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Corporate Social Responsibility (CSR) is a concept whereby organizations serve the interests of society by taking responsibility for the impact of their activities on customers, employees, shareholders, communities and the environment in all aspects of their operations. Corporate social responsibility is not about just giving randomly but about bringing benefits to all the stakeholders, including customers, employees and community at large.

The concept of Corporate Social Responsibility (CSR) was introduced earlier under the Companies Act, 1956 on a voluntary basis and later was introduced as the mandated provision under the Companies Act, 2013 (hereinafter referred as ‘2013 Act’) with an intent to make the corporates more concerned towards nature and the society it is working in.

To overcome such a situation and to strengthen CSR provisions and make them more explicit and effective, recently, on 22.01.2021 Ministry of Corporate Affairs has introduced Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (hereinafter referred to as ‘CSR Amendment Rules’) to amend the existing regime in a very indispensable manner.

In this article, I have tried to compile the basic provisions of CSR for better knowing and educating to readers about the said section of Companies Act. Here are we start-

Applicability CSR Provisions(Section-135(1))

Every Company having




Net worth of Rs. 500 cr or more; or
Turnover of Rs, 1000 cr or more:or
Net profit of Rs. 5 cr or more
During immediately preceding Financial Year

Composition of CSR Committee(Section-135(2))

Listed Companies Three or more directors, out of which at least one should be independent.
Unlisted Public Companies Three or more directors, out of which at least one should be independent, however if there is no requirement of having independent directors in the company under Section 149 (4), then two or more directors.
Unlisted Private Companies Any two directors.
Foreign Company At least two persons out of which-

• another shall be nominated by the foreign company.• one shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and

Dispensing of CSR Committee

As per Sub section (9) in section 135 where the amount to be spent by a company does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee shall be discharged by the Board of Directors of such company.

Functions of CSR Committee(Section-135(3))

(a) Formulate and recommend to the Board a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas specified in Schedule VII

(b) Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

(c) Monitor the Corporate Social Responsibility Policy of the company from time to time.

As per Rule 5(2) of the The Companies (Corporate Social Responsibility Policy) Rules, 2014:-

The CSR Committee formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following:

a) the list of CSR projects or programmes that are approved to be undertaken;

b) the manner of execution of such projects or programmes;

c) the modalities of utilisation of funds and implementation schedules for the projects or programmes;

d) monitoring and reporting mechanism for the projects or programmes; and

e) details of need and impact assessment, if any, for the projects undertaken by the company:

For companies covered under Sec 135(9) and not having CSR Committee these functions shall be carried out by the Board itself.

Duty of the Board in relation to CSR policy and CSR spending

  • The Board shall after taking into consideration the recommendations made by the CSR Committee, approve the CSR Policy and shall disclose the contents of such Policy in the Board’s Report and shall also place it on the website of the Company, if any.
  • It shall be the duty of the Board to ensure that the activities which are included in the CSR Policy of the Company are undertaken by the Company.
  • To ensure that the company spends at least 2% of the average net profits in pursuance of its CSR Policy.
  • To disclose the composition of CSR Committee in the Board’s Report.
  • To disclose the details of the CSR Policy developed and implemented by the company in CSR in Board’s Report (clause (0) of the sub-section (1) of the section 134).
  • The content of the policy and CSR activities are to be placed on the company’s website (Rule 9).

CSR Expenditure

  • Administrative overheads shall not exceed five percent of total CSR expenditure
  • The Board of the Company shall ensure that the Company spends, in every financial year, at least 2% of the average net profits of the Company made during the 3 immediately preceding financial year or where the Company has not completed the period of 3 Financial Year since its incorporation, during such immediately preceding financial years, in pursuance of its CSR Policy.
  • The Company shall give preference to the local area and areas around it where it operates for spending the amount earmarked for CSR activities.
  • Any surplus arising out of the CSR activities shallnot form part of the business profit and shall be ploughed back into the same project or transferred to the Unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the company or transfer such surplus amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.
  • Where a company spends an amount in excess of requirement such excess amount may beset off against there requirement to spend upto immediate succeeding three financial years subject to the conditions that–
  • The excess amount available for setoff shall not include the surplus arising out of the CSR Activities,
  • The Board of the company shall pass are solution to that effect.

