Section 135 of Companies Act, 2013 – Corporate Social Responsibility

  • Updated Till : February 21, 2017

SECTION 135. CORPORATE SOCIAL RESPONSIBILITY

[Effective from 1st April, 2014]

EXEMPTION

Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC private company, vide Notification No. 9(E) dated 04th January, 2017.

(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 during any 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.

(2) The Board’s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.

(3) The Corporate Social Responsibility Committee shall,—

(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

(c) monitor the Corporate Social Responsibility Policy of the company from time to time.

(4) The Board of every company referred to in sub-section (1) shall,—

(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and

(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

Explanation.—For the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198.

Exemption

Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC public company, vide Notification no. G.S.R. 08(E).dated 04th January, 2017.

Applicable Rules

Companies (Corporate Social Responsibility Policy) Rules, 2014

[Effective from the 1st day of April, 2014]

Rule 1. Short title and commencement.(1) These rules may be called the Companies (Corporate Social Responsibility Policy) Rules, 2014.

(2) They shall come into force on the 1st day of April, 2014.

Rule 2. Definitions.-—(1) In these rules, unless the context otherwise requires,—

(a) “Act” means the Companies Act, 2013;

(b) “Annexure” means the Annexure appended to these rules;

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

(i) Projects or programs relating to activities specified in Schedule VII to the Act; or

(ii) Projects or programs relating to activities undertaken by the board of directors of a company (Board) 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 VII of the Act;

(d) “CSR Committee” means the Corporate Social Responsibility Committee of the Board referred to in section 135 of the Act;

(e) “CSR Policy” relates to the activities to be undertaken by the company as specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company;

(f) “Net profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely:—

(i) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and

(ii) any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act:

Provided that net profit in respect of a financial year for which the relevant financial statements were prepared in accordance with the provisions of the Companies Act, 1956 (1 of 1956) shall not be required to be re-calculated in accordance with the provisions of the Act:

Provided further that in case of a foreign company covered under these rules, net profit means the net profit of such company as per profit and loss account prepared in terms of clause (a) of sub-section (1) of section 381 read with section 198 of the Act.

(2) Words and expressions used and not defined in these rules but defined in the Act shall have the same meanings respectively assigned to them in the Act.

Rule 3. Corporate Social Responsibility.—(1) 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 specified in sub-section (1) of section 135 of the Act shall comply with the provisions of section 135 of the Act and these rules:

Provided that net worth, turnover or net profit of a foreign company of the Act shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of the Act.

(2) Every company which ceases to be a company covered under sub-section (1) of section 135 of the Act for three consecutive financial years shall not be required to—

(a) constitute a CSR Committee; and

(b) comply with the provisions contained in sub-sections (2) to (5) of the said section,

till such time it meets the criteria specified in sub-section (1) of section 135.

Rule 4. CSR Activities.—(1) The CSR activities shall be undertaken by the company, as per its stated CSR Policy, as projects or programs or activities (either new or ongoing), excluding activities undertaken in pursuance of its normal course of business.

[1] [(2) The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through

(a) a company established under section 8 of the Act or a registered trust or a registered society, established by the company, either singly or alongwith any other company, or

(b) a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature :

Provided that- if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of the Act or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilisation of funds of such projects and programs and the monitoring and reporting mechanism.]

(3) A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR Committees of respective companies are in a position to report separately on such projects or programs in accordance with these rules.

(4) Subject to provisions of sub-section (5) of section 135 of the Act, the CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure.

(5) The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act.

(6) 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,][2] shall not exceed five percent of total CSR expenditure of the company in one financial year.

(7) Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.

Rule 5. CSR Committees.—(1) The companies mentioned in rule 3 shall constitute CSR Committee as under.—

(i) an unlisted public company or a private company covered under sub-section (1) of section 135 which is not required to appoint an independent director pursuant to sub-section (4) of section 149 of the Act, shall have its CSR Committee without such director;

(ii) a private company having only two directors on its Board shall constitute its CSR Committee with two such directors;

(iii) with respect to a foreign company covered under these rules, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company.

(2) The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

Rule 6. CSR Policy.—(1) The CSR Policy of the company shall, inter alia, include the following, namely:—

(a) a list of CSR projects or programs which a company plans to undertake falling within the purview of Schedule VII of the Act, specifying modalities of execution of such project or programs and implementation schedules for the same; and

(b) monitoring process of such projects or programs:

Provided that the CSR activities does not include the activities undertaken in pursuance of normal course of business of a company:

Provided further that the Board of Directors shall ensure that activities included by a company in its Corporate Social Responsibility Policy are related to the activities included in Schedule VII of the Act.

