Corporate Social Responsibility

[Section-135]
By
Akhil Kodam
20464
 What is CSR ?

• Corporate Social Responsibility is the continuing commitment by

business to behave ethically and contribute to economic development
while improving the quality of life of the workforce and their families
as well as local community and society at large
-Lord Holme and Richard Watts
 Let’s understand what is CSR act
Back in 2013 India was the first country in the world to make CSR an act by law
 In the Language of Law
Statutory provision [Section 135(1)]
Every company having
• (a) Net worth of ≥ Rs 500 crores
• (b) Turnover of ≥ Rs 1000 crores
• (c) Net profit of ≥ Rs 5 crores 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.
Where a company is not required to appoint an independent director under the Act, it
shall have in its Corporate Social Responsibility Committee two or more directors.
Let’s see few examples for better
understanding
How many Companies in India liable for
CSR?(Amazing facts)
 FUNCTIONS-Section-135(3)
Check: Does the Company attracts the provision of Section 135?

IF

YES NO STOP

STEP 2
Constitute CSR Committee

STEP 3
Formulate and recommend CSR policy to the board

STEP 4
Monitor the policy time to time and ensure implementation
 Where do companies spend this money ?
Schedule-7 under Sec-135

• Eradicating hunger, poverty and malnutrition

• Promoting education
• Promoting gender equality
• Ensuring environmental sustainability
• Protection of national heritage, art and culture
• Measures for the benefit of armed forces veterans
• Training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic sports
• Contribution to PM’s national relief fund
• Contribution to incubators or research and development projects
• Contribution to public funded universities
 Annual Plan : [Rule 5(2)] 
The CSR committee shall formulate & recommend an annual plan to the
Board. How do you execute it..?

