The Ministry of Corporate Affairs (MCA) had introduced the Corporate Social Responsibility Voluntary Guidelines in 2009. These guidelines have now been incorporated within the 2013 Act and have obtained legal sanctity. Section 135 of the 2013 Act, seeks to provide that every company having a net worth of 500 crore INR, or more or a turnover of 1000 crore INR or more, or a net profit of five crore INR or more, during any financial year shall constitute the corporate social responsibility committee of the board.
This committee needs to comprise of three or more directors, out of which, at least one director should be an independent director. The composition of the committee shall be included in the board’s report. The committee shall formulate the policy, including activities specified in Schedule VII, which are as follows:
• 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
• Social business projects
• 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 and Tribes, other backward classes, minorities and women
• Such other matters as may be prescribed
There have been mixed reactions to the introduction of the ‘spend or explain’ approach taken by the MCA
with respect to CSR. It may take a while before all of Corporate India imbibes CSR as a culture.
However, activities specified in the Schedule are not elaborate or detailed enough to indicate the kind of projects that could be undertaken, for example, environment sustainability or social business projects could encompass a wide range of activities.
The committee will also need to recommend the amount of expenditure to be incurred and monitor the policy from a time-to-time. The board shall disclose the contents of the policy in its report, and place it on the website, if any, of the company. The 2013 Act mandates that these companies would be required to spend at least 2% of the average net-profits of the immediately preceding three years on CSR activities, and if not spent, explanation for the reasons thereof would need to be given in the director’s report(section 135 of the 2013 Act).