CORPORATE SOCIAL RESPONSIBILITY

Section 135 of Chapter IX of Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy), Rules 20I4

 

The new Companies Act, 2013 has introduced various new concepts, and one such concept is, “Corporate Social Responsibility” (CSR). Although, this concept has been in existence as voluntary reporting by large companies, but through the recent changes in Companies Act, 2013, it has been brought into ambit of Company Law. Some of the key provisions of CSR are as follows:

1.    DEFINITION OF CORPORATE SOCIAL RESPONSIBILITY

2.    APPLICABILITY

3.    COMPOSITION OF CSR COMMITTEE

4.    RESPONSIBILITY OF CSR COMMITTEE

5.    DISCLOSURES IN BOARDS REPORT

6.    CONTRIBUTION

7.    CSR ACTIVITIES

8.    PENALTY

 

 

 

DEFINITION OF CORPORATE SOCIAL RESPONSIBILITY- Rule 2(C)

Corporate Social Responsibility will include but not limited to following:

• Projects or programs relating to activities specified Schedule VII to the Companies Act, 2013
• Projects or programs relating to activities undertaken by the board of directors of a company in pursuance of recommendations of the CSR Committee

APPLICABILITY – Section 135(1) and Rule 3

• All Companies (Public, Private, Holding, Subsidiary or any Foreign Branch Office or Project Office) satisfying any of the following conditions:
• Turnover : INR 1,000 Crores or more
• Net Worth : INR 500 Crores or more
• Net Profit : INR 5 Crores or more

during any financial year, shall constitute a CSR committee.

COMPOSITION OF CSR COMMITTEE – Rule 5

 

Types of Companies	Composition of CSR Committee
Private Company	3 Directors, or 2 Directors in case total composition of Board is of 2 Directors only
Unlisted Public Company	3 Directors, where atleast one person is Independent Director {if not exempted under Section 149(4)}
Listed Public Company	3 Directors, where atleast one person is Independent Director
Foreign Company	2 persons, out of which 1 person as specified u/s 380(1)(d) and 1 person as nominated by foreign company, will constitute CSR Committee

RESPONSIBILITY OF CSR COMMITTEE:

• Formulate CSR policy and recommend to Board indicating the activities to be undertaken as specified in Schedule VII.
• Calculate and recommend the amount of expenditure to be incurred.
• Monitor the effectiveness of CSR Policy from time to time.
• Place the Company’s CSR Policy on its website, if any

DISCLOSURES IN BOARD REPORT – Section 135(2) & Rule 8

• Constitution of the CSR Committee.
• Reasons for not spending the specified amount.
• Details about the policy developed and implemented by the Company
• CSR initiatives taken during a year.
• In case of a foreign company, the balance sheet shall contain an Annexure regarding report on CSR.

CONTRIBUTION – Rule 7

• For every financial year, CSR spending would be computed as 2% of the average net profits made by the company during every block of three preceding years.
• Net profit as per Section 198 and 381 (in case of foreign company), means net profit before tax as per books of accounts as defined
• Net Profit shall exclude
• Profit of overseas branch (whether operated as a separate Company or otherwise)
• Dividend received from other Indian Companies complying with CSR provisions

CSR ACTIVITIES- SCHEDULE VII

• Schedule VII includes the following activities to be included in CSR Activities.
• Eradicating extreme hunger & poverty
• Promotion of education
• Promoting gender equality and empowering women
• Reducing child mortality and improving maternal health
• Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases
• Ensuring environment sustainability
• Employment enhancing vocational skills
• Social business projects
• Contributions to Prime Minister Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Caste and Schedule Tribe
• Such other matters as may be prescribed
• The company shall exclude the activities undertaken in pursuance of its normal course of business from CSR.
• Contribution of any amount directly or indirectly to any politically party shall not be considered as CSR activity.
• Company shall give preference to the local areas and areas around it where it operates, for spending the amount earmarked for CSR activities.
• Only activities which are not exclusively for the benefit for the employees of the company and their family shall be considered as CSR activity.
• Only those CSR activities will be taken into consideration which are undertaken in India.
• Companies may build internal CSR capacities through use of their own personnel as well as with help of external implementing agencies/ institutions with track record of three financial years but such expenditure should not exceed 5% of the total CSR expenditure of the Company in a particular Financial Year

PENALTY

There is no penalty defined as such in case of failure to spend 2% of net profit on CSR activities but reasons for not spending such amount needs to be mentioned in the Board Report as part of Disclosures.

 

As an initiative, we at BlueLotus, are proud to share that we have been involved in various CSR activities, for past 3 years, for promoting education to children belonging to economically weaker section, ensuring environment sustainability within and around our office, generating employment by engaging with agencies providing vocational courses, promoting gender equality and empowering women (belonging to backward class) to lead certain initiatives to enhance their livelihoods.

We have been instrumental in drafting CSR Policies for Corporates and ensuring the required compliances are met through continuous monitoring programs. You may get back to us for any more details on the above concept or for any other matter related to New Companies Act, 2013 at below mentioned contact details-

Malavika Bhatia | <malavika.bhatia@bluelotusstrategy.com> | M +91 98733 18440

Monika Bhardwaj | <monika.bhardwaj@bluelotusstrategy.com> |M +91 98915 60525

We will do our best to assist you with the compliance’s and removal of doubts / queries. However, please note that since the Act is new, certain clarifications are needed as there are lot many areas where operational issues are to be sorted out.

In case of queries that require clarification from Ministry of Corporate Affairs, we will come back to you after seeking necessary clarifications from the Ministry.