Section 135 Corporate Social Responsibility (CSR)

Article explains about Applicability of Corporate Social Responsibility (CSR) provisions, Constitution of Corporate Social Responsibility Committee, Amount Spend on Corporate Social Responsibility,  Framing Corporate Social Responsibility Policy, Disclosure of Corporate Social Responsibility, How to Spend Amount on Corporate Social Responsibility Activities, Non- Applicability of Corporate Social Responsibility (CSR) provisions, Procedure for formation of Corporate Social Responsibility (CSR), FAQs related to Corporate Social Responsibility (CSR) provisions and Schedule VII- Annexure A– Explaining Activities which will be considered as Corporate Social Responsibility Activities.

CORPORATE SOCIAL RESPONSIBILITY – The responsibility of the Corporates towards society and environment.’

Definition –

Corporate Social Responsibility (CSR)” means and includes but is not limited to :

(i) Projects or programs relating to activities, areas or subjects specified in Schedule VII (Annexure A) to the Act or

(ii) Projects or programs relating to activities undertaken by the board of directors of a company in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule Vll (Annexure A) of the Act.

1. Applicability of Corporate Social Responsibility (CSR) provisions

1. Every Company having

• 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 (net profit calculated in accordance with Section 198)

during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee.

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.

2. Constitution of Corporate Social Responsibility Committee

1. Every Corporate Social Responsibility Committee of the Board consist of three or more directors, out of which at least one director shall be an independent director.

Provided that a Company on which sub-section (4) of section 149 related to appointment of Independent Director is not applicable, it shall have its Corporate Social Responsibility Committee with two or more directors.

2. Provided that 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.

3. Amount Spend on Corporate Social Responsibility

The Company which fall under the above criteria, shall require to spend at least two per cent of the average net profits of the immediately preceding three financial years.

Provided that the Company which is a newly incorporated and has not completed three financial years from its incorporation, shall require to spend at least two per cent of the average net profits of the preceding financial year.

The Company shall give preference to the local area and areas around which the Company operates.

4. Framing Corporate Social Responsibility Policy

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 (Annexure – A) of the Companies Act, 2013 on which the amount is spend as Corporate Social Responsibility.

5. Disclosure of Corporate Social Responsibility

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.

Provided that any amount remaining unspent pursuant to any ongoing project 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.

6. How to Spend Amount on Corporate Social Responsibility Activities?

i. The Corporate Social Responsibility activities shall be undertaken as per the Corporate Social Responsibility policies of the Company as per project or programs excluding activities in the normal course of business.

ii. The Board may decide to undertake its Corporate Social Responsibility activities through:-

• a Company established under Sec 8 of the Act, or registered trust or registered society established by the Company;
• a Company established under Sec 8 of the Act, or registered trust or registered society established by the Central Government or State Government or any other entity established under an Act of Parliament or a state legislature;

iii. The 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 5 % of total CSR expenditureof the company in one financial year.

Provided that such Company established Sec 8 of the Act, or registered trust or registered society shall have an established track record of three years in undertaking similar projects or programs and the Company has specified the projects or programs undertaken, modalities of funds and have proper reporting mechanism.

7. Non-Applicability of Corporate Social Responsibility (CSR) provisions

Every company which ceases to be a company covered under this section of the Act for three consecutive financial years shall not be required to comply with the provisions of the Act, till the Company again falls in the eligibility criteria of CSR.

8. Procedure for formation of Corporate Social Responsibility (CSR)

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. he 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.

9. FAQs related to Corporate Social Responsibility (CSR) provisions

Q.1 Can the Contribution to the Political party under Section 182 of the Act, be considered as CSR Activity?

Ans: No

Q.2 Can the CSR projects, programs or activities that benefit the employees and their families be considered as CSR Activity?

Ans: No

Q.3 Can the Company collaborate with other Company for projects or programs undertaken in CSR?

Ans: Yes, the Company can collaborate with other Company for undertaking projects or programs in such a manner that the CSR Committees of such Company can report separately.

Q.4 Whether events such as marathons/awards/charitable contribution/ advertisement/sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure?

Ans: No

Q.5 Whether expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary?

Ans: Yes, if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.

Q.6 What is Net Profit?

Ans: Net Profit means the net profit of a Company as per its financial statements 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 the Companies Act.

Q.7 Whether profit arising from surplus of CSR activity form part of profit of the Company?

No, the surplus arising out of the projects or programmes or activities shall not form part of the business profit of a Company.

10. Schedule VII- Annexure A– Explaining Activities which will be considered as Corporate Social Responsibility Activities

Annexure A

i. Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swachh 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 & orphans, setting up old age homes, day care centres & such other facilities for senior citizens & 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 dependants;

vii. Training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports;

viii. 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;

ix. Contribution to incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government, and contributions to public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies (established under the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO), Department of Science and Technology (DST), Ministry of Electronics and Information Technology 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;

xii. Disaster Management, including relief, rehabilitation and reconstruction activities;

DISCLAIMER: The Entire Contents of this document have been prepared on the basis of relevant provisions and information available at that time and prepared with due accuracy and reliability. But in no event, I will be liable for any damages caused in connection with the use of this information.