Section 135 (s.135) and Schedule VII (Sch VII) of the Companies Act 2013 notified. These cover the Corporate Social Responsibility under the new Companies Act 2013 and will be applicable from 1st April 2014.

Applicability:

1. Both Listed and Unlisted Companies, including private limited companies and foreign companies
2. Revenue >= Rs1,000 crores OR Net Worth >= Rs500 crores OR Net Profit >= Rs5 crores

Hence, these rules will be applicable to a company even if it’s net profit is Rs5 crores or more; but revenues are below Rs1,000 crores and Net Worth is less than Rs500 crores.

Net Profit does not include

• profits from foreign operations / branches
• dividends received from companies to whom CSR Rules are applicable [this also implies that dividends from other companies will be included and increase the net profit to that extent]
• the surplus arising out from the CSR activities

CSR Committee

Composition:

1. 3 or more directors
2. at least 1 independent director
3. exception: private companies with only 2 directors

Duties:

1. put in place a transparent monitoring mechanism for implementation
2. recommend the amount of expenditure to be incurred
3. formulate, recommend & monitor CSR Policy (within framework of Sch VII)

Board of Directors (BoD) Duties & Responsibilities

• While it is the CSR Committee’s duty to formulate and recommend the CSR Policy, it is clear that it is the responsibility of the BoD’s to approve, implement and disclose the same
• CSR Policy contents to be displayed on the company’s website
• Ensuring that the required 2% of net profits is spent in line with the CSR Policy
• BoD to report in the Annual Report:

1. the composition of the CSR Committee
2. activities undertaken and expenditure, in specified format

CSR Policy

CSR Policy needs to be formulated and recommended by the CSR Committee and should include:

• list of activities to be undertaken as CSR (can be only from CSR Activities below)
• has to specify the execution modalities of the CSR Activities, and need to include the implementation schedule, and
• process of monitoring and reporting of the CSR Activities

The CSR activities cannot include activities normally undertaken by the company for its business, e.g. related for the benefits of the employees of the company / group.

CSR Activities (Sch VII)

There are specified activities (also called projects or programs) which are permissible. These are, in brief:

1. eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water;
2. promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;
3. 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;
4. ensuring environment sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water;
5. 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;
6. measures for benefit of armed forces veterans, war widows and their dependents;
7. training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;
8. contribution to 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 Schedules Castes, the Scheduled Tribes, other backward classes, minorities and women;
9. contribution or funds provided to technology incubators located within academic institutions which are approved by the Central Government;
10. rural development projects.

Other Points:

• CSR expenditure can include contributions to corpus
• Only activities carried out in India are considered for eligible expenditure.
• The company can spend to increase their CSR capacities; but such expenditure cannot be more than 5% of the CSR expenditure
• Contribution, directly or indirectly, to any political party is specifically excluded from CSR activity
• CSR Activities can be undertaken either through registered trust / registered society / company established by it or by its holding / subsidiary / associate entity.
• In case the activities are being undertaken by any other entity it needs to have a 3 year track record of having undertaken similar activities.

Below are links to the notifications (pdf format | will open in new page):

Notification 1 of 2014 – for enabling s.135

Notification 2 of 2014 – CSR Rules [Officially: Companies (Corporate Social Responsibility Policy) Rules, 2014

Notification 3 of 2014 – for modifying Schedule VII [list of eligible activities]