Philanthropy in India is a phenomena as old as India itself. Corporates have responsibility to the society also in which it works. Indian corporates even before the introduction of concept of corporate social responsibility into Companies Act, 2013 were in various ways involved directly or indirectly in various charitable and philanthropic activities integrating economic and social development for the benefit of human mankind at large.
Corporate Social Responsibility is a much wider concept than philanthropy and charity. Now Section 135 of Companies Act, 2013 provides for corporate social responsibility which runs as under:
- Corporate Social Responsibility
(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
(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
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.
Vide notification no. GSR129(E) dated 27th February,2014 Central Government has notified Companies (Corporate Social Responsibility Policy) Rules, 2014 which defines in detail and enumerate the scope and modalities of “Corporate Social Responsibility”, CSR Committee, Net Profit , CSR Activities, CSR Policy, CSR Expenditure, CSR Reporting, display of CSR activities on its website, and format for the annual report on CSR activities to be included in the Board’s Report. Sub rule 6 of rule 4 of these rules was amended by notification no. G.S.R. 644(E)dated 12.09.2014 the words inserting the words “ including expenditure on administrative overheads” after the words “but such expenditure”
This amendment allowed administrative overheads within the limit of 5% that corporate can incur on building CSR capabilities of own staff as well as of implementing agency.
Sub rule (2) to Rule 4 was amended on 19.1.2015 vide GSR 43 (E) by substituting the following words “ 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” in place of words
“ by the company or its holding or subsidiary or associate company under section 8 of the Act or otherwise”
Proviso (i) to rule 4(2) was also amended on 19.1.2015 vide GSR 43(E) by substituting the following words “ 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” in place of words “ or its holding or subsidiary or associate company,”
Updated rules are annexed at the end.
Schedule VII referred to in Section 135 prescribes the following activities as CSR activities: ( As amended by notification no. G.S.R. 130(E) dated 27th February, 2014 with effect from 1st April, 2014)
- eradicating hunger, poverty and malnutrition, promoting (health care including)* preventive health care and sanitation( including contribution to the Swach Bharat Kosh set up by the Central Government for the promotion of sanitation)** and making available safe drinking water:
- *inserted by notification G.S.R. 261(E) dated 31.3.2014
- ** inserted by notification dated 24.10.2014
- 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 centers and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
- 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 ( including contribution to the clean Ganga Fund set up by the Central Government for rejuvenation of river Ganga;)*
- * inserted by notification dated 24.20.2014
- protection of national heritage, alt 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 recognised sports, paralympic sports and Olympic sports;
- 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.“
- (Slum area development
Explanation.-For the purposes of this item, the term ‘ slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.)*
- Inserted by notification no.G.S.R. (E)568 dated 06.08.2014
Above activities are to be interpreted liberally as these are broad based and are intended to include wide range of activities. To make it absolutely clear MCA has issued general circular No.21/2014 on 18/06/2014 which runs as under:
“ 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) 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. ( This clarification stands omitted consequent upon amendment to rule 4(6) of the Companies (Corporate Social Responsibility Policy )Rules, 2014 as per further clarification issued vide General Circular No. 36/2014 dated17.09.2014)
(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
|SI. No.||Additional items requested to be included in Schedule VII or to be clarified as already being covered under Schedule VII of the Act
|Whether covered under 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.
(a) Schedule VII (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.’|
|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.
|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) 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.
(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. Patel, Chairman 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 programs and activities” on the same lines as Rural Development, Education etc.
|Consumer education and awareness can be covered under Schedule VII (ii) “promoting education”.|
|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’,|
(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.
Government has also constituted a high level committee 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 policies by the companies at their level and by the Government under the provisions of Section 135 of the Companies Act, 2013 and rules thereunder. Terms of reference are mentioned in the office memorandum. Committee shall submit its report within six months from the date of holding of its first meeting ( General Circular no. 01/2015, F.No. 05/09/2014- CSR dated 03.02.2015)
Companies(Corporate Social Responsibility Policy) Rules,2014
Ministry of Corporate Affairs
– New Delhi, dated 27/02/2014
G.S.R. 129. – (E). – In exercise of the powers conferred under section 135 and sub-sections (1) and (2) of section 469 of the Companies Act, 2613 (18 of 2013), the Central Government hereby makes the following rules, namely: –
- 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.
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 othe 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) ,shqIl 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.
- 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 fulfils the criteria specified in sub-section (I) 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 withI 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-section (2) to (5) of the said section, till such time it meets the criteria specified in sub-section (1) of section 135.
- 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.
(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 )*
* Amended by substitution on 19.01.2015 vide GSR 43(E)
(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;
* Amended by substitution on 19.01.2015 vide GSR 43(E)
(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.
(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)* shall not exceed five percent. of total CSR expenditure of the company in one financial year.
* Inserted by notification no. GSR644(E) dated 12.09.2014
(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.
- CSR Committees.-
(1) The companies mentioned in the 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.
- 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 the 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.
- 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.
- 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.
- 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.
FORMAT FOR THE ANNUAL REPORT ON CSR ACTMTIES TO BE INCLUDED IN THE BOARD’S REPORT
- 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.
- The Composition of the CSR Committee.
- Average net profit of the company for last three financial years
- Prescribed CSR Expenditure (two per cent. of the amount as in item 3 above)
- 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) S. No (2) CSR project or activity identified. (3)Sector in which the Project is covered (4) Projects or programs (1) Local area or other (2)Specify the State and district where projects or Programs was undertaken (5) Amount outlay (budget) project or wise (6) Amount spent on the projects or programs Subheads: (1)Direct expenditure on projects or programs. (2)Overheads : (7) Cumulative expenditure upto to the reporting period- (8) Amount spent: Direct or through implementing agency
- Give Details of implementing agency
- 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.
- 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)