• Brain Booster Articles

CSR – A CRUCIAL PART OF INDIAN CORPORATE WORLD

Author: Payal Motwani, CS Professional student from Institute of Company Secretaries of India


MEANING OF CORPORATE SOCIAL RESPONSIBLITY

Corporate Social Responsibility (CSR) alludes to procedures that organizations set in motion as a feature of their corporate administration that are intended to guarantee the organization’s activities are moral and helpful towards society.


CATEGORIES OF CSR

CSR implies doing something for the general public for their betterment. It is a broad concept that is followed by firms in a very comprehensive manner. The idea of CSR is to work in an economically, socially, and environmentally manageable way.


The types are:

1. Environmental responsibility

Environmental responsibility initiatives aim to reduce pollution and ozone depleting substance emanations and the economical utilizations of normal assets.


2. Human rights responsibility

By being a good corporate citizen means to respect the human rights of those who come in correspondence with the corporation in some way. Human rights responsibility initiatives include giving fair labor practices (e.g., equivalent compensation for equivalent work) and fair-trade practices, and repudiating child labor.


3. Philanthropic responsibility

Philanthropic responsibility implies activities where organizations devote a part of their income to charity or charitable organizations for example, funding educational programs, supporting wellbeing drives, donating to causes, and supporting local area beautification measures.


4. Economic responsibility

Economic responsibility includes things which means to take such financial decisions which involves profit but with an objective of doing good for people.


MERITS OF CSR

  1. Strong brand image and reputation

  2. Increased client commitment and deals

  3. Reduction in cost

  4. Withholding talented employees

  5. Accessibility to funds

  6. Less intervention by regulatory authorities


EXAMPLE OF CSR IN INDIA

A. INFOSYS LTD is an early adopter of CSR in India. It had endeavored the majority of its CSR drives through INFOSYS foundation which was laid down in 1996, way before CSR was enforced in the country. In the last FY the company launched INFOSYS HEADSTART with an aim to enabling Digital skills at scale, in alignment with its ESG Vision 2030. INFOSYS HEADSTART is a platform that included learning content developed by INFOSYS and leading content providers. Through this drive INFOSYS plans to enable more than 10 million individuals with advanced and fundamental abilities by 2025.


B. TATA CHEMICALS LTD is one of the leading sustainability champions over the past few years. The company aided 6878 farmers with capacity building, field demonstration and livestock management through digital and physical interactions in the last FY.


It also supported rural women artisans of Okhai and transformed the region into a market place connecting 25910 artisans across India to customers. The company, under its GREENING PROGRAMME has planted 1.15 lakh Mangroves across various sites along with conservation of local plant biodiversity at Mithapur.


CSR ACTIVITIES DURING COVID PANDEMIC

The Idea and ambit of Corporate Social Responsibility (CSR) has dramatically increased in the recent past particularly during the outbreak of the novel corona virus disease (COVID-19) which was declared as a pandemic by the World Health Organization (WHO) on 11.03.2020. The number of people affected due to the virus and its impact on CSR has changed the standpoint of businesses towards society all over the world.


Ministry of corporate affairs [MCA] in its Circular dated 23.03.2020, wherein it was clarified that spending of CSR funds for COVID 19 is an eligible CSR activity. Further activities such as creation of health infrastructure for COVID-19care, establishment of medical oxygen generation and storage plants, manufacturing and supply of oxygen concentrators,ventilators, cylinders, and other medical equipment for countering COVID -19 or similar such activities are eligible CSR activities.


THE CONCEPT OF CSR UNDER COMPANY LAW

The concept of CSR rests on the ideology of ''require and take''. Organizations take resources in the form of raw materials, human resources etc. from the society. By performing CSR activities, the companies are giving back something to the society.


Corporate Social Responsibility (CSR) was introduced as a legal Commitment for companies under Section 135 and SCHEDULE VII of the Companies Act 2013 and provisions of the Companies [CSR] RULES, 2014.


APPLICABILITY

The following class or classes of companies are required to constitute a CSR committee:

  1. Companies having a net worth of Rs. 500 crores or more, or

  2. Turnover of Rs. 1,000 crores or more, or

  3. Net profit of Rs. 5 crores or more,


AMOUNT TO BE SPENT

  • The companies who fulfill the above-mentioned criteria are required to spend at least 2% of their 3-year annual net profit towards CSR activities in a financial year.

  • The net profit to be calculated as per the provisions of sec 198 of the companies act.

  • The CSR committee, to formulate policy and recommend to Board.

  • The board to specify reasons in its report, if the minimum % specified in act is not spent.

  • SCHEDULE VII specifies the activities that could be undertaken by companies related to environment, Promotion of education, promoting gender equality, Eradication of poverty, or any other activity as prescribed there.


FUNDS SPECIFIED IN SCHEDULE VII FOR THE PURPOSE OF CSR CONTRIBUTION

  • Swachh Bharat kosh

  • clean Ganga fund

  • Prime Minister's National Relief Fund (PMNRF)

  • Prime Minister's citizen Assistance and relief in Emergency situations fund (PM CARES FUND)

  • Any other fund set up by the CG and notified by MCA for development of backward classes.


