Brief on Corporate Social Responsibility under Companies Act 2013 and Rules

CA Vivekanand Pote

Presently Corporate Social Responsibility (CSR) expenditure is at the discretion of the corporates however after enactment of Section 135 of Companies Act 2013 such expenditure is  made mandatory for certain corporates.

As per Ministry of Corporate Affairs notification dated 27^th February 2014 from 1^st April 2014 the provisions of Section 135 and Schedule VII of Companies Act 2013 will be implemented. Along with the same Companies ( Corporate Social Responsibility Policy ) Rules 2014 have also been notified. 

Section 135 Applicability

Company having Net Worth of Rs. 500 Crores or more or Turnover of Rs.1000 Crores or Net Profit of Rs. 5 Crores or more during any FY will be required to constitute CSR Committee of Board consisting 3 or more directors and atleast 1 out these shall be Independent Director.

Role of CSR Committee

• To formulate and recommend to the board CSR Policy as per activities specified in Schedule VII
• To recommend the amount of expenditure to be incurred on above activities
• To monitor the policy from time to time

Role of Board

• To approve the CSR Policy recommended by the committee
• To disclose contents of the policy in the report & place it on website
• To ensure that the company spends, in every FY, at least 2% of the average net profits of the company ( as per section  198)  made during the 3 immediately preceding FYs, in pursuance of its CSR Policy.
• For spending the amounts local area should be preferred
•  If the company fails to spend, the disclosure is required in the report

Computation of Net Profit

As per rules for computation of CSR expenditure, net profit shall be considered as per the financial statement prepared as per Companies Act excluding profit arising from any overseas branch and dividend received from other companies India.

For foreign companies net profit is arrived at as per provisions of Section 381 read with Section 198.

CSR Activities

• Activities shall be undertaken as per CSR policy excluding activities undertaken in pursuance of its normal course of business.
• Board may decide to undertake its CSR activities approved by the CSR Committee, through a registered trust or a registered society or a company established by the company or its holding or subsidiary or associate company under section 8 of the Act.
• A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR Committees of respective companies are in a position to report separately on such projects or programs
• CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure.
• 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
• Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.

CSR Committee

• An unlisted public company or a private company shall have its CSR Committee without independent director
• A private company having only two directors on its Board shall constitute its CSR Committee with two such directors
• In case foreign company CSR committee shall include two persons namely Authorized Resident Indian as per Sec. 380 (1) (d) and one nominee appointed by the company
• CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company

CSR Policy

• Includes a list of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act, specifying modalities of execution of such project or programs and implementation schedules for the same &
• monitoring process of such projects or programs
• does not include the activities undertaken in pursuance of normal course of business of a company
• shall specify that the surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company

CSR Expenditure

• CSR expenditure shall include all expenditure including contribution to corpus, or on projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee but does not include any expenditure on an item not in conformity or not in line with activities which fall within the purview of Schedule VII

CSR Reporting

• Board’s Report of a company covered under these rules pertaining to a financial year commencing on or after the 1st April, 2014 shall include an annual report on CSR containing particulars specified in Annexure given in Companies (Corporate Social Responsibility Policy) Rules 2014.

(Author is Working as Finance Professional in Automobile Industry and can be contacted  at vcpote@rediffmail.com )

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Notification and Rules Related to CSR :-

• Govt. notifies CSR Rules wef 01.04.2014 – Companies to Spend 2% of Profit

• CSR Provisions of section 135 & Schedule VII of Companies Act, 2013 Applicable wef 01.04.2014

• Ministry notifies activities for spending money earmarked for CSR