Corporate Social Responsibility is a through provoking idea to tap the wealth of Corporates for social well being. Section 135 of the Companies Act, 2013 deals with Corporate Social Responsibility (CSR).
What are the provisions in Companies Act, 2013 governing the CSR?
Section 135 of the Companies Act.
Companies (Corporate Social Responsibility Policy) Rules, 2014
Notifications and Circulars of MCA
Applicability of Section 135.
Section 135 comes into play when a Company, Private as well as Public, meets any or all of the following three criteria.
Net worth of Rs.500 Crore or more, or
Turnover of Rs.1000 crore or more or
a net profit of Rs.5 Crore or more during the immediately preceding financial year
Corporate Social Responsibility Committee
The companies which are falling under above criteria have to constitute a Committee known as CSR Committee.
The Constitution of the Committee to be disclosed in the Board's Report of the Company.
The CSR Committee of the Board shall consist of three or more directors, out of which at least one director shall be an independent director.
As per the Companies(Amendment) Act, 2020, if the CSR liability of the company is not exceeding Rs. 50 lakhs, then it is not required to constitute the CSR Committee.
Following are the responsibilities of CSR Committee
Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in Schedule VII
recommend the amount of expenditure to be incurred on the activities referred to in clause (1); and
monitor the Corporate Social Responsibility Policy of the company from time to time.
The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.
Responsibilities of the Board of Directors
The Board of every company referred to in sub-section (1) shall,—
Approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its Board's Report and also place it on the company's website, and
ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
How much amount to be expended for CSR Activities?
The Board of every company shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years. The "net profit" shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of Section 198.
Where to spend the amount?
The company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities, in accordance with the provisions of the CSR Policy of the Company.
What if the company not spending the amount as above?
If the company fails to spend such amount,
the Board shall, in its report shall have specify the reasons for not spending the amount ; and
unless the unspent amount relates to any ongoing projects then transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year
Any amount remaining unspent towards ongoing projects shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer.
If the company is not spending the money lying in the Separate bank account within a period of three financial year, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
Note:- This section is yet to be notified and hence not applicable for the time being.
What are the penal provisions for Non Compliance
If a company contravenes the provisions of sub-section (5) or sub-section (6), the company
shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and
every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
Note: This section is yet to be notified and hence not applicable for the time being.
How to implement the CSR Activities?
The Company can undertake CSR activities in accordance with the CSR Policy of the board. It can be a new or ongoing project. However the activities undertaken should not be related to the activities in the normal course of business of the company.
Can the CSR activities be implemented through an external agency?
Yes. A Company can identify a Section 8 company or a registered trust or a registered society, established by the company, either singly or along with any other company an an implementation agency of the CSR Activities. However such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilisation of funds of such projects and programs and the monitoring and reporting mechanism.
Can a company collaborate with other companies for implementing CSR Activities?
Yes. A company may also collaborate with other companies for undertaking projects or programs or CSR activities. The company have to ensure that the CSR Committees of respective companies are in a position to report separately on such projects or programs in accordance with the CSR rules.
Can a company utlise the CSR fund for activities abroad?
No. The CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure.
Will the amount expended for the benefits of employees of the company shall be considered as eligible expense?
No. The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act.
How much amount can be expended by the company for managing the CSR Activities?
Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through Institutions with established track records of at least three financial years but such expenditure including expenditure on administrative overheads, shall not exceed five percent of total CSR expenditure of the company in one financial year.
Will political contributions be considered as CSR activity?
No.Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.
Can the company add the "surplus" generated out of CSR activity to the business profit?
No. The surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company.
Is there any reporting is needed with respect to CSR?
Yes. The Board’s Report of a company covered under these rules pertaining to a financial year commencing on or after the 1st day of April, 2014 shall include an annual report on CSR.
What are the activities covered in the Schedule VII
Eradicating hunger, poverty and malnutrition, ‘‘promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water.
promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.
promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water 4[including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.
protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts;
measures for the benefit of armed forces veterans, war widows and their dependents;
training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports
contribution to the prime minister's national relief fund or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;
Contribution to incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government, and contributions to public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies (established under the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO), Department of Science and Technology (DST), Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
rural development projects
slum area development.
disaster management, including relief, rehabilitation and reconstruction activities.
Whether the amount spending towards Covid 19 is eligible for CSR ?
Yes. Read the detailed notes on this link.