Applicability of Corporate Social Responsibility – Companies Act 2013

Introduction 

Section 135 of Companies Act, 2013 provides for provisions regarding Corporate Social Responsibility (CSR) requirements for companies. Every company falling within the prescribed threshold of paid up capital and net profits is required to comply with the provisions of CSR stated under the abovementioned section. 

Applicability

The CSR provisions are applicable to the following companies:

Every company, its holding company, its subsidiary company and foreign company having in the preceding financial year:

• Net Worth > 500 Crore
• Turnover > 1000 Crore
• Net Profit > 5 Crore

Required Compliances  

When section 135 are applicable on the companies, it has to comply with the following requirements – 

CSR Committee: The Board of directors shall form a committee dedicated to CSR. The committee shall have minimum 3 directors of which one shall be an independent director. However, if the company is an unlisted public company or a private company (not required to appoint an independent director), it shall have two or more directors in its CSR Committee.  In case of a foreign company, the CSR committee shall comprise of at least 2 persons of which one shall be a resident of India. 

Where the amount to be spent by a company under these provisions does not exceed fifty lakh rupees, the requirement for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee, in such cases, be discharged by the Board of Directors of such company.

Reporting: The annual Board’s report shall disclose the composition of the Corporate Social Responsibility Committee. The foreign company shall contain an Annexure containing CSR report along with the balance sheet. 

CSR Policy: The CSR committee shall formulate a policy stating the CSR activities that shall be taken by the company. The committee shall also monitor the policy and make amendments as per the requirement of the company. The policy shall elaborate the activities to be undertaken by the Company as stated under Schedule VII to the Companies Act. The CSR activities should be different from the activities of the companies done in its normal course of business.

CSR expenditure: The Board of every company to which CSR is applicable 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 or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.  

If the company spends an amount in excess of the requirements provided in a financial year, such company may set off such excess amount against the requirement to spend for three immediately succeeding financial years and in such manner, as prescribed under Companies Act, 2013.

Transfer of Unspent Amount: If the company fails to spend such amount, the Board shall, in its report specify the reasons for not spending the amount and, unless the unspent amount relates to any ongoing project, transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.

Penalty for Non-compliance

The company can attract penal actions in case it does not comply with the CSR provisions. 

If the company fails to spent the required amount or transfer the unspent amount to the respective account as stated above, it shall be punishable with a  penalty of twice the amount required to be transferred by the company o such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less. 

Further every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.