The historical background of the Indian Companies Act of 1956 takes back over a century when the Companies Act of 1850 Modeled upon British Companies Act of 1844 was promulgated in India. Between 1850 and 1882, the act was repeatedly amended and repealed, all previous laws and remained in force until 1912, although several times amended. In 1914, 1915, 1920, 1926, 1930, 1932 and 1936 subsequent modifications were made. The 1936 amendment was based on the lines of the act of British companies.
After independence, it was determined that the existing Company Law should be amended to comply with the changed company conditions. Consequently, in 1950, with the recommendation of Bhabha Committee, Companies Act was formed in 1956 with 658 sections and 14 schedules.
A committee was formed in 2004 under the chairmanship of Dr. J.J. Irani to advise the Government on proposed revisions to the company act of 1956 in order to have a simplified compact law capable of dealing with changes in national and international circumstances, allow the adoption of internationally accepted best practices and provide adequate flexibility for the timely development of new arrangements in response to ever-changing business requirements.
The Companies Act 2013 was passed and notified to 470 sections 29 chapters and 7 schedules of various new aspects of the Company Act 2013 were added, such as Associate Co., OPC, Small Company, Independent Director, Dormant Company, Women Director, Special Courts Director, Secretarial standards, secretarial audits, class action suits registered valuers, auditors' rotation, vigilance mechanism, corporate social responsibility, cross - border mergers and insider training prohibition.
CORPORATE SOCIAL RESPONSIBILITY
“Social obligation is much bigger than supporting worthy causes’ It includes anything that impacts people and the quality of their lives.” - William Ford Jr., Chairman, Ford Motor Co.
Since then, the idea of corporate social responsibility has been given more consideration. It depends on the possibility that open arrangements and organizations also assume the responsibility for social problems. Being a socially mindful organization implies accomplishing more than consent to the law when putting resources into HR and nature. Truth be told, a definitive point of Corporate Social responsibility is to convey a practical society in which business and its partners can flourish in the long haul. Making progress toward accomplishing this objective, India has turned into the primary nation on the planet to lawfully command corporate spending on social welfare. The new Organizations Demonstration of 2013 portrays the job of organizations towards corporate social responsibility.
“Corporate social responsibility is the commitment of businesses to contribute to sustainable economic development by working with employees, their families, the local community and society at large, to improve their lives in ways that are good for business and for development.”(World Bank Group)
Phases of CSR policy in India
The history of corporate social responsibility in India has four phases parallel to India's historical development and has led to different approaches to CSR. Charity and philanthropy were the main drivers of CSR in the FIRST PHASE. Culture, religion, family values and tradition and industrialization influenced CSR. In the pre-industrialization period, which lasted until 1850, wealthy traders shared part of their wealth with the wider society by setting up temples for a religious cause. Moreover, these traders helped society to overcome phases of famine and epidemics by providing food and money and thus securing an integral position in society. With the arrival of colonial rule in India since the 1850s, the approach to CSR changed.
In the SECOND PHASE of the independence movement, more emphasis was placed on Indian industrialists to show their dedication to the progress of society, which was fundamentally influenced by Gandhi's trusteeship theory, which aimed to consolidate and amplify social development. In the struggle for independence, Indian companies actively participated in the process of reform. Companies not only saw economic development in the country as a protest against colonial rule, but also participated in its institutional and social development. The participation of the corporate sector was stimulated by the vision of a modern and free India. Gandhi introduced the notion of trusteeship to make companies the temples of modern India: companies (especially well-established family businesses) established trusts for schools and colleges and also established training and scientific institutes. The heads of the companies largely aligned their trust activities with the reform programs of Gandhi. These programs included activities aimed in particular at abolishing Untouchability, empowering women and rural development.
The THIRD PHASE of the CSR (1960-80) related to the “mixed economy" element, the emergence of public sector companies (PSUs) and labor and environmental standards laws. The private sector was forced to take a backseat during this period. The public sector was regarded as the primary driver of development. Because of the strict legal rules and regulations surrounding the private sector 's activities, the period was described as an "era of command and control." In 1965, Indian academics, politicians and businessmen established a national workshop on CSR for reconciliation. They emphasized transparency, social responsibility and regular dialogs with stakeholders. Despite these attempts, CSR was unable to catch steam.
In the FOURTH PHASE (1980 to the present) Indian companies began to abandon their traditional relationship with CSR and to integrate it into a sustainable strategy. The first initiation to globalization and economic liberalization was undertaken in the 1990s. Controls and licensing systems were partly abolished, which gave the economy a boost, the signs of which are very obvious today. Increased economic growth momentum helped Indian companies grow rapidly, making them more willing and able to contribute to the social cause.
