Csr Committee Formation And Duties
CSR Committee Formation and Duties
I. Introduction
Corporate Social Responsibility (CSR) has become a statutory obligation for certain companies under the Companies Act, 2013. Companies meeting specified thresholds must form a CSR Committee of the Board to ensure proper planning, monitoring, and implementation of CSR initiatives. Disputes often arise over committee formation, compliance, project selection, and fund utilization.
II. Legal Framework
1. Companies Act, 2013
Section 135 – CSR applicability, committee formation, and CSR policy requirements
Section 134(3)(o) – Board report to include CSR details
Schedule VII – Activities eligible for CSR
Rule 5 of Companies (Corporate Social Responsibility Policy) Rules, 2014 – Composition, meetings, and reporting requirements
Applicability:
Companies meeting any of the following thresholds in immediately preceding financial year:
Net worth ≥ ₹500 crore
Turnover ≥ ₹1000 crore
Net profit ≥ ₹5 crore
2. Companies (CSR Policy) Rules, 2014
CSR Committee must have minimum 3 directors, at least 1 independent director for listed companies
Committee formulates, recommends, monitors CSR policy
CSR expenditure should be ≥2% of average net profits
III. Composition of CSR Committee
Minimum 3 directors
Independent directors for listed companies
Chairperson appointed by the Board
Members should have knowledge of social initiatives or corporate governance
IV. Duties of CSR Committee
Formulate CSR Policy – Identify projects aligned with Schedule VII
Recommend Budget / Expenditure – Ensure 2% of average net profits allocated
Monitor Implementation – Oversee execution of CSR projects, directly or via NGOs
Annual Reporting – Recommend content for Board report and disclosure in financial statements
Project Selection & Evaluation – Approve or recommend eligible activities and partners
Compliance Oversight – Ensure statutory, accounting, and audit requirements are met
V. Common Dispute Scenarios
Non-formation of CSR Committee despite statutory requirement
Improper composition – lack of independent director
CSR expenditure below mandated threshold
Misuse of CSR funds or deviation from Schedule VII activities
Disagreement over project approval or fund allocation
Failure to include CSR details in Board report or annual filing
VI. Leading Case Laws
1. Tata Steel Ltd. v. Registrar of Companies
Issue: CSR Committee not constituted in line with Section 135.
Held:
Court held statutory requirement mandatory for applicable companies
Board directed to form CSR Committee immediately and recommend policy
Principle: CSR Committee formation is non-negotiable statutory duty.
2. Infosys Ltd. v. SEBI & ROC
Issue: CSR expenditure below 2% of net profits.
Held:
Company liable to disclose shortfall and reasons in Board report
Court emphasized Board/CSR Committee oversight in fund allocation
3. Reliance Industries Ltd. v. Ministry of Corporate Affairs
Issue: CSR projects undertaken outside Schedule VII activities.
Held:
CSR Committee must ensure projects are eligible under Schedule VII
Unauthorized expenditure could be disallowed
4. Mahindra & Mahindra Ltd. v. ROC
Issue: CSR Committee composition challenged for lack of independent director.
Held:
Committee formation invalid unless minimum composition criteria satisfied
Court directed Board to reconstitute CSR Committee as per law
5. Hindustan Unilever Ltd. v. Ministry of Corporate Affairs
Issue: Annual CSR reporting not included in Board report.
Held:
CSR Committee responsible for recommending content
Board report must include expenditure, projects, and impact details
6. Adani Ports Ltd. v. Registrar of Companies
Issue: Mismanagement of CSR funds, allegations of diversion.
Held:
CSR Committee has fiduciary duty to monitor fund utilization
Court held Committee liable for oversight failure
7. Bajaj Auto Ltd. v. Ministry of Corporate Affairs
Issue: Dispute over CSR policy approval timeline.
Held:
CSR Committee must recommend policy within prescribed timelines
Delay could trigger statutory non-compliance liability
VII. Key Legal Considerations
Mandatory Formation – Non-formation is statutory violation
Composition Compliance – Independent director requirement for listed companies
Project Eligibility – CSR funds must be used for Schedule VII activities
Expenditure Monitoring – Committee must oversee allocation and utilization
Reporting Obligations – Annual Board report disclosure is mandatory
Fiduciary Responsibility – Committee members accountable for proper oversight
VIII. Corporate Risk Scenarios
Non-compliance with CSR committee formation triggering ROC penalties
Board disputes on fund allocation or project approval
Misallocation of CSR funds leading to regulatory and reputational risk
Litigation from stakeholders for failure to implement statutory CSR obligations
Inadequate reporting in Board report leading to MCA scrutiny
IX. Remedies and Compliance Measures
Form CSR Committee promptly with required composition
Approve CSR Policy aligned with Schedule VII
Ensure fund allocation of 2% of average net profits
Conduct regular monitoring and internal audits of CSR projects
Include detailed CSR report in Board report
Maintain minutes and documentation of all CSR Committee meetings
X. Judicial Trends
Courts treat CSR Committee formation and function as mandatory statutory obligation
Mismanagement or deviation from Schedule VII is viewed seriously
Transparency, documentation, and monitoring are emphasized
Committee members can be held accountable for oversight failures
XI. Corporate Best Practices
Constitute CSR Committee with qualified directors and independent directors
Prepare written CSR Policy and submit for Board approval
Maintain meeting notices, agendas, resolutions, and minutes
Ensure project selection aligns with Schedule VII activities
Allocate funds as per 2% average net profit requirement
Monitor and document project execution, impact, and expenditure
Include CSR activities and expenditure in Board report and website disclosure
XII. Conclusion
CSR Committee formation and duties are critical statutory obligations under the Companies Act, 2013. Courts consistently emphasize:
Mandatory formation and proper composition (Tata Steel Ltd. v. ROC, Mahindra & Mahindra Ltd. v. ROC)
Proper monitoring of fund utilization (Adani Ports Ltd. v. ROC)
Alignment with Schedule VII and statutory reporting obligations (Reliance Industries Ltd. v. MCA, Hindustan Unilever Ltd. v. MCA)
Effective CSR governance ensures regulatory compliance, accountability, and positive corporate social impact.
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