CORPORATE SOCIAL

RESPONSIBILITY
An overview of the Companies Act, 2013
India is the first country in the world to make
corporate social responsibility (CSR) mandatory,
following an amendment to the Companies Act, 2013
in April 2014. Businesses can invest their profits in
areas such as education, poverty, gender equality,
and hunger as part of any CSR compliance.

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WHY CORPORATE SOCIAL
RESPONSIBILITY ?

 Business uses scarce resources of society

• Business often adversely affects environment
• Islands of plenty cannot exist amidst oceans of
poverty
• Government alone cannot tackle problems of
inclusive growth
• Business should supplement Government’s
efforts in addressing social challenges we face
today.
• Business cannot succeed in a society which fails.

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EVOLUTION OF CSR
We are getting here

Section 135 Compliance

Investment in social development

Good corporate
as part of the Business plan
citizenship
(NVGs)

Strategic Community Strategic giving linked to business

investment interest

Philanthropy Passive donations to charities

Pure self interest

Corporate profit
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 FROM CORPORATE RESPONSIBILITY
TO CORPORATE SOCIAL RESPONSIBILITY

Nation Building Compliance to

135

Immediate Community Sanitation, education,

development environment

Welfare of staff families School for staff children,

sanitation in staff colonies etc.

Staff welfare
Occupational safety

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GOVERNMENT & CSR

• DPE
Guidelin
es

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MILESTONES IN CSR

The New Companies Act 2013

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THE SIZE OF THE CSR SPACE –
APPROXIMATELY

► 16,000 Companies

► 18,000 Crores Indian Rupees

► 30,000 Directors of Boards

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QUALIFYING CRITERIA
 Section 135, sub-section 1 of the Companies Act, 2013
provides the qualifying criteria;
 Every company having
i. net worth of rupees five hundred crore or more,
ii.or turnover of rupees one thousand crore or more,
iii.or a net profit of rupees five crore or more

during any financial year is mandated to constitute a

Corporate Social Responsibility Committee of the Board.

Any financial year refers to any of the three preceding financial

years.

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 COMPANIES ACT, 2013

Duties of Directors

166(2) A director of a company shall act in good faith in order to

promote the objects of the company for the benefit of its members as a
whole, and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment.

Penalty
Director of the company---fine which shall not be less than one lakh
rupees but which may extend to rupees five lakh rupees.

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 CSR IN COMPANIES ACT, 2013

Section 135

Applicability
• Every company having
net worth of Rs 500 crore or more, or
turnover of Rs 1000 crore or more
or a net profit of Rs 5 crore or more ;
during any financial year in the preceding 3 financial years

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COMPOSITION OF CSR COMMITTEE

A Corporate Social Responsibility Committee of

the Board consists of three or more directors,
out of which at least one director shall be an
independent director.

An unlisted public company or a private

company covered under Section 135(1) of the
Act, which is not required to appoint an
independent director, shall have its CSR
Committee without such director .

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COMPOSITION OF CSR COMMITTEE
(CONT’D)
A private company with two directors on
Board should constitute its CSR Committee
with only two directors;

The CSR Committee shall institute a

transparent monitoring mechanism for
implementation of the CSR projects or
programs or activities undertaken by the
company.

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 CSR SPEND IN FINANCIAL YEAR

• At least two per cent. of the average net profits of the company made
during the three immediately preceding financial years.

• The section postulates that “net profit” shall be calculated in accordance

with the provisions of section 198.

• Company shall give preference to the local area and areas around it
where it operates, for spending the amount earmarked for CSR activities

• Where the company fails to spend such amount, the Board shall, in its
report, specify the reasons for not spending the amount.

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 Companies (Corporate Social Responsibility
Policy) Rules, 20 I 4

CSR EXPENDITURE
The CSR projects or programs or activities undertaken in
India only shall amount to CSR expenditure.

Activities undertaken in normal course of business of

company shall not be included in CSR spend (eg. The business
of co. is to run educational institution)

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BOARD AND THE COMMITTEE

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CSR PROJECT/PROGRAMME

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CSR PROJECT: IMPLEMENTATION

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SCHEDULE VII – CSR THEMATIC
AREAS

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 RULES EFFCETIVE FROM 1st
APRIL’2014
 Provisions apply to every Indian
company including its holding
company or subsidiary company;

 Surplus arising out of the CSR

Projects or programs or activities
shall not form part of the business
profit of a company;

 CSR projects or programs or

activities undertaken in India only
shall
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amount to CSR Expenditure. 20
 PROVISIONS for FOREIGN
 Section 135COMPANIES
applies to foreign companies
having their branches or project offices in
India;

 Net profit of such companies shall be

determined as per the profit and loss account
prepared under section 381(1)(a) read with
section 198 of the Companies Act, 2013;

 CSR Committees of such companies shall

comprise of at least two persons of which one
shall be as specified under clause (d) of sub-
section (1) of section 380 of the Act and
another person to be nominated by the foreign
company.
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 CSR POLICY

 The policy shall include a list of CSR projects

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

 It will also elaborate the Monitoring process

for such projects or programs.