(2) The CSR Policy of the company shall specify that the surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company.

Rule 7. CSR Expenditure.—CSR expenditure shall include all expenditure including contribution to corpus for projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee, but does not include any expenditure on an item not in conformity or not in line with activities which fall within the purview of Schedule VII of the Act.

Rule 8. CSR Reporting.—(1) The Board’s Report of a company covered under these rules pertaining to a financial year commencing on or after the 1st day of April, 2014 shall include an annual report on CSR containing particulars specified in Annexure.

(2) In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section (1) of section 381 shall contain an Annexure regarding report on CSR.

Rule 9. Display of CSR activities on its website.—The Board of Directors of the company shall, after taking into account the recommendations of CSR Committee, approve the CSR Policy for the company and disclose contents of such policy in its report and the same shall be displayed on the company’s website, if any, as per the particulars specified in the Annexure.

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:

 

1 2 3 4 5 6 7 8
Sr No. CSR project or activity identified Sector in which the Project is covered Projects or Progammes(1) Local area or other(2) Specify the State and district where projects or programs was undertaken Amount outlay (budge) project or programs wise Amount spent on the projects or programs

Sub-heads: (1) Direct expenditure on projects or programs.(2) Overheads:

Cumula-tive expendi-ture upto to the reporting period. Amount spent: Direct or through imple-menting agency
1.
2.
3.
TOTAL

*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.

SD/-

(Chief Executive Officer or Managing Director or Director)

SD/-

(Chairman CSR Committee)

SD/-

(Person specified under clause (d) of sub-section (1) of section 380 of the Act)(wherever applicable)

Applicable Circulars

Clarifications with regard to provisions of Corporate Social Responsibility under section 135 of the Companies Act, 2013

Circular No. 21/2014 dated 18-6-2014

This Ministry has received several references and representation from stakeholders seeking clarifications on the provisions under Section 135 of the Companies Act, 2013 (herein after referred as ‘the Act’) and the Companies (Corporate Social Responsibility Policy) Rules, 2014, as well as activities to be undertaken as per Schedule VII of the Companies Act, 2013. Clarifications with respect to representations received in the Ministry on Corporate Social Responsibility (herein after referred as (‘CSR’) are as under:-

(i) The statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the amended Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities as illustratively mentioned in the Annexure.

(ii) It is further clarified that CSR activities should be undertaken by the companies in project/programme mode [as referred in Rule 4 (1) of Companies CSR Rules, 2014]. One-off events such as marathons/awards/charitable contribution/ advertisement/sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.

(iii) Expenses incurred by companies for the fulfillment of any Act/Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act.

(iv) [***]

(v) “Any financial year” referred under Sub-Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014, implies ‘any of the three preceding financial years’.

(vi) Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary 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.

(vii) ‘Registered Trust’ (as referred in Rule 4(2) of the Companies CSR Rules, 2014) would include Trusts registered under Income Tax Act 1956, for those States where registration of Trust is not mandatory.

(viii) Contribution to Corpus of a Trust/society/section 8 companies etc. will qualify as CSR expenditure as long as (a) the Trust/society/section 8 companies etc. is created exclusively for undertaking CSR activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act.

Annexure referred to at para (i) of General Circular No. 21/2014 dated 18.06.2014

Sr. No. Additional items requested to be included in Schedule VII or to be clarified as already being render Schedule VII of the Act
1. Promotion of Road Safety through CSR:

(i) (a) Promotions of Education, “Educating the Masses and Promotion of Road Safety awareness in all facets of road usage,

(b) Drivers’ training,

(c) Training to enforcement personnel,

(d) Safety traffic engineering and awareness through print, audio and visual media should be included. (ii) Social Business Projects: “giving medical and Legal aid, treatment to road accident victims should be included.

Whether covered under Schedule VII of the Act

(a) Schedule VI (ii) under “promoting education”.

(b) For drivers training etc. Schedule VII (ii) under “vocational skills”.

(c) It is establishment functions of Government (cannot be covered).

(d) Schedule VII (ii) under “promoting education”.

(ii) Schedule VII (i) under ‘promoting health care including preventive health care.’

2. Provisions for aids and appliances to the differently-able persons – ‘Request for inclusion Schedule VII (i) under ‘promoting health care including preventive health care.’
3. The company contemplates of setting up ARTIIC (Applied Research Training and Innovation Centre) at Nasik. Centre will cover the following aspects as CSR initiatives for the benefit of the predominately rural farming community:

(a) Capacity building for farmers covering best sustainable farm management practices.

