Role and Responsibilities of CSR Committee and BOD

Introduction:

Section 135(1) prescribes certain criterion based on which CSR applicability is decided for any company. Every company to which CSR Criteria is applicable shall constitute CSR committee and needs to comply with other applicable provisions of Companies Act, 2013.

Although provisions of Companies Act, 2013 makes it mandatory to spend on CSR, it positively influences the Company’s reputation. It manifolds positive impact like building brand image, customer loyalty, signaling values to the community that they serve. CSR planning along with its effective implementation and monitoring the same to achieve a desired result is key for any Company to successfully meet its social obligation in true letter and spirit.

To make this possible companies are required to constitute a CSR Committee and although board is responsible or answerable to do overall compliances, proper demarcation of roles and responsibilities between committee and board is also necessary.

CSR Committee:

Section 135(1) lays down the composition of CSR Committee, it states that it shall consist of three or more directors, out of which at least one shall be Independent Director, if any. Further it is necessary for every company to constitute CSR committee except the companies whose CSR obligation is less than 50 lakhs and who are not undertaking ongoing projects as stipulated in Section 135(9) read with Rule 3 of CSR policy rules, 2014. In case where exemption is provided from constituting CSR Committee, the Board is expected to do the role of such committee.

Further, the guidance w.r.t functions of CSR Committee and Board of Directors is also provided in Section 135 read with CSR Policy Rules.

Functions of CSR Committee:

CSR committee is expected to take policy level decisions. Sub-section (3) of section 135 assigns functions to CSR committee as follows

• Recommend to the board, the amount to be spent on CSR in a particular financial year.
• Formulate and recommend to the board, a CSR policy to undertake CSR activity and to monitor the said policy from time to time.
• Formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy.

CSR Committee by framing policy is expected to provide approach, guidance, and Direction for carrying out its CSR obligation. One of the functions as stated in Section 135(3) is to monitor policy from time to time, it signifies that such committee must overview whether all the above factors are reflected comprehensively in CSR policy. Committee can review policy based on parameters like evaluating the need assessment, thrust areas identified vs. whether such policy gives proper yield or not.

Further after analyzing it, committee should report the same to Board of Directors by providing some data points like how many projects were decided to be undertaken pursuant to CSR policy, mapping of disbursement, how many projects are stuck up due to some or other reason etc. which will enable the Board to take proper decisions for effective implementation of CSR policy.

Functions of Board of Directors:

CSR Committee takes policy level decisions whereas the Board of directors are expected to keep check on end level compliances. Sub-section (4) of section 135 lists down the functions of board as follows:

• Approval of CSR policy as recommended by the CSR committee and its disclosure to stakeholders.
• Ensuring the expenditure of amount recommended by committee on CSR activity and
• Disclosure WRT spent and unspent CSR amount and reasons for amount remaining unspent.

The examples of end level compliances can be the actual activities carried out as decided in annual action plan or not, utilisation of funds as per disbursement schedule and whether such disbursed amount is spent towards the defined purpose. Is there any unspent amount and if so, reasoning for the same. Whether such amount is transferred to Schedule VII fund or to a separate Bank Account, as the case may be. Whether proper disclosures are provided to regulators in prescribed Forms such as CSR-2, Annual Report on CSR which is an annexure to Board’s report, website disclosures etc. Whether Impact Analysis is required to be carried out and the same is carried out through independent agency or not. Is there any excess amount spent during year and if so whether set off of the same is to be availed in next year etc.

Conclusion:

The roles and responsibilities of CSR Committee and Board is defined Section 135 read with rules thereto. As deliberated above, CSR Committee is expected to take policy level decisions vis a vis board of directors needs to take ownership of end level compliances. Although board can get comfort by taking certification from CFO for proper utilisation of CSR expenditure etc. but ultimately board is held responsible for overall compliances. Although Section 135 provide guidance w.r.t role of Committee and board, if role of committee and board is properly clarified at initial stage only, it will lead to hassle free and smooth functioning.

Since we are in the last month of financial year and the management can foresee the possibility of applicability of CSR to companies. Rather than waiting for closure of financial statements and deciding thereafter it is advisable to take steps from the beginning of the financial year i.e. from 1st month of financial year itself. At this stage, formation of CSR Committee, demarcating their role vis a vis role of board, need assessment, selection of area, etc. may be undertaken. The proper planning and initiating activities at early stage will avoid last minute rush and non-compliances and will lead to proper compliance of law in letter and spirit