Role and Responsibilities of the Corporate Social Responsibility Committee

Walk into the boardroom of any large Indian company today, and you’ll likely find a CSR Committee agenda sitting right alongside finance and audit items. That’s because Indian company law doesn’t leave social responsibility to a company’s goodwill. India was among the first countries in the world to convert CSR from a voluntary gesture into a statutory obligation, and the Corporate Social Responsibility Committee sits right at the centre of that obligation. If you’re studying company law, understanding this committee’s structure and duties is essential, because it shows how legislation actually gets translated into boardroom action.

What triggers the need for a CSR committee 🔗

Not every company needs a CSR Committee. The requirement kicks in only when a company crosses specific financial thresholds in the immediately preceding financial year, as laid down under Section 135 of the Companies Act, 2013. A company must constitute the committee if it has a net worth of ₹500 crore or more, a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more in the preceding financial year. Meeting even one of these three conditions is enough to bring a company within the CSR net.

This applies broadly: holding companies, subsidiaries, and even foreign companies operating branches or project offices in India can fall under this provision if they independently meet the criteria. Interestingly, a holding company isn’t automatically covered just because its subsidiary is; each entity is tested against the thresholds on its own.

The ₹50 lakh exemption 🔗

There’s a practical carve-out worth remembering. If the amount a company is required to spend on CSR in a given year does not exceed ₹50 lakh, the law does not insist on a separate committee. In that case, the Board of Directors itself performs the functions that would otherwise belong to the CSR Committee. This keeps compliance proportionate, so smaller qualifying companies aren’t burdened with a full committee structure for a modest spending obligation.

How the committee is composed 🔗

Section 135(1) is fairly specific about who sits on this committee. It must have a minimum of three directors, and at least one of them must be an independent director. The idea is simple: independent directors bring an outside, less commercially entangled perspective to decisions about how the company gives back to society.

But company law also recognises that not every eligible company is required to have an independent director in the first place. Unlisted public companies and private companies that aren’t otherwise mandated to appoint one under Section 149(4) get a relaxation. For them, the CSR Committee can be formed with just two or more directors, and no independent director is compulsory.

Also worth noting: the Board’s report has to disclose the composition of the CSR Committee. This isn’t a private, internal matter; it becomes part of the company’s public disclosures under Section 134.

What the CSR committee is actually responsible for 🔗

Once formed, the committee has three core duties spelt out in Section 135(3) of the Act. These aren’t optional guidelines; they form the operating mandate of the committee.

Formulating and recommending the CSR policy 🔗

The committee drafts a CSR policy and places it before the Board for approval. This policy has to specify exactly which activities the company intends to undertake, and those activities must fall within the categories listed in Schedule VII of the Act, things like eradicating hunger and poverty, promoting education, environmental sustainability, healthcare, and rural development. A company cannot label just any spending as CSR; it has to trace back to one of these permitted areas.

Recommending CSR expenditure 🔗

The committee doesn’t just decide what to do; it also recommends how much money should be allocated to each activity. This recommendation feeds directly into the annual CSR budget that the Board eventually signs off on.

Monitoring implementation 🔗

Approving a policy on paper means little if no one tracks its execution. The committee is responsible for monitoring the CSR policy on an ongoing basis, checking whether the approved projects are actually being implemented the way they were planned.

Preparing the annual action plan 🔗

Since the 2021 amendments, the committee’s role has become more granular. It must formulate and recommend an annual action plan to the Board, which includes the list of CSR projects to be undertaken, the modalities of execution, implementation schedules, and a monitoring and reporting mechanism for each project. This turns the CSR policy from a broad statement of intent into a working, trackable plan.

Where the board’s role begins 🔗

The CSR Committee doesn’t act alone. Once it makes its recommendations, the Board of Directors takes over the approval and oversight function. The Board must consider the committee’s recommendations, approve the final CSR policy, disclose its contents in the Board’s report, and publish it on the company’s website if the company has one. The Board is also expected to ensure that the activities included in the CSR policy are genuinely carried out, not merely approved and forgotten.

This creates a two-layer structure: the committee proposes and monitors, while the Board approves and takes ultimate ownership. If something goes wrong in CSR compliance, accountability traces back to the Board, even though the committee did the groundwork.

The 2% spending rule 🔗

Perhaps the most well-known part of Section 135 is the spending mandate. Every company to which CSR provisions apply must ensure it spends, in each financial year, at least 2% of its average net profit made during the three immediately preceding financial years. If the company hasn’t been in existence for three years, the average is calculated based on the years it has actually existed.

It’s worth being precise about what counts as “net profit” here. It isn’t simply the profit figure from the financial statements. Certain items are excluded from this calculation, such as profits from overseas branches and specific categories of dividend income already covered by another company’s CSR compliance. This calculation directly determines how much the CSR Committee will end up recommending as the year’s CSR budget.

What happens to unspent amounts 🔗

Companies don’t always spend the full mandated amount in the year it falls due, especially with ongoing, multi-year projects. In such cases, the law requires the unspent amount related to an ongoing project to be transferred to a separate Unspent CSR Account, to be utilised within three financial years. Amounts unrelated to any ongoing project must instead be transferred to a fund specified in Schedule VII, such as the PM CARES Fund, within six months of the financial year’s end. Failing to comply with these spending and transfer obligations attracts monetary penalties on both the company and the officers responsible for the default.

Why this structure matters beyond compliance 🔗

It’s easy to read Section 135 as just another compliance checklist, but the committee structure reflects a deeper design choice. By requiring an independent director on the committee, the law tries to insulate CSR decisions from being purely promotional or symbolic. By separating the committee’s advisory role from the Board’s approval role, it builds a system of checks before serious money gets allocated toward social spending. And by mandating disclosure of the committee’s composition and the annual action plan, it makes CSR spending a matter of public record rather than a private discretionary act.

For students of company law, this topic is a useful lens into how governance provisions actually function in practice: not as abstract rules, but as a working system of committees, disclosures, and accountability chains that shape how Indian corporations engage with the society around them.

What do you think? Should the 2% spending threshold be recalculated based on current profit levels, and does requiring an independent director on every CSR Committee genuinely improve the quality of CSR decision-making, or is it more of a procedural safeguard?

References

1. https://www.khuranaandkhurana.com/corporate-social-responsibility-under-section-135-what-every-company-needs-to-know
2. https://indiankanoon.org/doc/120906957/
3. https://www.teamleaseregtech.com/blogs/167/understanding-the-compliance-framework-of-csr-as-a-legal-mandate/
4. https://www.dpncindia.com/corporate-social-responsibility-under-section-135-of-companies-act-2013
5. https://taxguru.in/company-law/section-135-csr-compliance-mandatory-contributions-committees-reporting.html
6. https://blog.ipleaders.in/section-135-of-companies-act-2013/