(b) Training Agriculture Labour on skill development.

(c) Doing our own research on the field for individual crops to find out the most cost optimum and Agri – ecological sustainable farm practices. (Applied research) with a focus on water management.

(d) To do Product Life Cycle analysis from the soil conservation point of view.

Item no. (ii) of Schedule VII under the head of “promoting education” and “vocational skills” and rural development”.

(a) “Vocational skill” livelihood enhancement projects.

(b) “Vocational skill”

(c) ‘Ecological balance’, ‘maintaining quality of soil, air and water’.

(d) “Conservation of natural resource” and ‘maintaining quality of soil, air and water

4. To make “Consumer Protection Services” eligible under CSR. (Reference received by Dr. V.G. PatelChairman of Consumer Education and Research Centre). (i) Providing effective consumer grievance redressal mechanism.

(ii) Protecting consumer’s health and safety, sustainable consumption, consumer service, support and complaint resolution.

(iii) Consumer Protection Activities

(iv)Consumer Rights to be mandated.

(v) all consumer protection programmes and activities” on the same line as Rural Development, Education etc.

 

Consumer Education and Awareness can be covered under Schedule VII

(ii) “promoting education”

5. a) Donations to IIM [A] for conservation of buildings and renovation of classrooms would qualify as “promoting education” and hence eligible for compliance of companies with Corporate Social Responsibility.

b) Donations to IIMA for conservation of buildings and renovation of classrooms would qualify as “protection of national heritage, art and culture, including restoration of buildings and sites of historical importance” and hence eligible for compliance of companies with CSR.

Conservation and renovation of school buildings and classrooms relates to CSR activities under Schedule VII as “promoting education”.
6. Non Academic Technopark TBI not located within an academic Institution but approved and supported by Department of Science and Technology. Schedule VII (ii) under “promoting education”, if approved by Department of Science and Technology.
7. Disaster Relief Disaster relief can cover wide range of activities that can be appropriately shown under various items listed in Schedule VII. For example,

(i) medical aid can be covered under ‘promoting health care including preventive health care.’

(ii) food supply can be covered under eradicating hunger, poverty and malnutrition.

(iii) supply of clean water can be covered under ‘sanitation and making available safe drinking water’

8. Trauma care around highways in case of road accidents. Under ‘health care’.
9. Clarity on “rural development projects” Any project meant for the development of rural India will be covered under this.
10. Supplementing of Govt. schemes like mid-day meal by corporates through additional nutrition would qualify under Schedule VII. Yes. Under Schedule VII, item no. (i) under ‘poverty and malnutrition’.
11. Research and Studies in the areas specified in Schedule VII. Yes, under the respective areas of items defined in Schedule VII. Otherwise under ‘promoting education’.
12. Capacity building of government officials and elected representatives – both in the area of PPPs and urban infrastructure. No.
13. Sustainable urban development and urban public transport systems Not covered.
14. Enabling access to, or improving the delivery of, public health systems be considered under the head “preventive healthcare” or measures for reducing inequalities faced by socially & economically backward groups”? Can be covered under both the heads of “healthcare” or “measures for reducing inequalities faced by socially & economically backward groups”, depending on the context.
15. Likewise, could slum re-development or EWS housing be covered under “measures for reducing inequalities faced by socially & economically backward groups” Yes.
16. Renewable energy projects Under ‘Environmental sustainability, ecological balance and conservation of natural resources’
17. (i) Are the initiatives mentioned in Schedule VII exhaustive?(

ii) In case a company wants to undertake initiatives for the beneficiaries mentioned in Schedule VII, but the activity is not included in Schedule VII, then will it count (as per 2(c) (ii) of the Final Rules, they will count)?

(i) & (ii) Schedule VII is to be liberally interpreted so as to capture the essence of subjects enumerated in the schedule.
18. US-India Physicians Exchange Program – broadly speaking, this would be program that provides for the professional exchange of physicians between India and the United States. No.

Constitution of a High Level Committee to suggest measures for improved monitoring of the implementation of Corporate Social Responsibility policies by the companies under Section 135 of the Companies Act, 2013.

Circular No.01/2015 dated 3-2-2015

1. Undersigned has been directed to state that a High Level Committee has been constituted under the Chairmanship of Shri Anil Baijal, Former Secretary, Govt. of India to suggest measures for monitoring the progress of implementation of Corporate Social Responsibility (CSR) policies by companies at their level and by the Government under the provisions of Section 135 of the Companies Act, 2013 and Rules thereunder.

