The new Companies Act, 2013, has made it mandatory for companies to be socially responsible by introducing the ‘corporate social responsibility’ (CSR) regime. Section 135 of the new Companies Act, read with the CSR Rules, mandates companies meeting certain criteria to set aside two per cent of their net profits for undertaking and promoting socially beneficial activities and projects in India. The Ministry of Corporate Affairs (MCA) recently issued the CSR Rules, 2014, to implement this legislative mandate, which comes into effect on April 1, 2014.
Every company with a net worth of at least Rs 500 crore, or a minimum turnover of Rs 1,000 crore, or a minimum net profit of Rs 5 crore, is obligated to constitute a CSR committee dedicated to undertake a mixed spectrum of initiatives, such as promoting education, gender equality, women’s empowerment, improving maternal health, or ensuring environmental sustainability. The company’s net profit would, however, exclude any profit from its overseas branches or companies, and would also exclude any dividend received from other companies in India. The law does not treat foreign companies differently, and includes foreign companies doing business in India, whether by themselves, or through an agent or even electronically. The company can choose the social cause or project it wants to support from the list of activities specified in the Act. The CSR committee will then have to frame a CSR policy in accordance with the rules and implement it. The company’s board of directors will have to play an active role by participating in the CSR initiative at various stages, including the identification of the activities, approving the policy, and disclosing its contents in the board’s report and on the company website. Surplus funds in respect of the CSR projects cannot form a part of the company profits. The rules specifically exclude contributions or donations made to political parties from CSR activity.
There are approximately 11 lakh registered companies in India today and only 14,500 companies out of the 11 lakh come under the ambit of the new CSR rules, which mandate a spend of two per cent of the total revenues of the companies towards CSR.The new legislation will imply that the list of the CSR activities undertaken by the companies are put up in the public domain and that the corporates reveal the sum spent on the CSR activities. The new CSR legislation has been formulated to bring together the triad of government, corporates and implementing agencies. The Companies Act is a tool that has to be viewed as a fine piece of legislation and, as such therefore, an opportunity to create new vistas in the sector.The attitude towards the CSR needs to change across the country. Section 135 of the Companies Act, which talks about CSR pushes us to do things which we forget to do and lend a helping hand to those in need and make a difference.
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