustrative list of CSR activities which a company can undertake is provided in Schedule VII of the Act. The Expenditure on CSR activities was made mandatory in 2014 and since then, several amendments have been introduced. The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 is one such amendment that was introduced on September 20, 2022. The Amendment Rules by the Ministry of Corporate Affairs. The following changes have been brought about by the Amendment Rules.
ESTABLISHMENT OF CSR COMMITTEE FOR UNSPENT CSR FUNDS
Companies are required to establish a CSR committee to monitor the execution of their CSR commitments and in particular any funds in their “Unspent Corporate Social Responsibility Account”. Companies may keep unused funds set aside for CSR in this designated account as long as they use them within three financial years. Its utilisation is to be monitored by the CSR committee. The Amendment Rules have also done away with the relaxation given to companies to not form a CSR committee if they no longer satisfy the required criteria.
REASONS TO MAKE AMENDMENTS IN CSR POLICY
The main reason for making amendments in Companies (Corporate Social Responsibility Policy) Rules 2014 are as follows:
- To Infuse more Transparency; and
- To Increase Accountability;
KEY PROVISIONS FOR COMPANIES (CSR POLICY) AMENDMENT RULE, 2021
The key provisions of the Companies (CSR Policy) Amendment Rules 2021 are as follows:
- Rule 2: Definitions;
- Rule 4: CSR Implementation;
- Rule 5: CSR Committees;
- Rule 7: CSR Expenditure;
- Rule 8: CSR Reporting;
- Rule 9: Website Disclosure;
- Rule 10: Transfer of Unspent CSR
CHANGES MADE IN COMPANIES (CSR POLICY) AMENDMENT RULE, 2021
The summary of the changes made in Companies (CSR Policy) Amendment Rules 2021 are as follows:
Compulsory Registration of CSR Entity
As per the amended laws, from the 01.04.2021 onwards, every business entity or company that intends to undertake any CSR Activity will need to register itself with the CG or Central Government. The same can be done by filing form CSR 1 with the ROC (Registrar or Companies). However, it shall be significant to state that in case a company is undertaking a new CSR project form 01.04.2021, then, in that case, form CSR 1 will need to be first signed and verified by a Practicing CA, CS or Cost Accountant in practice prior to its submission.
Further, after submitting the form online on the official website, a unique CSR Registration Number will be generated automatically, which will assist the companies in identifying the entities that are engaged in CSR activities on behalf of other companies. The same will enhance the level of transparency as well.
Involvement of International Organizations for CSR Designing
As per the sub rule (3) of Rule (4) of the Companies (CSR Policy) Amendment Rules 2021, a company or the business entity has the power to appoint international organisations for designing, monitoring, and evaluation of the CSR programmes and projects. Also, it shall be relevant to record that a company can take assistance from international organisations in building its own CSR personnel.
Collaboration with Other Companies for undertaking CSR Programmes
As per sub rule (4) of Rule (4) of the Companies (CSR Policy) Amendment Rules 2021, a company or a business entity has the power to collaborate with other companies for undertaking CSR programmes and projects. However, it shall be taken into due consideration that the decided collaboration must be done in such a way that CSR Committees of the involved companies are in a position to separately file reports on such programmes or projects. Also, such a report must be in accordance with the rules passed.
Certification by Chief Financial Officer
Based on sub rule (4) of Rule (4) of the Companies (CSR Policy) Amendment Rules 2021, it is mandatory for the board of a company, whether it is a private limited company or public limited company, to obtain a Certificate from the Chief Financial Officer, stating that the funds of CSR has been utilised only for the purposes and activities approved.
Formulation of the Annual Action Plan
According to Rule (5) of the Companies (CSR Policy) Amendment Rules 2021, it is the duty of the CSR Committee of the company to formulate and recommend to the BOD (Board of Directors) an annual action plan in consonance to the CSR Policy. The said policy must include the following details:
- A complete list of the approved CSR Programmes and project, based on schedule VII;
- The manner of executing such CSR projects or programmes;
- The modes of utilising funds and implementation of schedules for the programmes or projects;
- The monitoring and reporting mechanism for the CSR projects;
- All the details concerning the need and impact of the projects undertaken by the company;
However, it shall be taken into due consideration that the Board of Directors has the power to alter or modify any of the decided plans at any time during the financial year. But the same will only be done after receiving the recommendation from the CSR committee, which should be based on a reasonable justification as well.
Omission of Rule 6
It shall be significant to note that the Rule 6 of the Companies (Corporate Social Responsibility Policy) Rules 2014, has been completed omitted by the MCA in the Companies (CSR Policy) Amendment Rules 2021. That means there is no rule named CSR Policy in the amended Regulation.
Revised format for annual report on CSR activities
The Amendment Rules provide for a new format for the annual report on CSR activities. All companies are required to provide the following information in the annual report:
- Brief explanation of its CSR policy;
- Information about the members of the CSR committee such as name of the director, his/her designation, number of meetings of CSR Committee held and number of meetings of attended by the director;
- Web-links to the company’s website where the CSR Committee’s membership, CSR policy, and CSR projects approved by the board are listed; and
- Executive summary and web links for the impact assessments of CSR projects.
Companies are now also required to disclose in the annual report, information regarding the CSR amount allocated to ongoing projects and other than ongoing projects, particulars of excess amount for set-off, if applicable and unspent CSR amount for the preceding three financial years. If any capital assets were generated or bought as a result of the company’s CSR spending during the financial year, the company must specify how many. Additionally, if the company fails to spend 2% of the average net profits of the three immediately preceding financial years, reasons for the same should be provided in the annual report.
IMPACT ASSESMENT OF CSR
As per clause (A) of the sub rule (3) of Rule 8 of the Companies (CSR Policy) Amendment Rules 2021, every Company, which is having an average CSR (Corporate Social Responsibility) Obligation of Rs 10 crores or more in accordance with section 135 (5) of the Companies Act 2013, needs to undertake an impact assessment by way of an independent agency of their CSR plans having an outlay of Rs 1 crore or more, also, which have completed not less than one year prior to undertaking impact study.
Further, the report of Impact Assessment must be placed prior to the Board of Director. The same must be annexed with the annual report of Corporate Social Responsibility.
Display of CSR Activities on Website
It is mandatory and compulsory for the BOD (Board of Directors) of the company to disclose the details as mentioned below on the official website:
- Composition of the CSR Committee;
- CSR Plans and Policy approved by the BOD;
- CSR Policy;
CONCLUSION
In a nutshell, Corporate Social Responsibility denotes a self-regulating business model that is based on a globally accepted concept named COREX. Further, section 135 of the Companies Act 2013, acts as the regulatory force for all the CSR related issues. Also, recently, the MCA or Ministry of Corporate Affairs have amended some of the Companies (Corporate Social Responsibility Policy) Rules 2014, to infuse more transparency and increase the level of accountability of the companies towards the enhancement of environment and society. The amendment in the said rules is known as the Companies (Corporate Social Responsibility Policy) Amendment Rules 2021.
REFERENCES
- Mca.gov.in
- Kpmg.com
- Indianfiling.com
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