2. The Composition of the High Level Committee is as under:

S. No. Name Role
i. Shri Anil Baijal

Former Secretary to Govt. of India

Chairperson
ii. Professor Deepak Nayyar

Professor (Emeritus), Jawahar Lal Nehru University, New Delhi

Member
iii. Shri Onkar S Kanwar

Chairman & Managing Director, Apollo Tyres Ltd.

Member
iv. Shri Kiran Karnik

Former President – NASSCOMM, New Delhi

Member
v. Secretary, Department of Public enterprises (Represented by an officer not below the Rank of Joint Secretary) Member
vi. Additional Secretary (*)

Minstry of Corporate Affairs

Member – Convener

(*) Economic Adviser, MCA will discharge the responsibility in the absence of the Additional Secretary, MCA.

3. Terms of reference of the Committee are as under:

i) To recommend suitable methodologies for monitoring compliance of the provisions of Section 135 (Corporate Social Responsibility) of the Companies Act, 2013 by the companies covered thereunder.

ii) To suggest measures to be recommended by the Government for adoption by the companies for systematic monitoring and evaluation of their own CSR initiatives.

iii) To identify strategies for monitoring and evaluation of CSR initiatives through expert agencies and institutions to facilitate adequate feedback to the Government with regard to efficacy of CSR expenditure and quality of compliance by the companies.

iv) To examine if a different monitoring mechanism is warranted for Government Companies undertaking CSR, and if so to make suitable recommendations in this behalf.

v) Any other matter incidental to the above or connected thereto.

4. The Committee shall submit its report within Six months from the date of holding the first meeting.

5. Ministry of Corporate Affairs and Indian Institute of Corporate Affairs (IICA) shall jointly provide Secretarial and technical support to the committee.The Indian Institute of Corporate Affairs will render the necessary logistic support to the High Level Committee.

Extension for a period of one month for the High Level Committee on CSR

General Circular No.13/2015 dated 16th Sept, 2015 

1. A High level Committee was constituted to suggest measures for improved monitoring of the implementation of Corporate Social Responsibility policies by the companies under Section 135 of the Companies Act, 2013, vide OM of even no. dated 03.02.2015. The Committee has been granted extension of another one month with the approval of Hon’ble Union Minister for Corporate Affairs to submit its report by 22.09.2015.

2. This issues with the approval of Hon’ble Union Minister for Corporate Affairs.

 

General Circular No. 01/2016

Frequently Asked Questions (FAQs) with regard to the Corporate Social Responsibility under Section 135 of the Companies Act, 2013

Sir,

Section 135 of the Companies Act, 2013, Schedule VII of the Act and Companies CSR Policy Rules, 2014 read with General Circular dated 18.06.2014 issued by the Ministry of Corporate Affairs, provide the broad contour within which eligible Companies are required to formulate their CSR policies including activities to be undertaken and implement the same in the right earnest. While complying with the Corporate Social Responsibility (CSR) provisions of the Act, Board of the eligible companies are empowered to appraise and approve their CSR policy including CSR projects or programmes or activities to be undertaken. In this connection, Ministry has been receiving several queries and references seeking further clarifications on various issues relating to CSR provision of the Act.

  1. In continuation to this Ministry’s General Circular dated 18th June, 2014 and 17th September, 2014, a set of FAQs along with response to the Ministry is provided for facilitating effective implementation of CSR:FREQUENTLY ASKED QUESTIONS ON CORPORATE SOCIAL RESPONSIBILITIES
    S. No. FAQs
    1. Whether CSR provisions are applicable to all companies?
      CSR provisions of the Companies Act, 2013 is applicable to every company registered under the Companies Act, 2013 and any other previous company law 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.

