WHAT IS CORPORATE SOCIAL RESPONSIBILITY by Ritika Mongia@LEXCLIQ

According to the United Nations Industrial Development Organisation, Corporate Social Responsibility (CSR) is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (Triple – Bottom Line – Approach), while at the same time addressing the expectations of shareholders and stakeholders.

In India, with the enactment of the Companies Act, 2013 by the Ministry of Corporate Affairs, Government of India, it has now become mandatory for Companies to take up CSR projects on social welfare activities. India is the only country which has regulated and mandated CSR activities to be undertaken by certain categories of companies. In the present times, the ambit of CSR activities has grown manifold and is playing an important part in achieving the sustainable development goals and private-public partnership in nation building. CSR has also played a very important role in supporting the social and economic development of the country during the Covid-19 pandemic.

Section 135 of The Companies Act, 2013 has made it mandatory for companies fulfilling certain criteria, to implement and report CSR policies.Rules framed thereunder and Notifications issued from time to time has provided extensive guidelines on the activities to be undertaken by the companies and the reporting of the same in the Annual Report of the Company.

During the COVID-19 pandemic, CSR has played an even greater role with corporates, and individuals undertaking Corporate Social Responsibility projects over and above the minimum criteria determined by law. Corporates have stood by the Government, during the time of crisis to strengthen the country both socially and economically. The ideology of our Prime Minister Narendra Modi, of Atmanirbhar Bharat and Sashakt Bharat can be met through the private-public partnership model in CSR activities. CSR had also played a major role in implementing the Swatch Bharat Abhiyan. With the increasing importance of the CSR activities, it has been felt necessary to provide guidance to the industry and professionals on the accounting aspects of the CSR Expenditures.

The Board has to ensure that the company spends in every financial year at least 2% of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, on Corporate Social Responsibility (CSR) in pursuance of its policy in this regard.

Section 135 (5) of the Companies Act, 2013, requires that the Board of every eligible company, “shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy”. Second Provision to Section 135(5) states that “if the company fails to spend such amount, the Board shall, in its report … specify the reasons for not spending the amount”.

Where a company spends more than that required under law, a question arises as to whether the excess amount ‘spent’ can be carried forward to be adjusted against amounts to be spent on CSR activities in future period. Since ‘2% of average net profits of immediately preceding three years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years,’ is the minimum amount which is required to be spent under section 135 (5) of the Act, if the company spends an amount in excess of the requirements provided under this sub-section, such company currently is not allowed to set off such excess amount against the requirement to spend under this sub-section.

THANK YOU!

 

Ritika mongia

Hello everyone! I Ritika Mongia, pursuing B.A.LLB. from Invertis University, Bareilly.

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