Why New CSR Rules are being implemented by the Ministry / Idea behind New CSR Rules

The CSR spent was based on comply or explain basis to encourage the companies to undertake CSR activities willfully. Sufficient time has elapsed now and still there are many companies which are not complying with the CSR provisions. Hence the ministry felt a need to incorporate new changes in the CSR Provisions so that more and more companies could be made a part of the betterment of society.


CRITICAL ANALYSIS

This article intends to analyze the implications of the new CSR regime on the stakeholders, including the corporates that are obligated by law to go through CSR, the allocation of budget by the chief financial officer, and the CSR committee which will be required to execute the plan.


INTRODUCTION OF URN

Companies carrying out CSR activities are required to file a form to generate a unique registration Number that can be used to track the projects.


WHEN CSR COMMITTEE IS NOT REQUIRED?

If the amount to be spent by the company is not more than Rs 50 lakh, the requirement for constitution of CSR shall not apply and the functions of such committees to be discharged by the Board of directors of such company.


TRANSFER OF UNSPENT CSR AMOUNT

The unspent CSR amount pursuant to any ongoing project shall be transferred within 30 days from the end of FY to a special bank account named 'unspent CSR account'. That amount is to be utilized in 3 years;otherwise it goes to funds specified in Schedule VII within a period of 30 days from the date of completion of the 3rd financial year.


SET OFF AND CARRY FORWARD OF EXCESS SPENDING ON CSR

A New provision to the CSR rules was inserted that in case a company spends an excess amount, (i.e.) more than 2% will be allowed to set off such excess amount out of their commitment. The sum can be carried forward and spent in the next 3 years.


Many projects call for immense capital which might go past the necessity of 2%, especially when there is a creation of capital assets. This move will urge the companies to put more in capital resources as the abundance sum can always be conveyed forward in future.


PENALTY

Sec 135(7) of the new CSR rules says that on contravention with the provisions mentioned above by any company, it shall be liable to a penalty of twice the amount required to be transferred by the company to the fund (as mentioned in schedule VII or the unspent CSR account) or RS 1 Crore, whichever is less. The officer in default shall be liable to a penalty of 1/10th of the amount required to be transferred by the company to the fund specified in schedule VII or the unspent CSR account or Rs 2 lakh, whichever is less.


FOLLOWING ACTIVITIES ARE NOT TO BE CONSIDERED AS CSR

  • An activity undertaken in pursuance of the normal course of business of the company will not be CSR.

  • An activity pursued outside India will not be counted as CSR, Except Training of Indian sports personnel outside India is, however, counted as CSR.

  • Any contribution to any political party is excluded from the ambit of CSR. Further, any activities benefitting the employees are excluded, and any CSR amount spent on employees is not considered as 'social spending'.

  • If an activity results in marketing benefits, the same will be excluded. This does not mean that all the activities on a sponsorship basis are excluded. For example, beautification of parks and gardens may come under the purview of CSR, if there are no marketing benefits derived by a corporate.

  • Activities carried out for the fulfillment of any other statutory obligations under any law in force in India are to be excluded from CSR


CSR REPORTING

  • The CSR activities undertaken shall be disclosed in the Board report of a Company.

  • In case of a foreign company, the balance sheet filed shall contain an annual report on CSR.

  • Companies to have an impact assessment survey if it fulfills the mentioned limit in the act and then the report are placed before the board and shall be annexed to annual report on CSR.


SOCIAL IMPACT ASSESSMENT

Social impact assessment is to be done by an Autonomous body. Every company having average CSR obligation of Rs 10 crores or more in the 3 immediately preceding financial years shall undertake impact assessment, through autonomous body, of their CSR projects having outlays of INR 1 crore or more.

It isn’t enough for companies to simply spend a sum on CSR; they also have to justify the social effect made out of those activities.The exercise of Impact Assessment is cost intensive and tedious and hence companies not falling under the provisions of section 135 need not undertake such impact assessment. However, they can always opt for it as a best practice.


INTRODUCTION OF NEW CSR FORM BY THE MINISTRY OF CORPORATE AFFAIRS

The Ministry has introduced CSR 2 form which will be a Report on the CSR activities undertaken by the corporates covered under section 135(1). It has to be filed to the Registrar for the year (20-21) on or before 31.3.22. and from FY 2021-22 onwards as an addendum to form AOC-4.


CONCLUSION

Before the CSR Approach was“comply or explain” which has now changed to “comply or pay fine.” The corporates are not just expected to dispensecash for an undertaking any longer,however they should utilize their managerial expertise, talent, and funding to make a social effect in the society and justifying it. Indian corporations have never been more liable for their social responsibility as they are presently.


India needs to go through an obligatory CSR regime to become more acquainted with the thought before the rules are facilitated. India has huge inequalities in society and there is much to do about the environment. It is not workable for the government to do it single-handedly. CSR law was brought in to make industry an equivalent and responsible contributor in the growth of the nation.


Thus, I am of the view that the new revisions were necessary to make corporates a fundamental part of society. By Introducing form CSR 2, the ministry has bought in a revolutionary change in the manner corporates report their CSR contribution.