Corporate Social Responsibility under Companies Act

April 12, 2023

This Article has been written by Manas Rajdeep, a student of Amity University Lucknow.

Introduction to CSR and CSR under Companies Act, 2013 and CSR rules.

The concept of corporate social responsibility, or CSR, is that a business should consider the social and environmental effects of its decisions as well as its role in the community. ESG, which stands for Environmental, Social, and Governance, and sustainability, also known as creating economic, social, and environmental value, are closely related to it. The non-financial factors that businesses of all sizes should take into account when making business decisions are the focus of all three.

Social purpose has replaced corporate social responsibility (CSR) in recent years. From a “nice to have” mindset and a community investment strategy, many businesses have switched to a holistic approach in which their mission is integrated into all aspects of their operations.

CSR can encompass a wide range of strategies and initiatives, including community involvement and environmentally friendly practices. Companies that do business with customers are becoming more and more likely to exhibit responsible behavior.

Importance of Corporate Social Responsibility (CSR):

CSR is a huge term that describes a company’s efforts to help society in other ways. Underneath reasons reflect why CSR is significant:

By making the efforts to build a better society known to the public, corporate social responsibility (CSR) increases a company’s chances of being liked by customers.
CSR boosts media coverage because it makes the company look good to the media.
By developing a socially solid relationship with customers, CSR increases the value of the company’s brand.
When companies are involved in any kind of community, CSR helps them stand out from the competition.

Corporate Social Responsibility Section 135(1) of the Companies Act, 2013 applicable from 1st April 201 provides for CSR Expenditure/CSR application for the following companies – any company with net assets of Rs.500 crores b) turnover of Rs.1000 crores c. ) or a net profit of Rs.5.00 lakh. Net income does not include income from foreign branches and is shared by companies to which this section applies. – If the company to which the CSR regulation has been applied no longer meets the aforementioned criteria for three consecutive years, it does not have to comply with the CSR regulation.

The Companies Act, 2013 provides for CSR under section 135. Thus, it is mandatory for the companies covered under section 135 to comply with the CSR provisions in India. Companies are required to spend a minimum of 2% of their net profit over the preceding three years as CSR.

Schedule VII of the Companies Act of 2013:

List of Permitted Activities The Board is responsible for ensuring that the activities a company includes in its CSR Policy fall within the scope of schedule VII. The activities that businesses may include in their Corporate Social Responsibility Policies are listed in Schedule VII. These pursuits are connected to:

CSR Exercises

Eradicating neediness, appetite and unhealthiness, advancing medical services which incorporates sterilization and preventinve medical services, commitment to the Swach Bharat Kosh set-up by the Focal Government for the advancement of disinfection and making accessible safe drinking water.
Improvement in schooling which incorporates custom curriculum and business fortifying job abilities among kids, ladies, older and the in an unexpected way abled and work upgrade projects.
Creating homes and hostels for women and orphans, old age homes, day care centers, and other facilities for senior citizens, and taking steps to lessen the social and economic disparities that are faced by socially and economically disadvantaged groups are all examples of ways to advance gender equality.
Ensuring environmental sustainability, ecological equilibrium, the preservation of flora and fauna, animal welfare, conservation of natural resources, and the preservation of soil, air, and water quality—including a contribution to the Ganga’s rejuvenation.
The preservation of national art, culture, and heritage, including the restoration of historical landmarks and works of art; establishment of public libraries; advancement and improvement of customary expressions and handiworks.
measures to help veterans of the armed forces, war widows, and their families, as well as veterans of the Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) and their families, including widows.
Training to encourage sports in rural areas, including Olympic, Paralympic, and nationally recognized sports.
Contributions to the Prime Minister’s National Relief Fund, the Prime Minister’s National Relief Fund (PM-CARES), or any other fund established by the Central Government for the socioeconomic development of Scheduled Castes, Scheduled and backward classes, minorities, and women’s welfare
Projects for rural development
Growth of the slum area.
Disaster management, including activities related to relief, rehabilitation, and reconstruction.

