Section 135 of Companies Act 2013 (CSR): An initiative for betterment of society

Introduction :

Corporate social responsibility (CSR) is nothing but a mandatory provision under Companies Act 2013 which was earlier a voluntary provision under Companies Act 1956 which provides for sustainable development of corporates and society as a whole and also a step to promote contribution of corporates towards betterment of society and to the people who are the real persons  behind the growth of such  corporates and giving back to the society however the corporate social responsibility is not a charitable activity rather than it is a wealth creation activity by corporates for their long term sustainability which if managed properly would enhance the competitive position of business and also creates wealth and ethical values of such organization.

Legal framework of CSR under Companies Act 2013 :

APPLICABILITY :  section 135 of companies act 2013 read with companies (corporate social responsibility policy) rules 2014 provides that provisions pertaining to CSR shall be applicable on following class of companies :

Above mentioned companies shall have to constitute CSR committee of the board whose composition shall be as follows :

NOTE : companies whose amount to be spent towards corporate social responsibility does not exceed Rs.50 lakhs , there is no need to constitute CSR committee for such company and functions of the committee can be fulfilled by board of directors of such company.

Amount of contribution to be made and provisions related to spending of such amount under section 135

The board of every company referred above shall ensure that in every financial year company spends an amount equals to at least 2% of average net profits of company made during last 3 preceding years towards the activities specified under Schedule VII of Companies Act 2013.

The board shall ensure that administrative overheads shall not exceed 5% of total CSR expenditure of the company during the financial year.

Amount as specified hereinabove shall be spend by the company on the activities specified under Schedule VII of Companies Act 2013.

The amount allocated towards CSR shall be spend by the company during the Financial year or in case of any ongoing project such amount shall be transferred by the company into a separate bank account named as Unspent CSR account within 30 days from end of financial year and to be spent by the company within 3 financial years otherwise such amount shall be transferred by company to the fund specified under Schedule VII of companies act 2013 within 30 days from expiry of 3 years.

Reporting of CSR policy :

The Board’s report of the company shall include an annual report on CSR containing the particulars specified under Annexure I or Annexure II as may be applicable.

The board of directors shall mandatorily disclose the composition of CSR committee , CSR policy and activities and any other detail with regard to it in the annual report as well as on the website of the company.

The reporting framework for CSR activities has now become more transparent in terms of disclosures of CSR Policy and its amount as the government has introduced Annexure II for its reporting and also the FORM CSR-2 for its disclosures.

Impact Assessment of CSR policy of the company :

The purpose of impact assessment of CSR policy is to assess the social impact of projects of the company related to CSR on the ground level and also to encourage the companies to take appropriate decisions before deploying the CSR amount and assess the impact of their CSR expenditures.

APPLICABILITY :

1. Companies having minimum average CSR expenditure of Rs.10 crore or more in the immediately preceding  3 financial years.

2. Companies having CSR projects with outlays minimum Rs. 1 crore and which have been completed not less than 1 year before the impact assessment.

METHODS OF SPENDING AMOUNT TOWARDS CSR ACTIVITIES :
The board of directors of the company shall ensure that activities are undertaken by the company itself or through :

1. A company established under Section 8 (non-profit making organizations ) or a registered trust or society, established by the company ,either singly or along with any other company.

2. A company established under section 8 of the act or registered trust or society established by central government or state government or any other statutory body.

3. Any entity established under an act of parliament or the act of any state legislature.

4. A company registered under section 8 of the act or a registered trust or society having at least 3 years of the experience in related area of CSR activity.

Conclusion: Section 135 of the Companies Act 2013 mandates corporate social responsibility as a means to promote sustainable development and societal welfare. Through CSR initiatives, companies contribute to the betterment of society while ensuring their long-term sustainability and ethical values. Adhering to the legal provisions, including spending requirements, reporting obligations, and impact assessments, enables businesses to effectively fulfill their CSR responsibilities and create a positive impact on the world around them.

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DISCLAIMER : The entire content of this document has been prepared on the basis of Companies Act 2013 and rules made thereunder and as per best of my knowledge with regard to the subject matter it does not cover entire provisions related to corporate social responsibility but includes main provisions with regard to it.