CS Jaya Ranga

Jaya RangaIntroduction

♠ ‘Corporate Social Responsibility’ popularly known as ‘CSR’ by itself suggests that it is linked to the responsibility of the Corporate towards social causes

♠ It is a welcome provision of the Companies Act, 2013 by the Society

♠ Corporate make an income by operating in a Society

♠ Corporate use the raw materials, man force and other day-to-day requirements from the society they operate in

♠ Society also suffers degradation in the form of pollution due to the wastes generated and procedures used by the Corporate

♠ It will not be wrong to say that Corporate have a moral obligation as well to make a positive contribution towards social causes and the society

♠ There so comes in to picture the concept of ‘Corporate Social Responsibility’Sections and Provisions applicable

♠ Section 135 of Companies Act, 2013

♠ Rule 1 to Rule 9 of Companies [Corporate Social Responsibility Policy] Rules, 2014

Applicability of Section

This Section is applicable to every Company which has had during any financial year-

♠ Net worth of INR 500 Crores or more Or

♠ Turnover of INR 1000 Crores or more Or

♠ Net Profit of INR 5 Crores or more

Interesting to know

♠  Section applies if these limits have been exceeded during any financial year and not just previous financial year

♠ Either of the three conditions specified above or any combinations thereof can attract the applicability of this Section

♠ The word used to determine the criteria for applicability is ‘or’ and not ‘and’

Composition of Corporate Social Responsibility Committee

♠  Any Three or more Directors

♠  One of them has to be an Independent director


♠ Private companies attracting CSR provision need not have an Independent Director in the CSR Committee. The reason being, private companies are not required to have an Independent director by the Act. Thus, mere applicability of this section will not attract the appointment of an Independent Director

♠ Unlisted public company and private companies not required to appoint an independent director pursuant to Section 149(4) of the Act [Company to have BOD] will have CSR Committee without such an Independent Director

♠ Private company with only two Directors on Board shall have CSR Committee with two Directors

♠ Foreign Company covered under these rules shall have CSR Committee with two directors- one of whom shall be nominated by the foreign company and the other being a person resident in India authorized to accept on behalf of the Company service of process and any notices or other documents required to be served on the Company

Functions of CSR Committee

♠ Formulation of the CSR Policy

♠ Recommendation to the Board for-

1. CSR Policy

2. Activities to be undertaken by the Company

3. Amount of expenditure to be incurred on CSR activities

♠ Monitoring the CSR policy from time to time

♠ Reporting


♠ CSR activities are specified in schedule VII to the Act

♠  Timely monitoring of the CSR policy is of utmost importance as in such a fast changing economy where there is so much of competition and obligation towards the society, no Company can afford to have one standard policy throughout without any modifications

Responsibility towards the stakeholders

♠ Gone are the times when the Corporate had a responsibility towards the shareholders only

♠ Now, the responsibility is towards the stakeholders

♠ The Act has by itself made it necessary for the Corporate to practice transparency

♠  The Board Report under sub-section 3 of section 134 of the Companies Act, 2013 shall disclose the following-

1. the composition of the CSR Committee

2. and the details specified in the format for the annual report on CSR activities to be included in the Board Report

Functions of the Board

♠ Board to approve the CSR policy for the Company after considering the recommendations of the CSR Committee

♠ Board to disclose the contents of the CSR Policy in Board Report

♠ Details to be placed with the Company’s website, if there is one. This disclosure shall be as per the annexure attached to the Companies [Corporate Social Responsibility Policy] Rules, 2014

♠ Ensure that activities included in the Policy are undertaken by the Company

♠ Ensure that the prescribed sum is spent on the CSR activities [as per the CSR policy which is drafted considering the activities as mentioned in schedule VII of the Companies Act, 2013]

Amount to be spent on CSR Activities

♠ At least 2% of average net profits of the Company made during three immediately preceding financial years

♠ This amount will have to be spent in every financial year

For Example

♠ If the criteria met is that of the Net profit exceeding INR 5 Crores in any financial year, Company will have to spend 2 % of [average net profit made in Px + Px-1 + Px-2] wherein Px stands for immediately preceding financial year

