CSR Committee under Section-135

CSR COMMITTEE

A CSR committee is a committee of the board of directors of a company that advises the board and management on policies and strategies that can affect the company’s role as a socially responsible organization. As per Section 135 of the Company Act, 2013, a company that contributes more than Rs. 50 lakh is required to constitute the CSR Committee.

Rule 3 of the Companies Rules, 2014 mentions that the CSR committee shall be formed as under:

• A company covered under Section 135(1), which is not required to appoint an independent director, shall have its CSR committee without such a director if it has two or more directors in CSR committee
• A private company shall constitute a CSR committee with two directors.
• If a foreign company is covered under these rules then CSR committee shall constitute at least 2 person one of whom should be a resident of India and the other should be nominated by the foreign company.

CSR Applicability

 

The CSR is applicable to following companies:

Net worth is more than 500 crore

Turnover is more than 1000 crore

Net Profit is more than 5 crore

This provision is applicable to holding, subsidiary or foreign company and having its branch office in India, which fulfills the criteria specified in Section 135(1) of the Act and CSR rules.

As per Rule 5 where mentioned that CSR committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include:

1. There is a list of CSR projects or programmes as per Schedule VII of the Act.
2. The manner of execution of such projects or programmes
3. The modalities of utilization of funds and implementation schedules for the projects or programmes;
4. Monitoring and reporting mechanism for the projects or programmes; and
5. Details of the need and impact assessment, if any, for the projects undertaken by the company

The board has the right to alter such a plan at any time during the financial year with the recommendation of its CSR committee and only reasonable justification.

COMPOSITION OF THE CSR COMMITTEE

 

There are the various categories of companies for composition of the CSR committee.

• Listed companies: 3 or more directors, out of which at least one should be an independent director.
• Unlisted public companies – In this company there is need of 3 or more directors out of which 1 should be independent director if there is no requirement to appoint independent director in the company if 2 or more director.
• Private companies – Two or more directors. There is no requirement of independent director.
• Foreign company – At least two persons out of which: (a) one of whom should be a resident of India and the other should be nominated by the foreign company. If amount is spent by a company on CSR does not exceed 50 lakh then there is no need to constitute CSR committee and function of the CSR committee that is discharged by the board of directors of the company.

Compositions of the CSR committee shall be disclosed in the board’s report. There are following details shall displayed on the website of the company;

Composition of the CSR Committee, CSR Policy and Projects approved by the board.

 

CSR Committee Meeting:

Firstly, there is nothing in the law that is silent about it, but in the secretarial standard, it is mentioned that the committee shall meet subject to the minimum number and frequency decided by the board or prescribed by any law.

Quorum for CSR Meetings:

There is nothing in the law that is silent about it, but in the secretarial standard, it is mentioned that the presence of all the members is decided by the board, articles of the company, or any other law, and CSR Committee meetings can be conducted by passing a resolution by circulation.

BOARD’S RESPONSIBILITIES TOWARDS CSR

 

The Board of Directors shall:

• Approve the approach and directions for CSR and the CSR Policy after taking into account the recommendations made by the CSR Committee for the company and disclose contents of such policy in its report.

Disclose the composition of the CSR Committee, CSR Policy and projects approved by the Board on the website of the company, if any, for public access; [section 135(4) (a) of the Act read with rule 9 of CSR Rules] approve the annual action plan recommended by the CSR Committee and amendment thereto during the financial year, if any, recommended by the CSR Committee based on reasonable justification to that effect; [rule 5(2) of CSR Rules]

• The company shall undertake the CSR policy which included the CSR activities
• Approve a project as on-going multi-year project and extend the duration for spending beyond one year based on reasonable justification [rule 2(i) of CSR Rules]
• Monitor the implementation of on-going projects with reference to the approved timelines and year wise allocation and make modifications, if any, for smooth implementation of the project within the overall permissible time period. Such modification may including extension of duration of on-going projects which might initially not be approved as multi-year projects, beyond the year in which CSR spending was proposed based on reasonable justification;
• 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. The company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities [section 135(5) of the Act] It is clear that CSR obligation under section 135(5) of the Act needs to be complied with by companies which have not completed 3 years from the date of incorporation.
• Satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and Chief Financial Officer or the person responsible for financial management to seek certification.
• ensure that the administrative overheads do not exceed 5% of total CSR expenditure of the company for the financial year;
• In case there is excess amount spent towards CSR beyond the statutory obligation specified in section 135(5) of the Act during any financial year, to approve the set-off of such excess amount spent, during one or more of the three succeeding financial years.
• If any capital asset is created or acquired as a part of CSR, to ensure that it is held by a company established under section 8 of the Act.
• Ensure that impact assessment is undertaken, wherever applicable, through an independent agency and to review the impact assessment reports placed before the Board and to annex the same to the annual report on CSR.

CSR Policy

 

“CSR Policy” means a statement containing the approach and direction given by the board of a company, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as formulation of the annual action plan.

The approach and direction for CSR is to be recommended by the CSR Committee to the Board, and based on the same, the approach and direction is finalised by the Board of Directors. The CSR Policy is to be prepared and recommended by the CSR Committee to the Board for its approval as per section 135(3) (a) of the Act read with rule 2(f) of the CSR Rules. This process may happen simultaneously also depending upon the convenience of the Board.

As per section 135(3)(a) of the Act, the CSR Policy shall indicate the activities to be undertaken by the company in areas or subjects, specified in Schedule VII to the Act. The guiding principles to be included in the CSR Policy as contemplated in the CSR Rules appear to be macro level indicators as to the areas in which CSR projects are proposed to be undertaken, which can be effective in the annual action plan for each financial year.

It is recommended that CSR Policy should be drawn up to the extent it is relevant in the context of company and should be compatible with the legal requirements. CSR Policy should be approved by the Board of Directors and reviewed and updated, as and when required. It is recommended that a company should:

1. Outline a CSR Policy to reflect the vision, mission and goals on a broader level
2. CSR Policy should effective broadly target group (marginalized group)/ geography (local/ wider area) / sectors (health/education/ environment).

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