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