Consequences of failure of spending CSR funds

In case the company fails to spend the obligatory amount under sub-section (5), the Board shall specify the reasons for not spending the same, in the Board’s report. As per Section 135(6) any amount remaining unspent.

It shall be noted that if any CSR amount is unspent related to ongoing projects* then such amount shall transferred to unspent CSR Account for relevant FY within 30 days from the end of the FY or if the amount is related on non- ongoing projects then such amount shall transferred to Fund specified in Schedule VII within 6 months from the end of the FY.

*Ongoing Project

Ongoing Project means a multi -year project having timelines not exceeding 3 years excluding the financial year in which it was commenced. Project that was initially not approved as a multi-year project can be made ongoing by extending the duration beyond one year by the board based on reasonable justification. It looks that CSR Project duration cannot be more than 03 years.

CSR Implementation

The Board shall ensure that the CSR activities shall be undertaken by the

Undertaking CSR activities by company itself, OR;
Section 8 company/ registered public trust / registered society, registered under section 12A and 80 G of the Income Tax Act, 1961, established by the company, either singly or along with any other company, OR;
Section 8 company/ registered trust/ registered society, established by the Central Government or State Government , OR;
any entity established under an Act of Parliament or a State legislature, OR;
Section 8 company/ registered public trust/ registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.
  • Mandatory registration of CSR Entity:- Every entity, covered under sub-rule (1), who intends to undertake any CSR activity, shall register itself with the Central Government by filing the Form CSR-1 electronically with MCA.
  • Certification of Professional:-Form CSR-1 shall be signed and submitted electronically by the entity and shall be verified digitally by a Chartered Accountant or Company Secretary in Practice or Cost Accountant in Practice.

Reporting on CSR

  • The Company shall annex with its Board report and Annual Report on CSR.
  • In case of a foreign company, the balance sheet filed under clause (b) of sub section(1) of section 381 of the Act shall contain an Annual report on CSR.
  • Every company having average CSR obligation of 10 crore rupees or more in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency of their CSR projects having outlays of 1 crore rupees or more and which have been completed not less than one year before undertaking the impact study.
  • The Impact Assessment Reports shall be placed before the board and shall be annexed to the annual report on CSR.
  • A Company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed 5% of the total CSR expenditure for that financial year or 50 lakh rupees, whichever is less.
  • The Board of Directors of the Company shall mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website, if any, for public access.

Corporate Social Responsibility (CSR) - Section 135 Companies Act, 2013

Activities not qualify as CSR expenditure

  • Activities undertaken in pursuance of normal business of the company ; However, exemption is provided for three financial years till FY 2022-23, to companies engaged in R&D activity of new vaccine, drugs and medical devices in their normal course of business which undertakes R&D activity of vaccine/ drugs/ medical devices related to COVID-19. This exclusion will be allowed only in case the companies are doing such R&D in collaboration with organisations as mentioned in item (ix) of schedule VII and disclose the same in their board’s report;
  • Activities undertaken outside India, except for training of Indian sports personnel representing any State or Union territory at national level or at international level;
  • Contribution of any amount, directly or indirectly, to any political party under section 182 of the Act;
  • Activities benefiting employees of the company as defined in section 2(k) of the Code on Wages, 2019;
  • Sponsorship activities for deriving marketing benefits for products/ services;
  • Marathons/ awards/ charitable contribution/ advertisement/ sponsorships of programmes
  • Activities for statutory obligations under any law in force in India

Penal provisions

As per Section 135(7) of Companies Act, 2013,The CSR mechanism from “comply or explain” i.e. COREX to a “comply or pay penalty” i.e. COPP provision. Any non-compliance requirements of law may attract the following penal provisions:

a) Penalty on company:

Up to twice the amount required to be transferred to fund specified in Schedule VII or Unspent CSR account or Rs. 1 crore, whichever is lower;

b) Penalty on officers in default:

1/10th of the amount required to be transferred to Fund specified in Schedule VII or Unspent CSR account or Rs. 2 lakhs, whichever is lower.

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April 2024