Sec. 135 which provides for Corporate Social Responsibility and Schedule VII of the Companies Act, 2013 and Rules made thereunder are mandatory compliance that needs to be done by all Companies irrespective Listed, Public of Private which fulfils applicability criteria.
Here are some deliberations of CSR for your ready reference:
“Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in the CSR Rules, but shall not include the following, namely:-
(i) activities undertaken in pursuance of normal course of business of the company: Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that-
(a) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act;
(b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report;
(ii) any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level;
(iii) contribution of any amount directly or indirectly to any political party under section 182 of the Act;
(iv) activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);
(v) activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services;
(vi) activities carried out for fulfilment of any other statutory obligations under any law in force in India;
“CSR Policy” means a statement containing the approach and direction given by the board of a company, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as formulation of the annual action plan.
♦ APPLICABILITY OF CSR:
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 during the immediately preceding financial year
♦ CONSTITUTION OF CSR COMMITTEE
- Company shall constitute a CSR Committee of the Board *(Not mandatory where the amount to be spent by a company does not exceed fifty lakh rupees and functions of such Committee shall, in such cases, be discharged by the Board of Directors of such company)
- Board’s report under sub-section (3) of section 134shall disclose the composition of the CSR Committee.
♦ FUNCTIONS OF CSR COMMITTEE:
- Formulate and recommend to the Board, a CSR Policy [shall indicate the activities to be undertaken by the company (in areas or subject, specified in Schedule VII)]
- Recommend the amount of expenditure to be incurred on the CSR activities
- Monitor the CSR Policy of the company from time to time.
♦ DUTIES OF BOARD OF DIRECTORS:
- Board of Directors after taking into account the recommendations made by the CSR Committee – approve the CSR Policy and Disclose contents of such Policy in Board Report and also place it on the company’s website, if any.
- Ensure that the activities as are included in CSR Policy of the companyare undertaken by the company.
♦ SPENDING ON CSR:
CSR Committee/ Board as the case may be shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits (calculated in accordance with the provisions of section 198) of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years and ensure that it give preference to the local area and areas around it where it operates
♦ EXCESS AMOUNT SPENT ON CSR:
When company spent excess amount than required under this section and under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed
♦ FAILURE TO SPEND CSR AMOUNT:
Board shall, in its Board report under section 134, specify the reasons for not spending the amount.
Transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year (if unspent amount not relates to any on-going CSR project)
And if unspent amount relates to on-going CSR project: Any amount remaining unspent 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 CSR 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.
♦ DEFAULT IN COMPLYING OBLIGATIONS UNDER SUB-SECTION (5) OR SUB-SECTION (6) OF SEC. 135
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.
Every officer of the Company : 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
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*Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The material contained in this article and on the associated web pages is general information and is not intended to be advice or a legal opinion on any particular matter. Readers should seek appropriate professional advice before acting on the basis of any information contained herein.
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