    2. What is meaning of ‘any financial year’ mentioned above?
      “Any Financial year” referred under Sub-Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014 implies any of the three preceding financial years. (refer General Circular No. 21/2014, date 18.06.2014)
    3. Whether CSR expenditure of a company can be claimed as a business expenditure?
      The amount spent by a company towards CSR cannot be claimed as business expenditure. The Finance Act, 2014 provides that any expenditure incurred by an assessee on the activities relating to Corporate Social Responsibility referred to in Section 135 of the Companies Act, 2013shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.
    4. Whether the ‘average net profit’ criteria for section 135(5) is Net profit before tax or net profit after tax?
      Computation of net profit for section 135 is as per section 198 of the Companies Act, 2013 which is primarily PROFIT BEFORE TAX (PBT).
    5. Can the CSR expenditure be spent on the activities beyond Schedule VII?
      General Circular No. 21/2014 dated June 18, 2014 of MCA has clarified that the statutory provision and provisions of CSR Rules, 2014, is to ensure that activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act, 2013. The entries in the said schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities. The General Circular also provides an illustrative list of activities that can be covered under CSR. In a similar way many more can be covered. It is for the Board of the company to take a call on this.
    6. What tax benefits can be availed under CSR?
      No specific tax exemptions have been extended to CSR expenditure per se. The finance act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax exemption has been extended to expenditure incurred on CSR, spending on several activities like contributions to Prime Minister’s relief  Fund, scientific research, rural development projects, skill development projects, agriculture extension projects, etc., which find place in Schedule VII, already enjoy exemptions under different sections of the Income Tax Act, 1961.
    7. Which activities would not qualify as CSR?
      ·         The CSR projects or programs or activities that benefit only the employees of the company and their families.

    ·         One-Off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorship of  TV programmes etc.

    ·         Expenses incurred by companies for the fulfillment of any other Act/Statute of regulations (such as Labour Laws, Land Acquisition Act, 2013, Apprentice Act, 1961 etc.)

    ·         Contribution of any amount directly or indirectly to any political party

    ·         Activities undertaken by the company in pursuance of its normal course of business.

    ·         The project or programmes or activities undertaken outside India.

    8. Whether a holding or subsidiary of a company which fulfils the criteria under section 135(1) has to comply with section 135, even if the holding and subsidiary itself does not fulfill the criteria.
      Holding or subsidiary of a company does not have to comply with section 135(1) unless the holding or subsidiary itself fulfills the criteria.
    9. Whether provisions of CSR are applicable on Section 8 Company, if it fulfills the criteria of section 135(1) of the Act.
      Section 135 of the Act reads “Every Company…….”, i.e. no specific exemption is granted to Section 8 companies with regard to applicability of section 135, hence section 8 companies are required to follow CSR provisions.
    10. Can contribution of money to a trust/society/Section 8 Companies by a company be treated as CSR expenditure of the company?
      General Circular No. 21/2014 of MCA dated June 18, 2014 clarifies that Contribution to Corpus of a Trust/Society/Section 8 Companies etc. will qualify as CSR expenditure as long as :

    (a)    the Trust/Society/Section 8 company etc. is created exclusively for undertaking CSR activities or

    (b)   where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act.

    11. Whether display of CSR policy of a company on website of the company is mandatory or not?
    As per section 135(4) the Board of  Directors of the company shall, after taking into account the recommendations of the CSR committee, approve the CSR Policy for the company and disclose contents of such policy in its report and the same shall be displayed on company’s website, if any (refer Rule 8 & 9 of CSR Policy, Rules, 2014).
    12. Whether reporting of CSR is mandatory in Board’s Report?
      The Board’s Report of a company qualifying under Section 135(1) pertaining to a financial year commencing on or after the 1st Day of April, 2014 shall include an annual report on CSR containing the particulars specified in Annexure. (refer Rule 9of CSR Policy, Rules, 2014)
    13. Whether it is mandatory for foreign company to give report on CSR activity?
      In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section (1) of section 381shall contain an Annexure regarding report on CSR.
    14. Whether contribution towards disaster relief qualifies as CSR or not?
      (May please refer point no. 7 to the annexure to General Circular dated 18.06.2014 issued by the Ministry of Corporate Affairs).
    15. Whether contribution in kind can be monetized to be shown as CSR expenditure?
      Section 135 prescribes “…shall ensure that company spends…”.The Company has to spend the amount
    16. If a company spends in excess of 2% of its average net profit of three preceding years on CSR in a particular year, can the excess amount spent be carried forward to the next year and be offset against the required 2% CSR expenditure of the next year?
      Any excess amount spent (i.e., more than 2% as specified in Section 135) cannot be carried forward to the subsequent years and adjusted against that year’s CSR expenditure.
    17. Can the unspent amount from out the minimum required CSR expenditure be carried forward to the next year?
      The Board is free to decide whether any unspent amount from out of the minimum CSR expenditure is to be carried forward to the next year. However, the carried forward amount should be over and above the next year’s CSR allocation equivalent to at least 2% of the average net profit of the company of the immediately preceding three years.
    18. What is the role of Government in monitoring implementation of CSR by companies under the provision of the Companies Act, 2013?
      The main thrust and spirit of the law is not to monitor but to generate conducive environment for enabling the corporates to conduct themselves in a socially responsible manner, while contributing towards human development goals of the country.

