Nowadays apart from Covid negative news, we also read some positive news about how people helping each other to cope up from this pandemic. From farmers to businessman to companies, everyone helping the society or government through the way convenient to them. Everyday in newspapers or through social media we read about companies coming ahead and helping through donating oxygen concentrator, Ventilators, make covid centres available to the needy institutions, etc. Also many companies have donated to the Government covid relief funds or PM Care Funds. Most of these expenses done by the companies are through their Corporate Social Responsibility Fund (CSR Fund). In this article, I have tried to compile the basic provisions of CSR for better knowing and educating to ourself about the said sections of Companies Act. Here are we start-

♦ Compliance under Provisions of Corporate Social Responsibility notified from 01/04/2014 under section 135 of The Companies Act, 2013. Corporate Social Responsibility (CSR) means and includes but is not limited to :-

  • Projects or programs relating to activities, areas or subjects specified in Schedule VII to the Act; or
  • Projects or programs relating to activities undertaken by the board as recommended by CSR committee in compliance with Schedule VII.

♦ There are Nine Subsections under section 135 above governs the CSR.

♦ Section 135 (1)- Applicability of CSR :

⇒ Every company (including its holding or subsidiary and a foreign company having office in India) 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 the immediately preceding financial year

shall constitute a Corporate Social Responsibility (CSR) Committee of the Board consisting of 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.

♦ Section 135(2) – The Board of Directors report in its AGM shall disclose the Composition of the CSR committee.

♦ Section 135(3) – The CSR Committee shall do-

> Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company as specified in  Schedule VII];

> Recommend the amount of expenditure to be incurred;

> Monitor the CSR Policy from time to time.

♦ Section 135(4) – The Board formed for CSR shall –

> Approve the CSR Policy as recommended by CSR Committee and disclose the contents of such policy in CSR Report and also place it in company’s official website as may be prescribed; and

> Ensure the activities as are included in CSR Policy are undertaken by Company.

♦ Section 135(5) – Spending in CSR

> The Board formulated for the purpose of CSR shall ensure that company spends in every financial year, at least 2 % of the Average Net Profit of Company made during the 3 immediately preceding financial years. Where the company has not completed period of 3 years since its incorporation, immediately preceding the financial years should be considered.

> Companies shall give preference to local area and areas around where it operates for spending amount earmarked for CSR Activities.

> If the company fails to spend such amount, the board shall specify in its Board of Directors report under section 134 the reasons for not spending the amount.

> If the company spends an amount in excess of the required, such company may set-off such excess amount against the requirement to spend under this sub section for such number of succeeding financial years in manner as prescribed.

> The MCA wide circular E-file no. CSR-01/4/2021-CSR-MCA dated 20/05/2021 clarified that where a company has contributed any amount to ‘PM CARES Fund’ on 31.03.2020, which is over and above the minimum amount as prescribed under section 135(5) of the Companies Act, 2013 (“Act”) for FY 2019-20, and such excess amount or part thereof is offset against the requirement to spend under section 135(5) for FY 2020-21, then the same shall not be viewed as a violation subject to the conditions that :

⇒ The amount offset as such shall have factored the unspent CSR amount for previous financial years, if any

⇒ The Chief Financial Officer shall certify that the contribution to “PM-CARES Fund” was indeed made on 31st March 2020 in pursuance of the appeal and the same shall also be so certified by the statutory auditor of the company; and

⇒ The details of such contribution shall be disclosed separately in the Annual Report on CSR as well as in the Board’s Report for FY 2020-21 in terms of section 134 (3) (o) of the Act.

♦ Section 135(6) – Unspent Amount in CSR

> Any Balance remained unspent under above subsection 5, pursuant to any ongoing project, complied with conditions as may be prescribed in CSR Policy, shall be transferred within 30 days from end of financial year to a special bank account to be opened by 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 CSR Policy within 3 Financial Years from date of such transfer.

> If amount still remained unspent in Bank account, then company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from date of completion of third financial year.

♦ Section 135(7) – Penalty for Non Compliance of CSR Provisions

  • If Company defaulted in complying with Sub-section 5 and 6 above, the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and 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.

♦ Section 135(8) – The Central Government may give such general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section and such company or class of companies shall comply with such directions.

♦ Section 135(9) – Where the amount to be spent by a company under above sub-section 5 does not exceed fifty lakh rupees, there is no need to form CSR Committee and functions of such committee shall be discharged by Board of Directors of such company.

All the above provisions and write up is for educational purpose only. Information is gathered from the

Author Bio

Qualification: CA in Practice
Location: JALGAON, Maharashtra, IN
Member Since: 29 Apr 2020 | Total Posts: 2
CA Dhiraj N Kabra is Practicing Chartered Accountant since April 2013. He is having specialized interest in Income Tax, Internal Audits and Bank Audits. Having Proprietary firm in Jalgaon District of Maharashtra. View Full Profile

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June 2021