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CSR EXPENDITURE
 CSR expenditure shall include all expenditure
including contribution to corpuses of
trusts/societies/section 8 companies which are
created exclusively for undertaking CSR
activities or for purposes directly relatable to a
subject covered in Schedule VII;

 A company cannot make any contribution to

any political party or political purpose.

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CSR EXPENDITURE
Activities undertaken in pursuance of the normal
course of business of the company will not
count as CSR;

CSR Projects or programs or activities that

benefit only the employees of the company
and their families shall not be considered as CSR
activities.

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CSR EXPENDITURE ON CAPACITY
BUILDING

 For building CSR capacities of their own

personnel as well as of those of their
implementing agencies, companies may incur
expenditure up to 5 per cent of their CSR
budgets;

 Must be done through institutions with

established track records of at least 3 years.

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COLLABORATION AMONG COMPANIES
FOR IMPLEMENTING CSR

 A company may also collaborate with

other companies for undertaking projects
or programs or CSR activities;

 Provided CSR Committees of respective

companies are in a position to report
separately on such projects or programs in
accordance with these rules.

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THE SECTION 135: IMPLEMENTATION PROCESS
Operationalizing the
1 Developing a CSR Strategy 2
institutional mechanism –
Identifying team identification &
Identifying the
the
Implementing capacity building
3 Implementing Agencies
Agencies
3 (conducting
(conducting due
due diligence,
diligence,
if
if required)
required) Project Development –
Detailed Project Report 4
Clear identification of CSR (DPR)
Budget
5 Project approval –
Finalizing agreement with
insertion of the approved
the implementing agency
6
projects in the policy

Project Implementation 7
Documentation, Evaluation (Concurrent,
8 Monitoring (at Board and Final & preferably Third
Sub-board level) Party)

Project impact Preparation of reporting

9 assessment format and placement in 10
public domain
 Issue 1
• From which FY CSR Expenditure & Reporting Begins?
Response
• Companies have to spend the amount on CSR activities as required by
section 135 during the F.Y. 2014-15 and Reporting of the same would
be in 2015 Board’s Report or otherwise state the justification for the
same in Board Report.
• Average Net Profit of 3 preceding F.Y. will include F.Y 13-14, 12-
13,11-12.

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 Issue 2

• The concept of CSR is based on Comply or Explain. What if company

does not comply nor explain?

Response
Disclosure has to be made in board’s report u/s 134
• Penalty u/s 134(8)
Co. Fine which shall be not less than Rs. 50000 but not more than
Rs. 2500000.
Every officer – Imprisonment extending upto 3 years or fine not less
than Rs. 50000 but not more than Rs. 500000.
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 Issue 3

• Will constitution of CSR Committee be applicable to holding & subsidiary

companies?
Response
• Rule 3(1) of Companies (CSR Policy) Rules, 2014:
• Every company;
• its holding or subsidiary
If fulfills the criteria specified in sub-section (l) of section 135 of the Act
shall comply with the provisions of section 135 of the Act and these rules.
• So, the criteria needs to be fulfilled by individual company.

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 Issue 4

• Should a section 8 company also do CSR?

Response
• Section 8 companies are intended to apply profits in promoting the
charitable and other objects i.e. promotion of commerce, art, science,
sports, education etc. , these should not be required to follow CSR
provisions.
• Rather, under Rule 4 of Companies (CSR Policy) Rules, 2014 companies
may route their CSR activities through its section 8 companies.

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 Issue 5

• Where CSR activities lead to profits then what about such surplus?

Response
• The surplus arising out of the CSR projects or programs or activities shall not form
part of the business profit of a company. The same shall be specified in CSR Policy.
Ideally it should be rolled over to CSR Corpus.

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 Issue 6

• If a company having turnover of more than Rs. 1000 crores or more but has incurred
loss during preceding three the F.Y then whether such company is required to comply
with the provisions of the section 135 Companies Act, 2013?

