SECTION 135 OF THE COMPANIES ACT, 2013

INTRODUCTION

Corporate Social Responsibility Under Section 135 of Companies Act 2013. Corporate Social Responsibility (CSR) was conceived as an instrument for integrating social, environmental, and development concerns in the entire value chain of corporate business.

MCA issued ‘Voluntary Guidelines on Corporate Social Responsibility, 2009’ as a first step towards mainstreaming the concept of Business Responsibilities. This was further refined subsequently, as ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011’. The Companies Act, 2013 for the first time mandates that private corporations join public sector firms in annual donations for CSR.

Applicability- Section 135

A company satisfying any of the following criteria during the immediately during preceding financial year is required to comply with CSR provisions: –

• Net worth > 500 crores
• Turnover > 1,000 crores
• Net Profit > 5 Crores

While computing the net profits for CSR Provisions, company need to make adjustment as per section 198 in Profit before tax which has been calculated as per schedule III.

Provided that in case of a foreign company covered under CSR provisions, 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.

Also Read, UNLAWFUL ASSEMBLY OR SECTION 144 IPC

In addition to adjustment required in section 198, “Net Profit” shall also not include the following namely: –

1. Any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise.
2. Any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act.

Eligible CSR Activities

The Board shall ensure that the activities included by a company in its CSR Policy fall within the purview of the activities included in schedule VII. Some activities are specified in Schedule VII as the activities that may be included by companies in their Corporate Social Responsibility Policies.

Importance of Corporate Social Responsibility

CSR is an immense term that is used to explain the efforts of a company in order to improve society in a significant manner. Below reasons reflect why CSR is important:

• CSR improves the public image by publicizing the efforts towards a better society and increasing their chance of becoming favorable in the eyes of consumers.
• CSR increases media coverage as media visibility throws a positive light on the organization.
• CSR enhances the company’s brand value by building a socially strong relationship with customers.
• CSR helps companies to stand out from the competition when companies are involved in any kind of community.

Role of Board of Directors

• After considering the recommendations made by the CSR Committee, approve the CSR policy for the Company.
• The Board must ensure only those activities must be undertaken which are mentioned in the policy.
• The Board of Directors shall make sure that the company spends in every financial year, a minimum of 2% of the average net profits made during the three immediately preceding financial years as per CSR policy.
• In case a company has not completed three financial years since its incorporation, the average net profits shall be calculated for the financial years since its incorporation.

The Board’s Report shall disclose:

• CSR Committee’s composition
• The contents of CSR Policy
• In case CSR spending does not meet 2% as per CSR Policy, the reasons for the unspent amount, and details of the transfer of the unspent amount relating to an ongoing project to a specified fund (transfer within a period of six months from the expiry of the financial year).

Duties of the CSR Committee

• The CSR Committee will formulate and recommend a CSR policy to the Board. CSR policy shall point out the activities to be undertaken by the company as enumerated in Schedule VII of the Act.
• CSR Committee will recommend the amount of expenditure to be incurred on the CSR activities to be undertaken by the company.
• The CSR Committee will monitor the CSR policy of the Company from time to time.
• The CSR Committee will establish a transparent controlling mechanism for the implementation of the CSR projects programs or activities undertaken by the company.

CSR Reporting

• The Board’s Report referring to any financial year initiated on or after the 1st day of April 2014 shall include an annual report on CSR.
• In the case of a foreign company, the balance sheet filed shall contain an Annexure regarding a report on CSR.

CSR Policy

CSR Policy elaborates the activities to be undertaken by the Company as named in Schedule VII to the Act. The activities should not be the same which are done by the company in its normal course of business. Additionally, the Act provides the follwoing in relation to CSR Policy:

• Contents of CSR Policy should be placed on the company’s website by the Board.
• The activities mentioned in the policy must be undertaken by the company.
• The company can join hands with other companies to undertake projects or programs or CSR activities and report separately on such programs or projects.
• The CSR policy shall monitor the projects or programs.