CS DIVESH GOYAL

Mob: +918130757966

Practicing Company Secretary

csdiveshgoyal@gmail.com

GOYAL DIVESH& ASSOCIATE

CORPORATE SOCIAL RESPONSIBILITY

CORPORATE SOCIAL RESPONSIBILITY COMPANIES ACT, 2013
GOYAL DIVESH & ASSOCIATES,
Practicing Company Secretary
SeriesSeries- 43

SERIES
NO- 43

Presently Corporate Social Responsibility (CSR) expenditure is at the discretion of the

corporate however after enactment of Section 135 of Companies Act 2013 such
expenditure is made mandatory for certain corporate.
Corporate Social Responsibility (CSR) has been in existence for a long time and is almost
as old as civilization. It is based on the Gandhian Principle of trusteeship concept
whereby business houses are looked upon as trustees of the resources they draw from
society and thus are expected to return them back manifold. CSR is extremely important
for sustainable development of all stakeholders (all the people, on whom the business
has an impact, including the society at large).
With the enactment of the Companies Act, 2013, India has become the forerunner to
mandate spend on Corporate Social Responsibility (CSR) activities through a statutory
provision. While many corporate houses have been traditionally engaged in doing CSR
activities voluntarily, the new CSR provisions put formal and greater responsibility on
companies in India to set out clear framework and processes to ensure strict
compliance. However, what the Companies Act does is bring more companies into the
fold and increase the total CSR spend.
Company is a social institution having duties and responsibilities towards the
community in which if functions. Its objective is to bring about maximization of social
welfare and common good.

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CS DIVESH GOYAL

Mob: +918130757966

Practicing Company Secretary

csdiveshgoyal@gmail.com

GOYAL DIVESH& ASSOCIATE

MOST IMPORTANT:

India is the only count so far, where CSR has been made mandatory.
Applicability to which CSR provisions applicable:
A. Following below mention companies are required to constitute CSR Committee:

Net worth of
Rs. 500 Crore
or more

Turnover of Rs.
1000 Crore or
more

Net profit of
Rs. 5 crore or
more

B. Provisions of CSR apply to foreign branch/project office of foreign company:The Provisions of CSR are applicable to Foreign Company having Branch office
or project in India if it fulfil the above given criteria.
Important Note:

The criteria of Net Profit etc. apply only to business operations in India in case of
foreign Company/ Project Office.

The Committee should institute a transparent monitoring mechanism for
implementation of the programme.

Board report should disclose composition of CSR Committee.
Ques: When companies get ceases to comply with the provisions of CSR?
Companies covered under CSR provisions goes outside the CSR provisions if it ceases to
fulfil the criteria for Three Consecutive Years. [Rule 3(2) of Companies (CSR Policy)
Rules, 2014.
Once company again fall within the limit provisions of CSR will be applicable on
Company.
Constitutions of CSR Committee: Company to which CSR is mandatory should appoint a
CSR Committee to undertake and monitor CSR activities.
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CS DIVESH GOYAL
Practicing Company Secretary

Mob: +918130757966
csdiveshgoyal@gmail.com

GOYAL DIVESH& ASSOCIATE

The CSR Committee shall consist of 3 (Three) or more Director, out of which at
least one director shall be an Independent Director.

An Unlisted Public Company: This is covered under CSR provisions, but is not
required to have Independent Director need not have Independent director on
the CSR Committee.

Private Limited Company: which is covered under CSR provisions
 Need not have Independent director on the CSR Committee
 Can have CSR committee with only Two Directors.

In case of Foreign Company: The CSR committee should have at least Two person,
out of which
One person shall be specified under section 380(1)(d) of the 2013 Act and
Another person nominated by the Foreign Company.
CSR Committee Meeting:
 Law is silent w.r.t. number of CSR Committee meetings in a year. So it is
dependent on the requirement of the Company. However there is no restriction if
CSR Committee meeting conduct business by circulation.
 For CSR Committee Quorum Law is silent again. It is recommended to apply same
quorum provisions as are applicable to board meetings under section 174 of the
Companies Act, 2013.
 No time limit prescribed for constitution of CSR Committee. However keeping in
view the fact.
Role/ Functions of CSR Committee:

To formulate and recommend to the board CSR Policy as per activities specified in
Schedule VII

To recommend the amount of expenditure to be incurred on above activities

To monitor the policy from time to time.

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CS DIVESH GOYAL
Practicing Company Secretary

Mob: +918130757966
csdiveshgoyal@gmail.com

GOYAL DIVESH& ASSOCIATE

Prepare a transparent monitoring mechanism for ensuring implementation of the

projects / programmes / activities proposed to be undertaken by the company.

Responsibility of the Board of Directors:

To approve the CSR Policy recommended by the committee

To disclose contents of the policy in the report & place it on website.

To ensure that activities reflected in CSR policy are actually undertaken by company.

To ensure that activities included by a company in its Corporate Social Responsibility

Policy are related to the activities included in Schedule VII of the Ac

Net Profit Require spending on CSR Activity:

 To ensure that at least 2% of average net profit of 3 immediately preceding years
is spent on CSR activities every year.
 For Financial Year 2014-15 Calculation: Average net profit of FY 2011-12,
2012-13 & 2013-14 needed to be considered.
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 other companies in India, which are covered under
and complying with provisions of Section 135 of the.

