Corporate Social Responsibility (CSR) Under Section 135 Of Companies Act, 2013 As Amended Vide The Companies (Amendment) Act, 2019 Read With Companies (Corporate Social Responsibility Policy) Rules, 2014: A Journey From Voluntary To Forced Contribution.

1 Applicability as per Section 135(1) Every company including its holding or subsidiary, and a foreign company defined under clause (42) of section 2 of the Act having its branch office or project office in India, which fulfills the below mentioned criteria shall comply with the provisions of the Act

1. Networth is Rupees 500 crore or more ,

2. Or Turnover of rupees 1000 crore or more

3. Or net profit of rupees 5 crore or more during the (immediately preceding financial year#)

However, if a company ceases to meet the above criteria for 3 consecutive financial years then it is not required to comply with CSR Provisions till such time it meets the specified criteria.

# w.e.f 19.09.2018

2 Constitution of CSR Committee Three or more Directors ,out of which at least one director shall be an independent Director

[Unlisted public company and private company which is not required to appoint an independent director pursuant to Section 149(4) of the Act, shall have a CSR committee without such director]

If a private company having only two directors on its Board shall constitute its CSR Committee with two such directors.

3 Disclosure in Board Report Every company to whom these provisions are applicable are required to disclose composition of CSR committee as per section 134(3) of the Companies Act,2013
4 Role of CSR Committee 1. Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject as specified in Schedule VII

2. recommend the amount of expenditure to be incurred

3. monitor the Corporate Social Responsibility Policy of the company from time to time

5 Responsibility of the Board of Directors The Board of every Company Shall

1. After taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, shall be as per annexure attached to the Companies (Corporate Social Responsibility Policy) Rules, 2014.

2. Ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

6 Duties of Board of Directors The Board of directors of every company to whom the provisions applied shall ensure that the company spends, in every financial year, at least two percent of the average net profits of the company made during the three immediately preceding financial years

Or

where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years in pursuance of its Corporate Social Responsibility Policy

Display of CSR Activity of Company Website The Board of Directors of the company shall, after taking into account the recommendations of CSR Committee, approve the CSR Policy for the company and disclose contents of such policy in its report and the same shall be displayed on the company’s website, if any, as per the particulars specified in the Annexure.
Modes / vehicles of CSR Activities The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through

1. 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, or

2. 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

Provided that- if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of the Act or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilisation of funds of such projects and programs and the monitoring and reporting mechanism”.

3. 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 in accordance with these rules.

4. the CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure.

5. The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities

6. Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through Institutions with established track records of at least three financial years but such expenditure including expenditure on administrative overheads shall not exceed five percent of total CSR expenditure of the company in one financial year.

7. Contribution of any amount directly or indirectly to any political party shall not be considered as CSR activity.

7 CSR Spending Preferences the company shall give preference to the local area and areas around it where it operates for spending the amount earmarked for Corporate Social Responsibility activities
8 Treatment of unspent amount If the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount and # unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year

#w.e.f 02.11.2018

9 Calculation of Net Profit Net profit means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely

1. any profit arising from any overseas branch or branches of the company, whether operated as .a separate company or otherwise; and

2. any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act

Computation of net profit for section 135 is as per section 198 of the Companies Act, 2013 which primarily is NET PROFIT BEFORE TAX

10 Companies (Amendment) Second Ordinance 2019 is repealed on 31st July 2019

THE COMPANIES (AMENDMENT) ACT, 2019

Any amount remaining unspent pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the 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 its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
Consequences of Non Compliance of CSR Provisions

Companies (Amendment) Second Ordinance 2019 is repealed on 31st July 2019

COMPANIES (AMENDMENT) ACT, 2019

The company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and 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.

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.

Schedule VII
1. 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

2. promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

3. 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.

4. 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

5. 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

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

7. training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports

8. 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;

9. contributions or funds provided to technology incubators located within academic institutions which are approved by the central govt.

10. rural development projects

11. 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

12. disaster management, including relief, rehabilitation and reconstruction activities

Disclaimer: The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation. No part of this article should be distributed or copied without express written permission of the author.

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Company: Bhupesh Mittal & Associates
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One Comment

  1. priyank says:

    Companies Amendment Order 2018 dt 02.11.2018 doesn’t have any amendment on 135(5) then why the following is application from 02.11.2018 now when Co Amendment Act is in effect:

    “If the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount and # unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year
    #w.e.f 02.11.2018”

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