CSR Provisions and Schedule VII of Companies Act, 2013

♦ Applicability of the CSR:

1. Every Company having

– Net worth of Rs. 500 crore or more, or

– Turnover of Rs. 100 crore or more, or

– net profit of Rs. 5 crore or more during the immediately preceding financial year shall constitute Corporate Social Responsibility Committee Meeting.

2. 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 criteria shall also comply with the provisions of Section 135 of the Act.

3. However, if any company ceases to meet the criteria for 3 consecutive financial years then it is not required to comply with CSR provisions till such time it meets specific criteria.

♦ Constitution of Committee:

As per CAA, 2020, every company to which CSR criteria is applicable and having CSR spent more than Rs. 50 lakh p.a. shall required to constitute a CSR committee of the Board.

Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. A private company having only two directors on its Board shall constitute its CSR Committee with two such directors. A company is not required to appoint an independent director pursuant to sub-section (4) of section 149 of the Act, shall have its CSR Committee without such director.

In case of a foreign Company, the Corporate Social Responsibility Committee shall comprise of two persons of which one person shall be the person resident in India authorised to accept notices and any document on behalf of the Company and the other person shall be nominated by foreign company.

It is the duty of the Corporate Social Responsibility Committee to monitor Corporate Social Responsibility Policy of the Company from time to time.

♦ Duties of CSR Committee:

1. As per amendment dated 22/01/2021, CSR committee shall formulate and recommend to the Board an Annual Action Plan in pursuance of its CSR Policy, which shall include the following namely;

Annual Action Plan:

√ List of CSR Projects or Programmes

√ Areas where CSR projects to be implemented

√ Manner of execution

√ Modalities of utilization of funds and implementation schedule for the projects

√ Monitoring and reporting mechanism for the projects

√ Details of need and impact Assessment.

Provided that Board may after such Annual Action Plan at any time during the Financial Year, as per the recommendation of its CSR committee, based on the reasonable justification to that effect.

♦ New role of the Board:

√ Approve CSR Policy of the company and ensure that CSR activities undertaken by the company as per policy

√ Ensure that the company spends minimum 2% of the net average net profit made during the 3 immediately preceding year.

√ Ensure that the Board report cover disclosure

√ Ensure that CSR activities are undertaken either by the company itself or through other entity and form CSR-1 is filled with ROC.

√ Monitor implementation of CSR projects or modify such projects, if required

√ Ensure that the funds have been utilized for the purpose and manner approved by the board

♦ CSR Implementation:

The Board shall ensure that the CSR activities are undertaken by the company itself or through –

• a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961 (43 of 1961), established by the company, either singly or along with any other company, or
• 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; or
• a company established under section 8 of the Act, or a registered public trust or a 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.

A company may engage international organisations for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity building of their own personnel for CSR.

A company may also collaborate with other companies for undertaking projects or programmes 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 programmes in accordance with these rules.

The Board of a company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect.

In case of ongoing project, the Board of a Company shall monitor the implementation of the project with reference to the approved timelines and year-wise allocation and shall be competent to make modifications, if any, for smooth implementation of the project within the overall permissible time period.

♦ Details to be given in Form CSR-1:

• Nature of Entity
• Entity is established by any company or group company
• CIN of Company
• PAN of Entity; details of Directors, Board of trustees, chairman, CEO, Secretary and authorized representative of entity
• Email on which OTP be generated
• Copy of certificate of registration and PAN should be attached.

♦ Amount to be spent for CSR:

The company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years.

The board shall ensure that the administrative overheads shall not exceed five percent of total CSR expenditure of the company for the financial year.

Any surplus arising out of the CSR activities shall not form part of the business profit of a company and shall be ploughed back into the same project or shall be 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 be set off against the requirement to spend up to immediate succeeding three financial years.

♦ CSR Policy:

CSR Policy means a statement containing

1. The approach and direction given by the Board of a company, taking into account the recommendations the CSR committee.

