Corporate Social Responsibility- Applicability, Compliances, Permitted Sectors

Article explains Applicability of Corporate Social Responsibility (‘CSR’), B. Compliances to be undertaken upon applicability of CSR, Permitted Sectors for CSR, Methods of Implementation of CSR Amount, Proposed Amendments under Companies Amendment Act, 2019 (yet to be notified) which explains Treatment of the unspent CSR Amount and Introduces Penal Provisions.

A. Applicability of Corporate Social Responsibility (‘CSR’):

Every Company having:

(i). Net worth of Rs. 500 Crores or more

OR

(ii). Turnover of Rs. 1,000 Crore or more

OR

(iii). Net profit of Rs. 5 Crore or more during the immediately preceding financial year.

B. Compliances to be undertaken upon applicability of CSR:

(i).  Constitution of a CSR Committee with three or more Directors, out of which at least one Director shall be an Independent Director. Where a Company is not required to appoint an Independent Director, it shall have in its CSR Committee two or more directors.

(ii). Formulation of CSR Policy and

(iii). Spend 2% of the average net profits of the Company made during the three immediately preceding financial years OR give reasons for not spending the amount in Board Report.

C. Permitted Sectors for CSR:

(i). 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.

(ii). Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

(iii). 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.

(iv). 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 including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.

(v). 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;

(vi). Measures for the benefit of armed forces veterans, war widows and their dependents;

(vii).  Training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports;

(viii). 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;

(ix).  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).

(x). Rural development projects

(xi). Slum area development.

Explanation.- For the purposes of this item, the term `slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.

(xii). Disaster management, including relief, rehabilitation and reconstruction activities.

D. Methods of Implementation of CSR Amount:

(i). Directly on its own,

(ii). Through a Company established under section 8 of the Act or a registered trust or a registered society, established by the Company, either singly or alongwith any other Company,

(iii). Through a Company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature, or

(iv). Through a Company established under section 8 of the Act or a registered trust or a registered society, other than those specified above, having an established track record of three years in undertaking similar programs or projects.

E.  Proposed Amendments under Companies Amendment Act, 2019 (yet to be notified)

(i). Treatment of the unspent CSR Amount:

New compliance requirements regarding the unspent amount at the end of Financial year
Situation 1	Situation 2
In case the amount pertains to any ongoing CSR project of the Company Such unspent amount to be transferred to an escrow account (opened with Scheduled Bank) to be called as ‘Unspent Corporate Social Responsibility Account’. Company shall spend such unspent amount within a period of 3 financial years from the date of transfer. If Company fails to do above then the unspent amount shall be transferred to a Fund specified in Schedule VII, within a period of 30 days from the date of completion of the 3rd financial year.	In case the amount unspent does not pertain to any ongoing CSR Project of Company Transfer such unspent amount to a Fund specified in Schedule VII, within a period of 6 months of the expiry of the financial year.

(ii).  Introduction of Penal Provisions:

If a Company contravenes the provisions of this Section:

(i). Company shall be punishable with a fine of not less than Rs. 50,000/- which may extend to Rs. 25,00,000/- and

(ii). 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.

Disclaimer: The entire contents of this article have been prepared on the basis of relevant provisions, judgements and information existing at the time of preparation, i.e. January 27, 2020. The observations of the author are personal view and the author does not take any responsibility of the same and this cannot be quoted without the written consent of the author. 

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