The Companies Act, 2012, includes Corporate Social Responsibility (CSR) as a critical component. While this will increase social spending, employment and corporate branding, it will not directly help internalize sustainability within the core of a business. Below is a summary of the CSR component of the new Bill.
The newly Parliament approved Companies Act, 2012, supersedes the Companies Act of 1956. The Rajya Sabha passed the Bill on 8th August 2013, and it is expected that the Rules will be finalized by April 2014.
The main provisions of the new Act, with respect to Corporate Social Responsibility (CSR) are included in Clause 135.
The main reason for inclusion of CSR in the Act is to enhance the accountability on the part of Companies. The main provisions include:
CSR Committee of the Board:
Every company having specified net worth* or turnover or net profit during any financial year shall constitute the CSR Committee of the Board. The Board consisting of three or more directors, out of which at least one director shall be an independent director. The composition of the committee shall be included in the Board’s Report (sub-section (3) of section 134).
* 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 CSR Committee.
CSR Committee Responsibilities:
– CSR Policy: The Committee shall formulate policy including the activities specified in Schedule VII. The Board shall disclose the content of policy in its report and place on website, if any of the company. (Item (a) of sub-clause (4) of clause 135)
– CSR Expenditure: The Committee will recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
– Monitoring: The Board shall endeavour to ensure that at least two per cent (2%) of average net profits of the company made during three immediately preceding financial years shall be spent on such policy every year. If the company fails to spend such amount the Board shall give in its report the reasons for not spending [Clause (o) of sub-section (3) of section 134].
Schedule VII: This section specifies the activities that may be included in their CSR Policies and activities:
Eradicating extreme hunger and poverty;
Promotion of education;
Promoting gender equality and empowering women;
Reducing child mortality and improving maternal health;
Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;
Ensuring environmental sustainability;
Employment enhancing vocational skills; (viii) social business projects; and
Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.
Source: The Companies Bill, 2012.
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