a) The list of CSR projects or programs that are approved to be undertaken in areas
or subjects specified in Schedule VII of the Act.
b) The manner of execution of such projects or programs as specified in rule [4 ] sub
rule(1)
c) The modalities of utilization of funds and implementation schedules for the projects
or programs.
d) Monitoring and reporting mechanism for the projects or programs.
e) The details of need and impact assessment, if any, for the projects undertaken by
the company.
 Board’s Responsibility
[Section-135(Rule-4)]
The Board of every company shall –
(a) After taking into account the recommendations made by the Corporate
Social Responsibility Committee, approve the CSR Policy for the company
and disclose contents of such Policy in its report and also place it on the
company’s website, if any.
(b) Ensure that the activities as are included in the CSR Policy of the company
are undertaken by the company. The Board shall ensure that the CSR
activities are undertaken by the company itself or through eligible entities.
 Eligible Entities[Rule 4(1)]
• A company established under section 8 of the Act, or a registered public trust or a
registered society, registered under section 12A and 80 G of the Income Tax Act, 1961
established by the company, either singly or along with 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
• (c) Any entity established under an Act of Parliament or a State legislature; or
• (d) A company established under section 8 of the Act, or a registered public trust or a
registered society, registered under section 12A and 80G of the Income Tax Act, 1961,
and having an established track record of at least three years in undertaking similar
activities
 CSR Expenditure[Section-135(5)]
• The Board of every company shall ensure that the company spends, in
every financial year, at least two percent of the average net profits of the
company made during the three immediately preceding financial years
• Board shall monitor the administrative overheads and shall not exceed 5%
of total CSR budget
• Surplus arising to be ploughed back to the same project within 6 months
• Transfer unspent money to a fund included in schedule 7
 Rule-4(3),4(4) & 4(5)
• A company may engage international organizations for designing, monitoring, and
evaluation of the CSR projects or programs as per its CSR policy as well as for the capacity
building of their personnel for CSR.
• 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
• Utilization of Fund [Rule 4(5)] The Board of a company shall satisfy itself that the funds
disbursed to the entities for CSR have been utilized for the purposes and in the manner as
approved by it and the Chief Financial Officer or the person responsible for financial
management shall certify to the effect.
ACQUISITION OF CAPITAL ASSET [Rule 7(4)] The CSR amount may be
spent by a company for the creation or acquisition of a capital asset,
which shall be held by :
(a) A company established under section 8 of the Act, or a Registered Public
Trust or Registered Society, having charitable objects and CSR
Registration Number under Rule 4(2).
(b) Beneficiaries of the said CSR project, in the form of self-help groups,
collectives, entities; or
(c) A public authority.
Any capital asset created by a company prior to the commencement of the
Companies CSR Amendment Rule 2021, shall within a period of one
hundred and eighty days from such commencement comply with the
requirement of this rule, which may be extended by a further period of not
more than ninety days with the approval of the Board based on reasonable
justification.
 Capital asset Acquisition and its holdings
Rule-7(4)
• (a) A company established under section 8 of the Act, or a Registered
Public Trust or Registered Society, having charitable objects and CSR
Registration Number under Rule 4(2).
• (b) Beneficiaries of the said CSR project, in the form of self-help groups,
collectives, entities; {SHG, FPO or other collectives}or
• (c) A public authority.
 CSR Reporting
• Annual reporting mandatory
• Impact assessment mandatory! If your average CSR expenditure for
last 3 preceding fy year is Rs. 10 Cr for the projects outlay of 1 cr and
having completed not less than 1 year
• Cost for impact assessment is CSR budget and not exceeding 5 % of
the CSR budget
• By accepting responsibility, we take effective steps toward our goal:
an inclusive human society on a habitable planet, a society that works
for all humans and for all nonhumans. By accepting responsibility, we
move closer to creating a world that works for all."
Penalty for violation of CSR provisions
• For Company: punishment with fine which shall not be less than Rs.
50,000 but which may extend to Rs. 25,00,000
• For Officer in default: punishment with imprisonment for a term which
may extend to three years or with fine which shall not be less than Rs.
50,000 but which may extend to Rs. 5,00,000, or with both
 Mandatory CSR project registration in
form CSR1
New Amendment 2021 Rule-4(2)
• Every entity covered under sub rule 1 ,who intends to undertake any CSR
activity, shall register itself with the Central Government by filing the form CSR-
1 electronically with the Registrar, with effect from the 01st day of April 2021.
• The penalty—at least ₹1 crore for the defaulting company and at least ₹2 lakh
for each defaulting officer—was introduced in 2020 to replace imprisonment
provision—maximum three years—for defaulting officers that was brought in a
year before
 Corrective Measures for violation of CSR
provisions
• If the company has failed to make the necessary CSR disclosures in its Board’s Report, it can by
virtue of Section 131, prepare a revised report after obtaining approval of the Tribunal
• If the company fails to spend the threshold amount toward CSR activities, the Board has to, in its
report made under Section 134 (3) (o), specify the reasons for not spending the threshold amount
• The unspent amount from the threshold limit of 2% has to be transferred by the company to a special
account to be opened by the company to be called the Unspent CSR Account, and such amount has to
be spent by the company in pursuance of its obligation towards the CSR Policy within a period of 3
years from the date of such transfer
• The company and its officers can make good the offence by applying for compounding of offence
under Section 441 of the Act.
A Small Case
 Technicolor India (P.) Ltd. v. Registrar Of
Companies
• The Company met the net profit criteria, U/ s 135 of the Companies Act,
2013, and had a CSR committee but it spent some amount as per the CSR
Policy of the Company during the fiscal year 2017-18, which remain
below the threshold mentioned in Section 135 (5) of the Act for which a
reason was duly provided by the company in its Director’s Report.
However it was found that the amount spent on the CSR and associated
detail is incorrectly captured in the Director’s report hence the company
forwarded an application to NCLT Bangalore.
 Judgement:
The tribunal allowed the application of the company to revise its report
giving liberty to the company to file for compounding under section 441
of the Act.

Conclusion
Creating a strong business
and building a better world are
not conflicting goals - they are
both essential ingredients for
long-term success
 References
• https://blog.ipleaders.in/csr-laws-india/
• https://www.livemint.com/news/india/penalty-for-csr-breaches-kicks-
in-today-but-businesses-get-spending-flexibility-11611330157097.html
• https://indiankanoon.org/search/?formInput=csr
• https://taxguru.in/company-law/overview-companies-csr-policy-
amendment-rules-2021.html