Penalties and Fines for Non-Compliance

In the event that a company does not follow the rules regarding CSR spending, transferring, and utilizing the remaining funds, it will be subject to a fine of at least Rs 50,000, which could go as high as Rs 25 lakh. In addition, any officer of this company who fails to comply will be subject to either a minimum fine of Rs 50,000, which may be increased to Rs 5 lakh, or both, depending on the severity of the offense.

Reason for Introduction of Corporate Social Responsibility (CSR) for Companies.

We live in a dynamic world that is becoming increasingly complex. Environmental, social, cultural, and economic issues on a global scale are now part of our daily lives.

The corporate must fulfill their obligation to society by acting as responsible corporate citizens and no longer rely solely on increasing profits to measure business performance.

Companies in India have a greater responsibility to establish a clear CSR framework as a result of the introduction of the Corporate Social Responsibility (CSR) concept by the Companies Act, 2013.

Numerous multinational corporations, including TATA and Birla, have volunteered to engage in CSR. The Act establishes a corporate social responsibility (CSR) culture in India by requiring businesses to develop a CSR policy and allocate funds to social causes.

Giving back to society is at the heart of CSR. In order to provide direction to management and the Board, it is expected that the Company Secretaries are aware of the technical and legal requirements associated with CSR.

Case Law

In the most recent case, Technicolor India (P.) Ltd. v. Registrar Of Companies, the company met the net profit requirements of Section 135 of the Companies Act of 2013 and had a CSR committee. However, the company spent some money in accordance with its CSR Policy during the fiscal year 2017-18, which was still below the threshold outlined in Section 135 (5) of the Act. The company gave a reason for this in its Director’s Report. However, the company submitted an application to NCLT Bangalore after discovering that the Director’s report did not accurately record the amount spent on CSR and the associated information. The company was granted permission to file for compounding under section 441 of the Act after the tribunal granted its request to revise its report.

Alok Pharmaceuticals and Industrial Company Private Limited{2018 SCC Online NCLT 28915, C.P. No. – 396/441/ND/2018}, Rapid Estates Private Limited{2018 SCC Online NCLT 545, C.P. No. 11/441/ND/2017}, and Avinash Developers Private Limited{2018 SCC Online NCLT 545, C.P. No. 11/441/ND/2017}
are the companies where this compounding application was submitted to the Registrar of Companies in Chattisgarh (hereinafter referred to as the ROC), and it has been sent to the NCLT in Mumbai in conjunction with the ROC Report. According to the Learned ROC, the company’s violation of Section 134(3)(o) of the Companies Act, 2013 led to the filing of this application. Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules of 2014 states that a company must explain why it did not spend the CSR money in the Director’s Report for each of the financial years 2011-12 to 2013-14. It has been observed that by submitting an application in accordance with Section 441 of the Act, the offense of non-disclosure of the CSR policy details in the Board’s Report can be compounded.

Conclusion

At the organizational level, Corporate Social Responsibility (CSR) is frequently viewed as a strategic activity that enhances a brand’s reputation. Therefore, in order for Nestlé’s social responsibility initiatives to be successful, they need to be consistent with and a part of a business strategy. “Activities that appear to serve some societal good, beyond the firm’s interests and what is required by law,” are included in a company’s CSR implementation in some models. Additionally, Nestlé participates in CSR for ethical or strategic reasons. If businesses actively self-report both the positive and negative effects of their activities, this action can contribute to strategic profitability for the company. Accepting responsibility for one’s own actions reduces business and legal risk, which in turn results in these advantages by maintaining high ethical standards and improving favorable public relations. Strategies for corporate social responsibility (CSR) encourage a company to have a positive impact on the environment and stakeholders like customers, employees, investors, and communities.

Referances

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April 12, 2023