Response
– As per the literal interpretation the answer is yes. However, such company can
provide the justification for not spending the amount on CSR activity in its Board
Report

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 Issue 7

• There are certain corporate groups who run hospitals and educational
institutions, will this be considered as CSR?

• If the hospitals and educational institutes are part of the business

activity, they would not be considered as CSR Activity. However if
some charity ids done by these hospitals or educational institutes,
without any statutory obligation to do so, then it can be considered as
CSR Activity.

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CSR amendments under the Companies (Amendment) Act, 2019
•Until now, if a company was unable to fully spend its CSR funds in a given year, it
could carry the amount forward and spend it in the next fiscal, in addition to the
money allotted for that year.

•The CSR amendments introduced under the Act now require companies to deposit
the unspent CSR funds into a fund prescribed under Schedule VII of the Act within
the end of the fiscal year. This amount must be utilized within three years from the
date of transfer, failing which the fund must be deposited in to one of the specified
funds.

•The new law prescribes for a monetary penalty as well as imprisonment in case of
non-compliance. The penalty ranges from INR 50,000 (US $700)  to INR 25 lakh
(US $35,000) whereas the defaulting officer of the company may be liable to
imprisonment for up to three years, or a fine up to INR 5 lakh (US $7,023), or both.

•The government, however, is reviewing these rules after the industry objected to
the strict provisions,  especially with respect to the jail terms for CSR violations, and
is yet to operationalize them

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CSR trends in India
Since the applicability of mandatory CSR provision in 2014, CSR spending by
corporate India has increased significantly. In 2018, companies spent 47 percent
higher as compared to the amount in 2014-15, contributing INR 7,536 crores (US $1
billion) to CSR initiatives, according to a survey.

Listed companies in India spent INR 10,000 crore (US$1.4 billion) in various
programs ranging from educational programs, skill development, social welfare,
healthcare, and environment conservation, while the Prime Minister’s Relief Fund saw
an increase of 139 percent in CSR contribution over last one year.  

The education sector received the maximum funding (38 percent of the total) followed
by hunger, poverty, and healthcare (25 percent), environmental sustainability (12
percent), rural development (11 percent). Programs such as technology incubators,
sports, armed forces, reducing inequalities saw negligible spends.

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Tata Group
The Tata Group conglomerate in India carries out various CSR
projects, most of which are community improvement and
poverty alleviation programs. Through self-help groups, it has
engaged in women empowerment activities, income
generation, rural community development, and other social
welfare programs. In the field of education, the Tata Group
provides scholarships and endowments for numerous
institutions.
The group also engages in healthcare projects, such as the
facilitation of child education, immunization, and creation of
awareness of AIDS. Other areas include economic
empowerment through agriculture programs, environment
protection, providing sports scholarships, and infrastructure
development, such as hospitals, research centers, educational
institutions, sports academy, and cultural centers.
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Ultratech Cement
Ultratech Cement, India’s biggest cement company
is involved in social work across 407 villages in the
country aiming to create sustainability and self-
reliance. Its CSR activities focus on healthcare and
family welfare programs, education, infrastructure,
environment, social welfare, and sustainable
livelihood.
The company has organized medical camps,
immunization programs, sanitization programs,
school enrollment, plantation drives, water
conservation programs, industrial training, and
organic farming programs.
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Mahindra & Mahindra
Indian automobile manufacturer Mahindra & Mahindra (M&M)
established the K. C. Mahindra Education Trust in 1954,
followed by Mahindra Foundation in 1969 with the purpose of
promoting education. The company primarily focuses on
education programs to assist economically and socially
disadvantaged communities.
Its CSR programs invest in scholarships and grants, livelihood
training, healthcare for remote areas, water conservation, and
disaster relief programs. M&M runs programs such as Nanhi
Kali focusing on education for girls, Mahindra Pride Schools for
industrial training, and Lifeline Express for healthcare services
in remote areas.

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ITC Group
ITC Group, a conglomerate with business interests across
hotels, FMCG, agriculture, IT, and packaging sectors has been
focusing on creating sustainable livelihood and environment
protection programs. The company has been able to generate
sustainable livelihood opportunities for six million people
through its CSR activities.
Their e-Choupal program, which aims to connect rural farmers
through the internet for procuring agriculture products, covers
40,000 villages and over four million farmers. It’s social and
farm forestry program assists farmers in converting wasteland
to pulpwood plantations. Social empowerment programs
through micro-enterprises or loans have created sustainable
livelihoods for over 40,000 rural women

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Let us show that we do care

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