♠ Also, the aforesaid amount will have to be spent in every financial year and not just one financial year

♠  So touching the criteria once, renders the Company liable to spend on CSR activities in every financial year

Company when not liable to spend as aforesaid

Every Company which ceases to fall under any of the below mentioned categories i.e. having a-

♠ Net worth of INR 500 Crores or more Or

♠ Turnover of INR 1000 Crores or more Or

♠ Net Profit of INR 5 Crores or more for three consecutive financial years shall not be required to-

1. Constitute a CSR Committee

2. Comply with any of the provisions of this section till such time it meets the above criteria

Preference to be given to local areas

For spending the amount meant for CSR activities, preference to be given to-

♠ Local areas and areas around it where it operates

♠ The word used is ‘preference’

♠ Thus in my opinion, it can be interpreted that, there is no mandate to spend on the local areas only

♠ Although, preference should be given to the local areas of Company’s operation

What if the Company fails to spend the required amount on CSR activities

♠ Board shall in the Board Report under section 134(3)(o), [the details about the policy developed and implemented by the Company on CSR initiatives taken during the year] disclose the reasons for not spending

♠ Thus can be said that, CSR provisions are not that forceful/stringent as the Company has an option to get away with it’s responsibility of spending on CSR by giving a reason for the same in the Board Report

♠ Of course the justification will have to be a valid and logical one and not of a nature which renders meaningless the purpose of the Act


♠ ‘Average net profits’ shall be calculated as per the provisions of section 198 [Calculation of Profits] of the Companies Act, 2013

♠  ‘Net profit’ means the net profit as per its financial statement prepared in accordance with the applicable provisions of the act and shall not include-

1. Profit arising out of overseas branch(es) of the Company [whether operating as separate company or not]

2. Dividend received from other companies in India which are covered under and complying with the provisions of section 135 of the Act

♠  Surplus arising out of CSR projects/programs/activities not to form part of the business profits of the Company. Same to be stated in CSR policy

Logic behind excluding the aforesaid from the Net Profit is-

1. Expenditure on CSR activities include only that which is carried out in India so no point in including the profit (income) of the overseas branches

2. Dividend portion if included in the net profits of the dividend-receiving company, will not be justifiable as that portion was already included while calculating the profits of the dividend-giving company which is covered under the provisions of section 135 of the Act

3. For a Foreign Company covered under these rules, net profit means the net profit of Company as per Profit and Loss A/C of Company in terms of section 381(1)(a) [Accounts of Foreign Company] and section 198 [Calculation of Profits] of the Act


Foreign Company means any company or body corporate incorporated outside India which-

1. has a place of business in India whether by itself or through an agent [physically or through electronic mode]

2. conducts any business activity in India in any other manner

CSR Expenditure

Shall include-

1. Contribution to Corpus [capital] for projects or programs relating to CSR activities approved by the Board on recommendation of CSR Committee

2. CSR activities undertaken in India

3. CSR Activities undertaken not in pursuance of normal course of business

Shall not include-

1. Any expenditure on an item which is not in conformity or not in line with activities which fall within the purview of Schedule VII of the Act

2. Contribution to any political party [directly or indirectly] under section 182 [Prohibitions and restrictions regarding political contributions] of the Act

3. CSR activities undertaken outside India

4. Activities undertaken in pursuance of normal course of business

♠  Companies can build CSR capacities out of their own personnel or implementing agencies through institutions [with track record of minimum 3 years]

♠  Companies can utilize up to 5% of their CSR expenditure [in one financial year] in building CSR capacities

Activities which may be included by the Companies in their CSR policies

CSR activities are divided into 11 categories

Category 1

1. [[Eradicating hunger, poverty and malnutrition

2. [promoting healthcare including preventive health care]*

3. sanitation [including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation]**

4. making available safe drinking water


*Amended vide GSR 261(E) dated 31.03.2014

**Inserted by notification GSR 741(E), dated 24.10.2014, w.e.f 24.10.2014

Category 2

1. promoting education including special education

2. employment enhancing vocational skills especially among children, women, elderly, and the differently abled