2. And includes guiding principles for selection, implementation and monitoring of activities.

3. As well as formulation of the Annual Action Plan.

Every Corporate Social Responsibility Committee shall formulate and recommend the Corporate Social Responsibility Policy to the Board for their approval. The Corporate Social Responsibility policy must contain the activities as specified in Schedule VII of the Companies Act, 2013 on which the amount is spend as Corporate Social Responsibility.

♦ Disclosure in Board Report:

The Board will approve the Corporate Social Responsibility Policy of the company and disclose the Policy on the website, if any and disclose the contents of the Policy in the Board Report of the Directors.

If the Company fails to spend the amount on the activities of Corporate Social Responsibility, the Company shall disclose the reasons of not spending in the Board Report of that Financial Year.

♦ ANNEXURE-II to Board Report:

√ Brief outline of CSR Policy

√ Composition of CSR Committee

√ Web-Link where composition of CSR Committee, Policy and projects approved are disclosed

√ Details of Impact Assessment of CSR project, if applicable attach report and give amount spent on Impact Assessment.

√ Details of amount available for set off

√ CSR amount spent/unspent for the financial year.

√ Details of CSR amount spent against Ongoing Projects and other than ongoing projects for the financial year.

√ Details relating to creation or acquisition of capital asset through CSR spent in the financial year.

√ Reason, if company fails to spend CSR obligation.

♦ Display of CSR activities on its website:

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.

♦ Transfer of unspent CSR amount

Until a fund is specified in Schedule VII for the purposes of subsection (5) and(6) of section 135 of the Act, the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VII of the Act.

♦ Procedure for formation of Corporate Social Responsibility

BEFORE CONSTITUTION OF CSR COMMITTEE

1. Check the following in the Balance Sheet of the immediately preceding F.Y.

Net Worth – Rs. 500 Crore or more

Turnover – Rs. 1000 Crore or more

Net Profit – Rs. 5 Crore or more

2. If, the Company falls under the criteria prescribed above, then follow the below mentioned procedure.

3. Issue of Notice for the Board Meeting for the Constitution of Corporate Social Responsibility Committee by such number of Directors (as may be applicable), as the Members of the Committee.

4. Convene Board Meeting for the Constitution of Corporate Social Responsibility Committee.

AFTER FORMULATION OF CSR COMMITTEE

5. Issue of Notice for Convening Corporate Social Responsibility Committee Meeting for formulation and recommendation of Corporate Social Responsibility Policy to the Board.

6. Convene Corporate Social Responsibility Committee Meeting for formulation and recommendation of Corporate Social Responsibility Policy to the Board.

7. Issue of Notice for the Board Meeting for approval of Corporate Social Responsibility Policy.

8. Convene Board Meeting for the approval of Corporate Social Responsibility Policy.

9. Finalisation of Corporate Social Responsibility Policy.

10. Issue of Notice for Convening Corporate Social Responsibility Committee Meeting for recommendation to the Board for allocation of funds to be spend on the activities of Corporate Social Responsibility.

11. Convene Corporate Social Responsibility Committee Meeting for recommendation to the Board for allocation of funds to be spend on the activities of Corporate Social Responsibility.

12. Issue of Notice for the Board Meeting for allocation of funds to be spend on the activities of Corporate Social Responsibility.

13. Convene Board Meeting for the approval for allocation of funds to be spend on the activities of Corporate Social Responsibility.

14. the Company shall disclose the contents of the policy in the Board Report and if the amount is not spend on CSR, then the Company shall disclose the reasons for not spending the amount.

♦ Penalty for Non-compliance

• If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), 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.
• 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. Where the amount to be spent by a company under sub-section (5) 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 provided under this section shall, in such cases, be discharged by the Board of Directors of such company.

♦ Schedule VII

Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:-

(i) 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.

(ii) Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

(iii) 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.

(iv) 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.

(v) 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;

(vi) Measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widow;

(vii) Training to promote rural sports, nationally recognized sports, paralympic sports and olympic sports

(viii) Contribution to the prime minister’s national relief fund 8[or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES 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;

(ix) (a) Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and

(b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organization (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs)

(x) Rural development projects

(xi) 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.

(xii) Disaster management, including relief, rehabilitation and reconstruction activities.