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Provisions of Section 135- Corporate Social Responsibility under the Companies Act 2013

Provisions of Section 135- Corporate Social Responsibility under the Companies Act 2013. The Institute of Chartered Accountants of India. Applicability of Section 135 with Rules and Schedule VII.

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Provisions of Section 135- Corporate Social Responsibility under the Companies Act 2013

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  1. Provisions of Section 135- Corporate Social Responsibility under the Companies Act 2013 The Institute of Chartered Accountants of India

  2. Applicability of Section 135 with Rules and Schedule VII  The Ministry of Corporate Affairs has notified Section 135- Corporate Social Responsibility and Schedule VII of the Companies Act, 2013 and the provisions of the same shall be applicable from 1st April, 2014.  The Rules under Section 135 of the Companies Act, 2013 shall be called as Companies (Corporate Social Responsibility Policy) Rules, 2014.  The Rules shall come into force from 1st April, 2014.

  3. Definition of Corporate Social Responsibility  Corporate Social Responsibility means and includes but is not limited to :- • Projects and programs relating to activities specified in Schedule VII of the Act, or • Projects or programs relating to activities undertaken by the board of directors of a company (Board) in recommendations of the CSR Committee of Board as per declared CSR policy of the company subject to the condition that will cover subjects enumerated in Schedule VII of the Act.

  4. Definition of Net Profit ’Net Profit’ means the net profit of a company as its financial statement prepared in accordance with the applicable provisions of the Act but shall not include the following: • Profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; • Any dividend received from other companies in India, which are covered under and complying with the provisions of Section 135. Provided that net profit calculated for the previous years as per the provision of the Companies Act 1956 shall not be required to be re- calculated as per the provisions of Companies Act, 2013. In case a foreign company is covered under these rules, net profit would be as per the profit & loss account prepared in terms of clause (a) of Sub- section (1) of section 381 read with Section 198 of the Act.

  5. Applicability on Holding, Subsidiary and Foreign Company  Every company including its holding or subsidiary, and a foreign company defined under section 2 (42) of the Act having its branch office or project office in India, which fulfills the criteria specified in section (135) (1) 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 & loss account of such company prepared in accordance with the provisions of section (381)(1) (a) and Section 198 of the Act.

  6. Contd….  Every company which ceases to be a company covered under section 135 (1) of the Act for three consecutive financial years shall not be required to - • constitute a CSR Committee; and • comply with the provisions contained in sub-section (2) to (5) of the said section, till such time it meets the criteria specified in section 135 (1).

  7. Requirements for constituting CSR Committees  The companies mentioned in the rule 3 shall constitute CSR Committee as under.- • an unlisted public company or a private company which is not required to appoint an independent director shall have its CSR Committee without such director; • a private company having only two directors on its Board shall constitute its CSR Committee with two such directors; • In case of a foreign company, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under Section 380 (1) (d) of the Act and another person shall be nominated by the foreign company.  The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

  8. CSR Policy  '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.  The CSR Policy of the company shall, inter-alia, include the following, namely:- • 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 project or programs and implementation schedules for the same; and • monitoring process of such projects or programs:

  9. Contd…. 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 CSR Policy are related to the activities included in Schedule VII of the Act. 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.

  10. What constitutes CSR Expenditure CSR expenditure shall include all expenditure including contribution to corpus, or on 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.

  11. CSR Reporting  The Board's Report of a company covered under these rules pertaining to a financial year commencing on or after the 1st April, 2014 shall include an annual report on CSR containing particulars specified in Annexure.  In case of a foreign company, the balance sheet filed under Section 381 (1) (b) shall contain an Annexure regarding report on CSR.

  12. 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.

  13. What shall be considered as CSR activities  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.  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 by the company or its holding or subsidiary or associate company under section 8 of the Act or otherwise:

  14. Contd… Provided that- • if such trust, society or company is not established by the company or its holding or subsidiary or associate company, it shall have an established track record of three years in undertaking similar programs or projects; • 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.

  15. Contd…  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.  Subject to provisions of section 135 (5) of the Act, the CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure.

  16. What shall not be considered as CSR activities  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.  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 shall not exceed five percent of total CSR expenditure of the company in one financial year.  Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.

  17. Schedule VII- Activities which may be included by companies in CSR Policies Activities relating to: -  eradicating hunger, poverty and malnutrition, promoting preventive health care and 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;

  18. Contd…  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;  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 arts and handicrafts;  measures for the benefit of armed forces veterans, war widows and their dependents;  training to promote rural sports, nationally recognized sports, paralympic sports and Olympic sports;

  19. Contd…  contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;  contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government;  rural development projects.

  20. Thank You……

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