3. livelihood enhancement projects

Category 3

1. promoting gender equality

2. empowering women

3. setting up homes and hostels for women and orphans

4. setting up old-age homes, day-care centres and such other facilities for senior citizens

5. measures for reducing inequalities faced by socially and economically backward groups


1. ensuring environmental sustainability

2. ecological balance

3. protection of flora and fauna

4. animal welfare

5. agroforestry

6. conservation of natural resources

7. maintaining quality of soil, air and water [including contribution to the Clean Ganga Fund set-up by the Central Government for the rejuvenation of river Ganga]*


* Inserted by notification GSR 741(E), dated 24.10.2014 w.e.f 24.10.2014

Category 5

1. protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art

2. setting up public libraries

3. promotion and development of traditional arts and handicrafts

Category 6

1. measures for the benefit of armed forces veterans

2. war widows

3. and their dependents

Category 7

1. training to promote rural sports

2. nationally-recognized sports

3. Paralympic sports

4. Olympic sports

Category 8

1. contribution to the Prime Minister’s National Relief Fund

2. or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes

3. minorities

4. women

Category 9

1. contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government

Category 10

1. rural development projects]]***

Category 11

1. Slum area development*


*** Substituted by Notification No. GSR 130(E), dated 27.02.2014 w.e.f 01.04.2014. Prior to the substitution, the wordings of Categories 1 to 10 were different

* Inserted by Notification No. GSR 568 (E) dated 06.08.2014, w.e.f. 07.08.2014

CSR activities undertaken shall be as stated in CSR Policy as-

♠ Projects/Policy/Activities

♠ Such activities can be new or ongoing

♠ Should not be undertaken in pursuance of normal course of business

Board may decide to undertake CSR activities approved by the CSR Committees-

♠ Through a registered trust

♠ Registered society

♠ Company [established under section 8 of the Act by the Company, either singly or along with its holding or subsidiary or associate company or along with (any other company i.e. not established by the Company or holding or subsidiary or associate company of such other company or otherwise which has an established track record of three years in undertaking such activities)]

The Company should have specified-

♠ Projects or programs to be undertaken through the aforesaid entities

♠ Manner of utilization of funds

♠ Monitoring mechanism

♠ Report mechanism

Company can collaborate with other companies for CSR activities if-

♠  CSR Committees of the collaborated companies will be able to report separately, the activities and expenditures incurred on CSR

Display of CSR activities on Company’s Website

BOD of Company shall after taking in to account the recommendations of CSR Committee and approving the CSR Policy, disclose contents of policy on the website as per the particulars specified in the annexure

Format for the Annual Report on CSR activities to be included in the Board’s Report

1. A brief outline of the company’s CSR policy, including overview of projects or programs proposed to be undertaken and a reference to the web-link to the CSR policy and projects or programs

2. The Composition of the CSR Committee

3. Average net profit of the company for last three financial years

4. Prescribed CSR Expenditure (two per cent of the amount as in item 3 above)

5. Details of CSR spent during the financial year-

a. Total amount to be spent for the financial year

b. Amount unspent, if any

c. Manner in which the amount spent during the financial year is detailed below

Sl No Particulars Amount Amount
1. CSR project or activity identified
2. Sector in which the project is covered
3. Project or programs

a. Local area or other

b. Specify the state and district where projects or programs was undertaken

4. Amount outlay (budget) project or programs wise
5. Amount spent on the projects or programs sub-heads

a. Direct expenditure on projects or programs

b. Overheads

6. Cumulative expenditure up to the reporting period
7. Amount Spent:

Direct or through implementing agency


*Give details of implementing agency:

6. In case the company has failed to spend the two per cent of the average net profit of the last three financial years or any part thereof, the company shall provide the reasons for not spending the amount in its Board report

7. A responsibility statement of the CSR Committee that the implementation and monitoring of CSR Policy, is in compliance with CSR objectives and Policy of the company





(Chairman CSR Committee)


[Person specified under section 380(1)(d) of the Act] (Wherever applicable)

 Note: Above article contains provisions as amended up to 01.01.2016

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