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Corporate Social Responsibility - Section 135 of Companies Act,2013

Be it an individual , HUF , Partnership firm or Body Corporate, every taxable person has a responsibility towards the Environment and the community. Various components of the Ecological and Social Environment help the companies survive. Corporate Social Responsibility puts an obligation on the companies to pay it back to the society as they grow and benefit utilising its resources.

Section 135 of Companies Act, 2013 has listed down various provisions defining a company's sense of responsibility towards the community and the environment in which it operates. Companies can fulfil this responsibility by undertaking their day to day business activities keeping in mind the social and ecological environment. CSR is a way to conduct business by which corporate entities visibly contribute to the society via its operations.

Benefits of CSR :

  • It helps in strengthening the company’s brand image and position.
  • Enhances a company’s corporate image and reputation.
  • A way of valuable contribution and addition to society.
  • It helps in attracting new employees to the organisation and retaining old ones for a longer period.
  • Helps in increasing the company's revenue and market shares.

Applicability of CSR Provisions: CSR Provisions shall be applicable on 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 any financial year immediately preceding the relevant financial year

shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more  directors , out of which at least one director shall be an independent director. [Section 135(1) of Companies Act, 2013].

It includes any foreign company having its branch office or project office in India, which fulfill the criteria specified above.

In case if a company fails to fulfil the above mentioned criteria for 3 consecutive financial years then it is not required to comply with CSR obligations till the time it does not fulfil the criteria again.

Constitution of CSR Committee :

Every company on which CSR is applicable is required to constitute a CSR Committee consisting of :

  • 3 or more directors, out of which at least one director shall be an independent director. However, if a company is not required to appoint an independent director, then it shall have in 2 or more directors in the Committee
  • 2 directors in case of a private company having only two directors on its Board
  • at least 2 persons in case of a foreign Company of which one person shall be its authorised person resident in India and another nominated by the foreign company.

Activities to be undertaken by the CSR Committee :

  • The committee shall initiate a CSR Policy - which will stipulate how, when and where they want to invest their funds.
  • The committee shall also recommend the amount to be invested and the activities where it has to be invested.
  • CSR Committee may recommend the following ways to carry out the CSR activities:
  • Charity : Donations to various trusts, societies etc. who work for economic welfare;
  • Contract : It may enter into a contract with NGOs to carry out projects;
  • On its own : The committee may form a trust of its own.

Capacity of CSR can be built by their own personnel or through implementing agencies, however, it shall not exceed 5% of total CSR Expenditure in 1 Financial Year.

CSR Policy :

It is an important statement containing the approach and direction given by the Board. This is formulated after taking into consideration the recommendations of the CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities and formulation of the annual action plan.

Responsibility of Board of Directors :

The BoD of every company on which CSR is applicable shall:

  • after considering the recommendations made by the CSR Committee, approve the CSR Policy for the Company and disclose contents of such Policy in the Board report.
  • ensure that the activities as are included in CSR Policy of the company are undertaken by the Company shall disclose the composition of the CSR Committee in Board Report
  • ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the 3 immediately preceding financial years, in pursuance of its CSR Policy. The CSR projects/programs/activities undertaken in India only shall amount to CSR Expenditure.

Net Profit :

It denotes net profit of a company as per its Financial Statements prepared in accordance with applicable provisions of the Act. It shall not include the following :

  • Any net profit arising from overseas branch or branches of the company (whether operated or a separate company or otherwise);
  • Any dividend received from any other company in India, which are covered under and complying with the provisions of the Section 135 of the Act.

In case of a foreign company, Net Profit of such a company as per Profit & Loss Account prepared in terms of Section 38(1)(a) read with Section 198 of Companies Act, 2013.

Schedule VII

Activities which may be included by companies in their Corporate Social Responsibility Policies relating to:

  • Eradicating hunger, poverty and malnutrition,promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.
  • Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.
  • Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
  • 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.
  • 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;
  • Measures for the benefit of armed forces veterans, war widows and their dependents; Training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports
  • 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;
  • Contributions or funds provided to technology incubators located within academic institutions which are approved by the central govt.
  • Rural development projects
  • Slum area development.

Display of CSR Activity on the website :

The Board of Directors are responsible to mandatorily disclose the Composition of CSR Committee and Projects and CSR Policy approved by the Board of Directors on their website.