Corporate Social Responsibility (CSR) | Section 135 of The Companies Act,2013 | The Companies (Corporate Social Responsibility Policy) Rules, 2014

Corporate Social Responsibility (CSR) aims to contribute to the well being of the society in which an entity operates. CSR can also be considered as corporate ethic strategy that helps the Company to improve its public image. CSR activities have been made mandatory under The Companies Act, 2013 for companies falling under the prescribed category.

Section 135 of The Companies Act, 2013 and The Companies ( Corporate Social Responsibility Policy) Rules, 2014 deals with the provisions relating to CSR.

Corporate Social Responsibility

Section 135(1)

Applicability of the Act

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 following criteria during the immediately preceding financial year shall comply with the provisions of section 135 of the Companies Act, 2013 and rules there under and constitute a CSR Committee.

  • Net worth of rupees five hundred crore or more, or
  • Turnover of rupees one thousand crore or more or
  • A net profit of rupees five crore or more

Constitution of CSR Committee:

Section 135(1):

CSR Committee shall consist of Three or more directors, out of which at least one director shall be an independent director.

Rule 5 of  The Companies ( Corporate Social Responsibility Policy ) Rules, 2014

  • A Company which is not required to appoint an independent director shall have its CSR Committee without such director.
  • A private company having only two directorson its Board shall constitute its CSR Committee with two such directors;
  • The CSR Committee of a Foreign Company shall comprise of at least two persons of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company.

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

(a) To formulate and recommend to the Board, a Corporate Social Responsibility policy

(b) To recommend the amount of expenditure to be incurred on the activities

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

CSR Expenditure:

Section 135(5)

The Board of every company shall ensure that the company spends at least two per cent. of the average net profits of the company made during the three immediately preceding financial years in pursuance of its Corporate Social Responsibility Policy:

Points to be noted:

  • 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:
  • If the company fails to spend such amount, the Board shall, in its report specify the reasons for not spending the amount.
  • CSR expenditure shall include all expenditure including contribution to corpus, or on projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee (Rule 7)
  • CSR expenditure shall not include any expenditure on an item not in conformity or not in line with activities which fall within the subjects specified in Schedule VII of the Act.( Rule 7)

CSR Activities:

Rule 4 of The Companies (Corporate Social Responsibility Policy) Rules, 2014

1. The CSR activities shall be undertaken by the company, as per its stated CSR Policy, as projects or programs or activities (either new or ongoing).

2. Activities undertaken in pursuance of its normal course of business shall not be included in CSR Activity.

3. The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through

(a) 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

(b) 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”.

4. A company may also collaborate with other companies for undertaking projects or programs or CSR activities.

5. The CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure.

6. 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.

7. Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.

CSR Policy

Rule 6 of The Companies ( Corporate Social Responsibility Policy ) Rules, 2014

The CSR Policy of the company shall, inter-alia, include the following namely :-

a) A list of CSR projects or programs which a company plans to undertake

b) Monitoring process of such projects or programs:

The CSR Policy of the company shall specify that the surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company.

Disclosures:

Section 135(2)

  • The Board’s report under section 134(3) shall disclose the composition of the Corporate Social Responsibility Committee.
  • Display of CSR Activities on its Website:

Rule 9 of The Companies ( Corporate Social Responsibility Policy ) Rules, 2014

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.

Schedule VII : Activities which maybe included by companies in their CSR Policies relating to:

  • 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.
  • Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.
  • 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.
  • 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.
  • 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;
  • Measures for the benefit of armed forces veterans, war widows and their dependents;
  • Training to promote rural sports, nationally recognized sports, paralympic sports and olympic sports
  • Contribution to the Prime Minister’s national relief fund 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;
  • Contributions or funds provided to technology incubators located within academic institutions which are approved by the central govt.
  • Rural development projects
  • Slum area development.

Note: Contribution to ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund’ for Covid-19 shall not qualify as CSR Expenditure.

(Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts has made to provide authentic information, it is suggested that to have better understanding kindly cross-check the relevant sections and rules. The observations of the author are personal view and the author do not take responsibility of the same.)

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