CSR is understood as the responsibility of a Company to contribute to the society, like environmental causes, educational promotion, or social causes.i
1. The Companies Act, 2013 indeed encourages companies to target their CSR interventions in their local region.ii Generally, companies that are in manufacturing, and those in the services sector (like banking and telecom) with a wider footprint, have no concentrated local region. Companies must decide whether their CSR activities will be focused on a few geographies (this can be around their plants or in specific backward districts) or whether they will prefer to particularly work anywhere in India.iii
2. As per the new guidelines, an annual filing/return detailing project-wise spend needs to be submitted.iv The government does not intend to audit CSR spending. It relies instead on consumers, media and civil society to provide the necessary checks on corporate activities and the disclosure of spending details. But corporations would need to assess and audit their projects either on their own or through qualified third party assessors/auditors appointed by the company.v
The CSR Policy of a company will ultimately define what a permissible CSR activity is. This Policy would need to be accurately aligned to the CSR Rules and Schedule VII that are finally decided by the Ministry of Corporate Affairs.vi
3.Neither the Companies Act, 2013 nor the Companies (Corporate Social Responsibility Policy) Rules, 2014 speak of any requirements of recognition of the auditors by the Govt.
However, the law says that to formulate and monitor the CSR policy of a company, a CSR Committee of the Board needs to be constituted by the company, which should consist of at least three directors, including an independent director.vii
If the minimum CSR amount is not spent, the board has to disclose this, with reasons, in its Annual Report to the shareholders. The Annual Report must also contain particulars on Overview of CSR Policy, Composition of the Committee, Avg. Net Profit, prescribed expenditure and details of its spending, reason in case of failure etc. The disclosure on CSR in Board Report should also be available on the Company's Website. The activities included in the CSR Policy and the prescribed expenditure being undertaken/ spent should be ensured by the Board.viii
It is, however, not clear whether failure to comply is an legal offense of any sort. But the failure to explain non-compliance is a punishable offence under the New Act.ix
ii By using the words “the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities”. You can access the Companies Act, 2013 at http://indiacode.nic.in/acts-in-pdf/182013.pdf. Schedule VII gives an inclusive list of CSR Activites that companies can take up
iii. Handbook on Corporate Social Responsibility in India, PwC Publications. Available at http://www.pwc.in/assets/pdfs/publications/2013/handbook-on-corporate-social-responsibility-in-india.pdf.
iv. See http://www.cuts-international.org/pdf/Draft-CSR_Rules_2013.pdf
v. See http://www.csrwire.com/blog/posts/1290-the-birth-of-a-new-ecosystem-india-s-mandatory-csr-rule-becomes-a-reality
vi. See http://forbesindia.com/blog/the-good-company/new-csr-rules-explained/
vii. See http://www.business-standard.com/article/companies/an-overview-of-csr-rules-under-companies-act-2013-114031000385_1.html
viii. Companies (Corporate Social Responsibility Policy) Rules, 2014. Available at http://www.accountaid.net/Reference/Notifications/10.02CompaniesActNotification2_2014%20CSR%20Policy.pdf., where the format for the Annual Report on CSR Activities is also available.
ix. See http://www.martindale.com/corporate-law/article_Jones-Day_2126246.htm
Corporate Social Responsibility has been in the news lately for the controversy
relating to the amount of CSR spend in the country. The rationale behind CSR was
the inclusion economic development and the recognition that business houses are
direct stakeholders in societal well-being.
1) There is no specification of a vicinity clause in the CSR rules, 2013. However the
government has mooted providing tax breaks to companies that make substantial
investments in the rural and backward areas of the country. There is a mention of
partnering with local authorities. The rules state that Central Public Sector Enterprises
(CPSE) must prioritize their CSR spending towards the development of backward
areas. Under the guidelines it is mandatory for CPSEs to take up at least one major
project for development of a backward district as identified by the Planning
Commission for its Backward Region Grand Fund (BRGF) Scheme.
Among the variety of activities that a company can engage in as mandated under
SCHEDULE VII of the Companies Act 2013 read with Section 135, one is
engagement with the community which can include the local community.
The company does not have to engage specifically in a vicinity-based activity.
2) There are no specifications of auditing of CSR. There is no penal provision for not
spending of CSR. CSR auditing is a part of the regular financial auditing by a
registered chartered accountant that a company undertakes. The company needs to
draft a CSR policy and publish the CSR work in public domain.
3) Neither the Companies Act, 2013 nor the Companies (Corporate Social
Responsibility Policy) Rules, 2014 speak of any requirements of recognition of the
auditors by the Govt. There are no special requirements for epertise in CSR auditing.
people, media and civil society of this country will judge if an activity is genuine
CSR. Corporations would need to assess and audit their projects either on their own or
through qualified third party assessors/auditors appointed by the company. The
government does not want to micromanage the CSR spending by moniotirng CSR
projects undertaken by a company.