CORPORATE SOCIAL

RESPONSIBILITY
The Indian Companies Act 2013 imposed compulsory corporate social responsibility
(CSR) obligations upon Indian companies and foreign companies operation in India.
It requires the companies to formulate a corporate social responsibility policy and at
least incur a given minimum expenditure on social activities. The approach is
integrated with the core business strategy for addressing social and environmental
impacts of businesses. It is the responsibility of the enterprises towards their social
impacts. The fundamentals of CSR rest on the fact that not only public policy but
even corporates should be responsible enough to address social issues. CSR
obligations are mainly in the form of mandatory amounts companies must
contribute to remediating social problems.

ENTITIES ELIGIBLE FOR CSR

In order to be eligible of CSR, a company, during any financial year, should have
one of the following:

Net worth of at least rupees five hundred crore or

Turnover of at least rupees one thousand crore or
A net profit of at least rupees five crore

CSR COMMITTEE AND THE ROLE OF THE

BOARD
Such a company 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, unless it is the company is an unlisted private or public
company. In our case, Kochi Metro Rail Ltd., is an unlisted public company and
therefore does not require an independent director in its CSR committee. The
composition of the CSR committee should be disclosed in the Boards report, under
section 134(3).
The Board is to approve the CSR Policy, disclose its contents in its report as well as
in the companys website and ensure that the activities as mentioned in the CSR
Policy are being undertaken by the company. It is also to ensure that the company
spends, in every financial year, at least two percent of the average net profit of the
three immediately preceding financial years to implement its CSR Policy.
Net profit means a company's profits as per its profit and loss account prepared in
accordance with the Companies Act 2013, but excludes profits from a company's

operations outside India or dividends received from an Indian company that has
itself met its CSR requirements. If the net profit of a country for a financial year is
calculated in terms of Companies Act, 1956, then it need not be recalculated in
accordance with the provisions of Companies Act, 2013.
The amount earmarked for CSR should preferably be spent in areas around and
local to the company. Although, the act does not explicitly state this.
The CSR committee is responsible for the formulation and recommendation of the
CSR Policy to the Board, for the recommendation of the amount of expenditure for
the same and of monitoring the CSR Policy of the company from time to time. The
report of the Board of Directors attached to the financial statements of the
Company would also need to include an annual report on the CSR activities of the
company in the format prescribed in the CSR Rules setting out inter alia a brief
outline of the CSR policy, the composition of the CSR Committee, the average net
profit for the last three financial years and the prescribed CSR expenditure. If the
company has been unable to spend the minimum required on its CSR initiatives, the
reasons for not doing so are to be specified in the Board Report.

CSR POLICY
The CSR policy must be formulated by the CSR committee formed by the company
directors or whomsoever in charge of satisfying the responsibility, should comprise
of:
1. The activity undertaken to fulfill the responsibility, ensured by the Board of
Directors that it is specified under Schedule VII under section 135 of the Act,
provided that it excludes the activities undertaken by the company in
pursuance of its normal course of business
2. The expenditure on this activity and monitoring process of such projects or
programs
3. Specification 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 ACTIVITIES
CSR activities, according to Schedule VII under section 135 of the Indian Companies
Act 2013, can be:

Eradicating extreme hunger and poverty;

Promotion of education;
Promoting gender equality and empowering women;
Reducing child mortality and improving maternal health;
Combating human immunodeficiency virus, acquired
deficiency syndrome, malaria and other diseases;

immune

Ensuring environmental sustainability;

Employment enhancing vocational skills;
Social business projects;
Contribution to the Prime Minister's National Relief Fund or any
other found set up by the Central Government or the State
Governments for socio-economic development and relief and funds
for the welfare of the Scheduled Castes, the Scheduled Tribes, other
backward classes, minorities and women;
Such other matters as may be prescribed.
Contribution of any amount directly or indirectly to any political
party, under section 182 of the Act, will not be considered a CSR
activity.
the following is an addition to the Schedule VII specifying activities
that can be undertaken by companies for CSR.

FAILURE TO COMPLY
In the event of failure in spending such CSR funds, the Board in its report must
specify reasons for the same. Although, it is not clear whether failure to comply with
the Act is a legal offence of any sort, it is explicitly stated that the failure to explain
the non-compliance is a punishable offence under the New Companies Act,
implicating that non-compliance with CSR obligations will be subject to investigation
by authorities.

REFERENCE LINKS
1. http://www.business-standard.com/article/companies/an-overview-of-csrrules-under-companies-act-2013-114031000385_1.html
2. http://www.mca.gov.in/Ministry/pdf/CompaniesActNotification2_2014.pdf
3. http://indiacode.nic.in/acts-in-pdf/182013.pdf
4. http://www.mondaq.com/india/x/307596/Corporate+Governance/Indias+New
+Corporate+Social+Responsibility+Requirements+Beware+of+the+Pitfalls
5. http://www.india-briefing.com/news/key-aspects-indias-corporate-socialresponsibility-mandate-clarified-8620.html/