In exercise of the powers conferred under section 135 and section 469 [sub-sections (1) and (2)] of the Companies Act, 2013 (“Act”), the Central Government, on February 27th (2014), has notified Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”). The Rules, which provides for the implementation for Corporate Social Responsibility ("CSR") obligations, will come into force on 1st April, 2014.
Section 135 of the Act mandates a company, falling under the provided criteria, to constitute a CSR Committee. The function of the CSR Committee is to formulate and recommend CSR Policy.The provision also provides that the CSR committee should consist of two or more director, out of which one shall be an ‘independent director’. So far as section 469 of the Act is concerned, it empowers the Central Government to make rules for carrying out the provisions of the Act.
The CSR Rules, as notified by the Ministry of Corporate Affairs (“MCA”), consist of 9 rules. Among the important ones, it contains the descriptive rules for CSR Activities, CSR Committees, CSR Policy, CSR Reporting etc. In this blog post, I intend to explain and summarise the CSR Rules in brief.
Important Definitions:
1. Definition of ‘Corporate Social Responsibility’: One of the most important features of the CSR Rules is that it defines the term ‘Corporate Social Responsibility’; according to Rule 2(c), CSR means and includes but is not limited to:
(i) Projects or programs relating to activities specified in Schedule VII to the Act; or
(ii) Projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act
From both the above clauses, it becomes apparent that a company has to focus on the subjects specified under Schedule VII of the Act. Schedule VII of the Act contains a list of activities which a company may purse for discharging its CSR obligations. Among other things, the list contains subjects such as ‘promotion of education’, ‘eradicating extreme hunger and poverty’, ‘social business projects’ etc.