SCENARIO OF C.S.R AS PER COMPANIES ACT 2013 (SECTION 135)
Organizations having any of the accompanying 3 criteria amid the promptly going before budgetary year will comprise C.S.R board of trustees-
- Net Profit of Rs. 5 crore or more.
- Total assets of Rs. 500 crore or more.
- Net turnover of Rs. 1000 crore or more.
According to CSR rules if an organization which does not fulfill the predetermined criteria for a continuous time of 3 budgetary years , along these lines it implies it won't consent if such edge limit doesn't pursue for back to back 3 years .(words in italics has been embedded vide or Company law Amendment act 2017)
- Should have at least 3 or more directors
- At least 1 Director shall be Independent Director
- If the company is not required to appoint an Independent Director, then the committee should have 2 or more directors( inserted vide company law amendment act 2017)
FUNCTIONS /ROLE, POWERS OF CSR
- Prepare the CSR policy as per schedule vii of the companies’ act 2013 with approval of the board.
- Work dedicatedly towards the achievement of various CSR related activities as written in CSR policy
- Ensure compliance of companies’ act 2013 while preparing the budget of spending for the Next financial year both in terms of amount and activities
NUMBER OF MEETINGS AND QUORUM
There is no such necessity of number of gatherings to be held in a year according to the Companies Act of 2013 and SEBI LODR (Listing and Delisting of Securities). Anyway considering the job there ought to be something like 2 Meetings to be held in a year which implies first Meeting ought to be held for endorsement of spending for next money related year and another Meeting for endorsement of the yearly report identifying with CSR report.
- At least 2% of the normal of Net Profit i.e. Profit before Tax shall be made amid the 3 promptly going before financial year and net profit is to be determined according to section 198 of the Companies Act 2013 * yet deciding net profit dividend income from Indian Co. what's more, Profit made by organization from its abroad branch shall be prohibited.
- If the company fails to spend such amount the board shall in its report shall specify the reasons for not spending the amount and the board is free to decide to carry forward such unspent amount to next year or not.
- Company shall give preference to local areas and areas around it where it operates for spending the amount earmarked for such activities.
- Expenditure incurred in specified activities that are carried out in India only will qualify as CSR expenditure.
- Expenditure incurred in undertaking a normal course of business will not form part of the CSR expenditure.
- Any surplus arising out of CSR activities will not be considered as business profit for spending Company.
- Expenditure incurred by foreign holding company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if CSR expenditure are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.
- Activities shall be undertaken as per CSR policy
- CSR activities can be carried out on its own by the company or through a registered trust, society, section 8 company or any other entity enacted by the parliament. If other than these should have proven track record of past three years in undertaking similar projects and the company must specify the projects which are undertaken with such entities.
- The CSR projects or programs or activities that benefit only to company employees and their families shall not be considered as CSR activities as per the provisions of the act.
- Expenditure on administrative overheads (including the fees of the third party , employees engaged in CSR activities) shall not exceed 5% of CSR expenditure in 1 financial year
LIST OF FEW CSR ACTIVITIES AS PER SCHEDULE VII
- Eradicating hunger, poverty, malnutrition, promoting health care
- Promoting education including special education
- Promoting gender equality, empowering women , setting up of hostels and homes for women and orphans; setting up old age homes
- Slum area development
- Rural development projects
- Contributions or funds provided to technology incubators located within academic institutions which are approved by central government
- Contribution to prime ministers national relief fund
- Training to promote rural sports nationally recognized sports and Olympic sports
- Protection of national heritage art and culture
- Measures for benefit for armed forces veteran, war widows and their dependents.
Note; as per clarification issued by MCA following may be noted with regard to provision mentioned under section 135:
- One-off events such as marathon/ awards/ charitable trusts/ sponsorships of TV programs etc. not to be qualified as per part of CSR expenditure
- Expenditure incurred by companies for the fulfillment of any act/ statute of regulations (such as labor laws, land acquisition act etc.) are not counted as CSR expenditure.
- There shall be a brief outline of CSR policy
- Composition of CSR committee is mandatory if the Company fulfills such threshold limit.
- Average net profit of last 3 years shall be taken into consideration
- Details of CSR spent during the year should be mentioned and must be disclosed
- Reasons should be specified if company failed to spend such amount.
- Political contributions made by any company under this act shall not to be considered as CSR expenditure
- Company can participate in Government approved schemes such as Swacch Bharat etc.
An increasing number of companies believe that Corporate Social Responsibility is not just another form of indirect expenditure, but it is important to protect the goodwill and reputation, defend attacks and increase business competitiveness and to get competitive advantages. These programs are often determined by a social philosophy that has clear goals and is well defined and aligned with the main business. Employees implement these programs, which are crucial to this process. Corporate Social Responsibility activities range from community development to education, environmental and health care development, and so on. Thus Corporate Social Responsibility as per section 135 of the Companies Act 2013 reduces all the disparities, which were seen in early phases and in prior act.