In an effort to meet the global standard of sustainability, the Government of India mandated Corporate Social Responsibility (CSR) activities for the giants of the economy in 2014. This program was created in the light of environmental consciousness and a necessity to safeguard resources that are used in abundance by big corps.
Section 135 of the Companies Act 2013 provides the threshold limit for applicability of CSR to a company of Indian origin and if a foreign company, their branch and project in India. These companies must have either-
(a) the net worth of the company to be INR 500 crore or more; or
(b) turnover of the company to be INR 1000 crore or more; or
(c) net profit of the company to be INR 5 crore or more.
These corporations are required to create a CSR Policy as per Rule 2(1)(f) of Companies (CSR) Rules, 2014 and must contribute 2% of their average net profit to activities that further the problem points outlined in the policy. This portion of 2% is not considered a regular business expense but CSR expenditure as per Section 135 of the Act.
Any company or public trust registered under Section 8 of the Companies Act with the registrar of societies as a non-profit company to promote non-profit objectives (such as trade, commerce, arts, charity, education, religion, environment protection, social welfare, sports research, etc.) is eligible to receive the CSR funding. These NGOs act on behalf of the companies for conducting CSR activities.
For incorporation, two directors (minimum) are required. Unlike for-profit companies, there is no requirement for minimum paid-up capital and any profit generated by the organisation is put to use for the purpose stated while registering the NGO.
Apart from the registration certificate and 3 years of undertaking charitable activities, the organisation must have:
Under Rule 4(2) of the New Companies CSR Amendment Rules, 2021, an NGO is required to register with the MCA portal for accessing corporate CSR funds, NGOs must also register with the Central Government by filing the form CSR-1 electronically with the Registrar -- this form would be verified digitally by a chartered accountant/company secretary/cost accountant in practice.
On the submission of the Form CSR-1 on the MCA portal, an SRN will generate for correspondence with the MCS and a unique CSR Registration Number will be generated by the system automatically to access funds.
As per the trends of past decades, CSR expenditure has gone up in the field of education and healthcare. Expenditure in education has risen due to policies in India which emphasise skill and learning – the direct correlation is hard to miss, Healthcare seems to have gained rapid growth in expenditure since MCA included expenditure towards infrastructure for Covid-19 as a CSR activity under the inclusive list of Schedule VII. Currently, environmental sustainability, rural projects and poverty remain the least contributed-to causes. Despite the constant effort for inclusivity of causes, India has been slipping ranks in various global indexes. Some notable statistics are:
While the MCA has tried to streamline the CSR process, corporations have been failing to meet their obligations in making adequate expenditures for most CSR activities – which is perhaps due to unsustainable company policies. There is a need to mandate such corporations to revise their CSR strategies and develop a standard policy to follow.
To further simplify the process, and shorten the gap between corporations and their CSR duties, the MCA recently introduced the National CSR Exchange Portal on June 7th 2022. This portal will allow the corporations to directly transfer funds for CSR activities or to NGOs conducting CSR activities without the hassle of relying on other sources to conduct CSR activities for them.
The future of CSR depends on how closely aligned corporations are with the goals of social progress and their role in the path of betterment. Though the concept of CSR implies a need for a stronger relationship with social responsibility above economic progress, it is not necessarily a hangnail to the individualistic nature of the corporation and its identity. This is because a corporation will ultimately (and undoubtedly) benefit from any social ecosystem it contributes toward the welfare of.
However, there is a need to correct the scale in favour of the more underfunded categories like environmental sustainability and poverty. To create a balance, there should be enforcement of caps and ceiling on funding toward a particular cause, after which, the extra funds could be re-directed to the causes that need it, creating an equitable distribution of wealth. Moreover, an impact assessment must be done for the amendments of 2022 in the coming five years to determine the suitability of digital advancement in the CSR regime.
Contributed by Prashant Kataria, Partner