Companies Act, 2013 vis –a-vis CSR
The 2013 Act requires that every company with net worth of Rs. 500 core or more, or turnover of Rs. 1000 core or more or a net profit of 5 core or more during any financial year will constitute a CSR committee.
The CSR Rules state that every company which ceases to be a company covered under the above criteria for three consecutive financial years will not be required to (a) constitute the CSR Committee and (b) comply with other CSR related requirements, till the time it again meets the prescribed criteria.
Constitution of CSR committee
The 2013 Act requires a company, which meets the CSR applicability criteria, to constitute a CSR committee comprising three or more directors. The 2013 Act also states that out of these three directors, at least one director should be an independent director.
The CSR Rules state that a non-listed public company or a private company, which is not required to appoint an independent director as per the 2013 Act/ Directors’ Appointment Rules, can have its CSR Committee without an independent director. Also, a private company having only two directors on its board can constitute the CSR Committee with the two directors.
There are few arguments which suggest that CSR Rules are changing the requirements of the 2013 Act. Hence an issue arises whether a subordinate legislation can override the main legislation. However most people are likely to welcome the clarifications provided in the CSR Rules.
In accordance with the 2013 Act, the board of each company covered under the CSR requirement needs to ensure that the company spends, in every financial year, at least 2% of its average net profits made during the three immediately preceding financial years in pursuance of CSR policy. Neither the 2013 Act nor the CSR Rules prescribe any specific penal provision if a company fails to spend the 2% amount. However, the board, in its report, needs to specify the reasons for not spending the specified amount.