    The existing legal provisions like mandatory disclosures, accountability of the CSR committee and the Board, provisions for audit of the accounts of the company etc. provide sufficient safeguards in this regard. Government has no role to play in monitoring implementation of CSR by companies.

    19. Whether Government is proposing to establish any mechanism for third parties to monitor the quality and efficacy of CSR expenditure as well as to have an impact assessment of CSR by Companies?
      Government has no role to play in engaging external experts for monitoring the quality and efficacy of CSR expenditure of companies. Boards / CSR Committees are fully competent to engage third parties to have an impact assessment of its CSR programme to validate compliance of the CSR provision of the law.
    20. Can CSR funds be utilized to fund Government Scheme?
      The objective of this provision is indeed to involve the corporates in discharging their social responsibility with their innovative ideas and management skills and with greater efficiency and better outcomes. Therefore, CSR should not be interpreted as a source of financing the resource gaps in government scheme. Use of Corporate Innovations and management skills in the delivery of ‘ public goods’ is at the core of CSR implementation by the Companies. In- principle, CSR fund of Companies should not be used as a source of funding Government Schemes. CSR projects should have a larger multiplier effect than that under the Government schemes.

     

    However, under CSR provision of the Act and Rules made thereunder , the Board of the eligible company is competent to take decision on supplementing any government scheme provided the scheme permits corporates participation and all the provisions of the Section 135 of the Act and Rules thereunder are complied by the Company.

    21. Who is the appropriate authority for approving and implementation of the CSR programmes/ projects of a Company? What is Government’s role in this regard?
      Government has no role to play in this regard. Section 135 of the Act, Schedule VII and Companies CSR Policy Rules, 2014 read with General Circular dated 18.06.2014 issued by the Ministry of Corporate Affairs, provide the broad contour within which eligible companies are required to formulate their CSR Policies including activities to b e undertaken and implement the same in the right earnest. Therefore, all CSR programmes/ Projects should be approved by the Boards on the recommendation of their CSR Committees. Changes, if any, in the programme/project should also be undertaken only with the approval of the Committee/Board.
    22. How can Companies with small CSR fund take up CSR activities in a project/programme mode?
      A well designed CSR project or programme can be managed with even small fund. Further, there is a provision in the CSR policy rules, 2014 that such companies can combine their CSR programmes with other similar companies by way of pooling their CSR resources, (Refer rule 4 in Companies (CSR Policy) Rules 2014)
    23. Whether involvement of employees of the Company in CSR project/programmes of a Company can be monetized and accounted for under the head of ‘CSR expenditure’?
      Contribution and involvement of Employees in CSR activities of the Company will no doubt generate interest/pride in CSR work and promote transformation from Corporate Social Responsibility (CSR) as an obligation to Socially Responsible Corporate (SRC) in all aspects of their functioning. Companies therefore, should be encouraged to involve their employees in CSR activities. However monetization of pro bono services of employees would not be counted towards CSR expenditure.

 

Clarification with regard to provisions of Corporate Social Responsibility under section 135 of the Companies Act, 2013

General Circular No. 05/2016 dated 16th May 2016

In continuation to the Ministry’s General Circular 01 of 2016 dated 12.01.2016, it is clarified that companies, while undertaking Corporate Social Responsibility activities under provision of the Companies Act, 2013, shall not contravene any other prevailing laws of the land including Cigarettes and Other Tobacoo Products Act (COTPA), 2003.

[1] Substituted by Companies (Corporate Social Responsibility Policy) Amendment Rules, 2016 dated 23rd May, 2016 vide Notification Number G.S.R. 540(E). Prior to the substitution, it read as under:

(2) The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through a registered trust or a registered society or a company [established under section 8 of the Act by the company, either singly or alongwith its holding or subsidiary or associate company, or alongwith any other company or holding or subsidiary or associate company of such other company, or otherwise]:

Provided that—

(i) if such trust, society or company is [not established by the company, either singly or alongwith its holding or subsidiary or associate company, or alongwith any other company or holding or subsidiary or associate company of such other company], it shall have an established track record of three years in undertaking similar programs or projects;

(ii) the company has specified the project or programs to be undertaken through these entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism.

[2] Clarification (iv) omitted vide General Circular No.36/2014 dated 17th September, 2014. Prior to the omission, it read as under:

“Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies (in proportion to company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure”

Recent Articles

Recent Legal updates