Corporate Social Responsibility (CSR) Under the Companies Act 2013 wef 01.04.2014

CA Pallavi Agrawal

The Ministry of Corporate Affairs has notified Section 135 and Schedule VII of the Companies Act 2013 as well as the provisions of the Companies (Corporate Social Responsibility Policy) Rules, 2014 to come into effect from April 1, 2014 vide its notifications dated 27.02.2014. 

• Provisions applicable to every company having:

– net worth of Rs.  500 crore or more; or

– turnover of  Rs. 1000 crore or more; or

– net profit of  Rs. 5 crore or more

during any Financial Year.

• Such companies to constitute CSR committee of its Board of Directors (‘Board’) consisting of minimum 3 directors including independent director.

However, CSR Rules exempts unlisted public companies and private companies that are not required to appoint an independent director from having an independent director as a part of their CSR Committee and stipulates that the Committee for a private company and a foreign company need have a minimum of only 2 members.

• The committee shall formulate CSR policy & recommend to Board & Board of such companies is mandated to spend, in every FY,minimum 2% of the average net profits of the company made during the 3 immediately preceding FYs, on corporate social responsibility activities in pursuance of its the CSR Policy.

 The CSR activities should not be undertaken in the normal course of business and must be with respect to any of the activities mentioned in Schedule VII of the 2013 Act.

• Highlights of the activities that can be undertaken by a company to fulfill its CSR obligations include :

1)      Eradicating hunger, poverty and malnutrition, promoting preventive healthcare,

2)      promoting education,

3)      promoting gender equality, setting up homes for women, orphans and the senior citizens, measures for reducing inequalities faced by socially and economically backward groups,

4)      ensuring environmental sustainability and ecological balance, animal welfare,

5)      protection of national heritage and art and culture,

6)      measures for the benefit of armed forces veterans, war widows and their dependents,

7)      training to promote rural, nationally recognized, Paralympic or Olympic sports,

8)      contribution to the prime minister’s national relief fund or any other fund set up by the Central Government  for socio economic development and relief and welfare of  SC, ST, OBCs, minorities and women,

9)      contributions or funds provided to technology incubators located within academic institutions approved by the Central Government and

10)  rural development projects.

• The company is required to give preference to local area and areas where it operates for spending the amount earmarked for CSR.

• The report of the Board attached to the financial statements of the Company would also need to include an annual report on the CSR activities of the company in the format prescribed in the CSR Rules setting out inter alia a brief outline of the CSR policy, the composition of the CSR Committee, the average net profit for the last three financial years, Total amount to be spent for the financial year, Manner in which the amount spent, Amount unspent if any  and the prescribed CSR expenditure. If the company has been unable to spend the minimum required on its CSR initiatives, the reasons for not doing so are to be specified in the Board Report.

Note : The CSR Rules specify that a company which does not satisfy the specified criteria for a consecutive period of three financial years is not required to comply with the CSR obligations, implying that a company not satisfying any of the specified criteria in a subsequent financial year would still need to undertake CSR activities unless it ceases to satisfy the specified criteria for a continuous period of three years. This could increase the burden on small companies.

(Author may be contacted at [email protected])