In a recent move, the Ministry of Corporate Affairs (hereinafter referred to as the “Ministry”) intends to take stringent action against the companies violating the provisions of the Companies Act, 2013 (hereinafter referred to as the “Act”) with respect to compliances of their Corporate Social Responsibility (hereinafter referred to as ‘CSR’). The permission for penal action against 196 companies who have failed to comply with the regulations for corporate social responsibility in 2014-15, has been given by the Ministry.

Introduced under the Act, Corporate Social Responsibility is one of the methods whereby the companies pay back to the society by making their contribution for the welfare of mankind. As per the European Union, it “is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”. Corporate Social Responsibility ensures the socio-economic and environmental welfare of the society while balancing the interests of the corporates.

Projects included under Corporate Social Responsibility are working towards eradicating poverty, promoting healthcare, education, gender equality, environmental sustainability, natural heritage, rural sports to name a few. It also encourages funding towards socio-economic projects and science & technology.

As per Section 135 of the Act, the following companies are required to constitute a Corporate Social Responsibility Committee for the enforcement of the Corporate Social responsibility Policy:

  1. having net worth of rupees five hundred crore or more, or
  2. having turnover of rupees one thousand crore or more or;
  3. having a net profit of rupees five crore or more

The Corporate Social Responsibility Committee is required 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 to its Corporate Social Responsibility Policy.

As per the Act, in the event of failure of the company to spend the specified amount towards its Corporate Social Responsibility, its board is required to provide the specific reasons for the same in the board report.

By the new approach, the Government seeks effective enforcement of Corporate Social Responsibility, which is a statutory obligation for the corporates to take initiatives towards Social, Environmental and Economic Responsibilities.