Most Imp: AVERAGE NET PROFIT IS CALCULATED AS PER SECTION 198 I.E.
CALCULATION DONE FOR MANAGERIAL CALCULATION. (Example of calculation as
per Section- 198 given below)
CSR ACTIVITIES
CSR ACTIVITIES INCLUDES:

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CS DIVESH GOYAL
Practicing Company Secretary

Mob: +918130757966
csdiveshgoyal@gmail.com

GOYAL DIVESH& ASSOCIATE



Activities shall be undertaken as per CSR policy excluding activities undertaken

in pursuance of its normal course of business.

Board 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.

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

CSR projects or programs or activities undertaken in India only shall amount to

CSR Expenditure. Preference must be given to the local area in which the
company

ACTIVITY DOESNT INCLUE IN CSR:

Activities undertaken in normal course of business.

Activity undertaken outside India.

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

Contribution of any amount directly or indirectly to any political party under

section 182 of the Act, shall not be considered as CSR activity.

Activity not covered within schedule VII of the 2013 Act.

CSR POLICY & EXPENDITURE

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 :-

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CS DIVESH GOYAL
Practicing Company Secretary

Mob: +918130757966
csdiveshgoyal@gmail.com

GOYAL DIVESH& ASSOCIATE

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
- monitoring process of such projects or programs:

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 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.
SCHEDULE VII MANDATES EXPENDITURE FOR THE FOLLOWING ACTIVITY1) 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, daycare centres and such other
facilities for senior citizens and measures for reducing inequalities faced by socially
and economically backward ,
4) ensuring environmental sustainability, ecological balance, protection of flora and
fauna, animal welfare, agro forestry, 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 art and handicrafts,
6) Measures for the benefit of armed forces veterans, war widows and their dependents;
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CS DIVESH GOYAL
Practicing Company Secretary

Mob: +918130757966
csdiveshgoyal@gmail.com

GOYAL DIVESH& ASSOCIATE

7) training to promote rural sports, nationally recognised sports, paraolympic sports

and Olympic sports; 8) Contribution to the Prime Ministers 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;
9) contributions or funds provided to technology incubators located within academic
institutions which are approved by the Central Government,
10) Rural development projects,
11) Slum Area Development

BUILDING CSR CAPACITY:

Company may build CSR capacity of their own personnel as well as those of their
implementing agencies through institutions with established track record of three years
are permissible. However, such expenditure shall not be more than 5% of total CSR
expenditure of company in one financial year.
EFFECT OF NONE COMPLYING WITH CSR PROVISONS:
If a company fails to provide ors spend such amount, the Board shall specify reasons for
not spending the amount in its report.
Thus, spending on CSR activities is not mandatory and no penalty can be imposed for
non-compliance.
INCOME TAX ASPECTS:
Expenditure on CSR is required. However, allow ability of expenditure on CSR as
deduction under section 37 of Income Tax Act is not yet clear, particularly because
spending on CSR is not mandatory.
NOTE:
o Any surplus arise of the CSR project will not form part of the Business income.

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CS DIVESH GOYAL
Practicing Company Secretary

Mob: +918130757966
csdiveshgoyal@gmail.com

GOYAL DIVESH& ASSOCIATE

o The Board of Directors report undertakes Section 134(3) of the 2013 Act shall
disclose the composition of the Corporate Social Responsibility Committee.

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CS DIVESH GOYAL
Practicing Company Secretary

Mob: +918130757966
csdiveshgoyal@gmail.com

GOYAL DIVESH& ASSOCIATE

SAMPLE BOARD RESOLUTION FOR CONSTITUTION OF CSR COMMITTEE:

RESOLVED THAT pursuant to the provisions of Section 135 of the Companies Act,
2013, a Corporate Social Responsibility (CSR) Committee of the Board of Directors of
the Company be and is hereby constituted comprising of the following members of the
Board of Directors of the Company as members of CSR Committee:
1. Mr. A
2. Mr. B
3. Mr. C
RESOLVED FURTHER THAT the terms of reference of CSR Committee shall, interalia,
Include the following:
a. To formulate and recommend to the Board, a CSR policy which shall indicate the
activities to be undertaken by the Company as per the Companies Act, 2013
b. To review and recommend the amount of expenditure to be incurred on the activities
to be undertaken by the company
c. To monitor the CSR policy of the Company from time to time
d. Any other matter as the CSR Committee may deem appropriate after approval of the
Board of Directors or as may be directed by the Board of Directors from time to time.
RESOLVED FURTHER THAT the quorum for the CSR Committee Meeting shall be one
third of its total strength (any fraction contained in that one third be rounded off as
one) or two members, whichever is higher.
RESOLVED FURTHER THAT Company Secretary to the Company shall act as Secretary to
the CSR Committee.

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CS DIVESH GOYAL

Mob: +918130757966

Practicing Company Secretary

csdiveshgoyal@gmail.com

GOYAL DIVESH& ASSOCIATE

(Author CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in

Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com) Disclaimer: The
entire contents of this document have been prepared on the basis of relevant provisions
and as per the information existing at the time of the preparation. Though utmost efforts
has made to provide authentic information, it is suggested that to have better
understanding kindly cross-check the relevant sections, rules under the Companies Act,
2013. The observations of the author are personal view and the authors do not take
responsibility of the same and this cannot be quoted before any authority without the written

CS Divesh Goyal
GOYAL DIVESH & ASSOCIATE
Mob: +91-8130757966
csdiveshgoyal@gmail.com

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