CORPORATE SOCIAL RESPONSIBILITY: - Series 499
Initially, the CSR provisions were codified and introduced by the Companies Act, 2013. CSR provisions as introduced imposed only a statutory obligation on the corporate to take social, environmental and economic initiatives for the society. The reporting of CSR in Directors Report being the only obligation.
I. Applicability to which CSR provisions applicable:
Following below mention companies are required to constitute CSR Committee, If Company having following during the immediately preceding financial year.
Net worth meaning
II. CSR COMMITTEE
Constitutions of CSR Committee: Company to which CSR is mandatory should constitute a CSR Committee to undertake and monitor CSR activities:
The CSR Committee shall consist of 3 (Three) or more Director, out of which at least one director shall be an Independent Director.
§ An Unlisted Public Company: This is covered under CSR provisions, but need not to have Independent Director on the CSR Committee.
§ Private Limited Company: which is covered under CSR provisions
ü Need not have Independent director on the CSR Committee
ü Can have CSR committee with only Two Directors.
§ In case of Foreign Company: The CSR committee should have at least Two person, out of which
· One person shall be specified under section 380(1)(d) of the 2013 Act and
III. Net Profit Require spending on CSR Activity:
To ensure that at least 2% of average net profit of 3 immediately preceding financial years to be spent on CSR activities every year. Exp. For Financial Year 2019-20 Calculation: Average net profit of FY 2016-17, 2017-18 & 2018-19 needed to be considered.
a. Whether the average net profit criteria in section 135(5) is Net profit before tax or Net profit after tax?
b. If 3 years of incorporation not completed, whether provision of CSR can be applicable on Company?
IV. ACTIVITY DOESN’T INCLUDE IN CSR:
V. Impact of amendment act, 2019:
§ Addition of sub Section 6 in Section 135:
Till now, the company was not required to reserve the percentage of the CSR Expenditure in a separate account.
Unspent amount relates to ongoing project: However, with the introduction of Sub-Section 6, the company is required to transfer the “unspent CSR expenditure pursuant to an ongoing CSR Policy project, to a special account within 30 days from the end of the financial year.”
ü Company shall open a special account called “Unspent Corporate Social Responsibility Account” in a scheduled bank.
ü Company need to spend such unspent amount within 3 financial years from the date of transfer.
Fine on Company: the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and
(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at email@example.com)
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