What the CSR Bill under Companies Act 2013 means

Recently concluded Monsoon session of Indian parliament saw a spate of bills getting through. One of them was landmark, Companies Bill 2013. This bill has now got presidential assent and has become Companies Act 2013. One of the aims of this bill is to encourage Indian companies to use CSR to integrate economic, environmental and social objectives with their operations and growth. Thus, this bill seeks to actively engage top management by constituting a CSR board committee of 3 or more directors, with at least one of them being an independent.

Who would be covered? What is the cost involved? How will it be enforced?

Section 135 of this Act prescribes a mandatory CSR spend of 2 % of PBT for companies with net worth of Rs. 500 Cr or turnover of Rs. 1000 Cr or net profit of Rs. 5 Cr. Now recently, lots of policies have been introduced by Indian parliament but most of them suffer from poor enforcement. In this regard, CSR Bill tries to forge a new path, where in difficult to enforce penalties have given way to self assessment and disclosure. So, if companies fail to spend the earmarked amount on CSR activities, instead of a penalty, they will have to issue an annual statement specifying the reasons for the same.

Where to spend? How to spend?

CSR bill is fairly comprehensive in terms of where the funds could be deployed and companies have the liberty to choose action areas which are most strategic, beneficial for them as per their CSR policy. For guidance purposes, as much as nine activity areas encompassing all social development activities like education, healthcare, environmental sustainability, gender equality, employability etc. are covered.

It also suggests that local area action and collaboration are preferred thus, paving way for wide cluster level actions. So, for example, automotive clusters might see bigger OEMs pooling their resources to bring real impact for the residing communities like educational/vocational institutes, comprehensive environment up gradation programs, healthcare facilities etc.

Lastly, projects/schemes designed exclusively for employees will not qualify under this act as it wants to encourage outward actions.

Who can carry out the activities?

Companies can choose to set up own trusts, societies or section 8 companies or fund such existing firms operating in India to implement the activities outlined in its CSR strategy. If the companies choose to set up their own arms, they will have to make sure that a robust monitoring mechanism is in place to ensure funds are spent only on specified programs identified in their CSR policy. On the other hand, existing trusts, societies or section 8 companies are eligible to receive such funds, only if they have an established track record of at least three years in carrying out such activities.