CSR as Defined in Section 135 of The Companies Act


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The Companies Bill 2012 was passed in the Lok Sabha on 18 December 2012. The bill seeks to consolidate and improve corporate governance and further strengthen the regulations for the corporates. One of the noticeable features of the bill is introduction of the most debated concept of Corporate Social Responsibility (CSR). The attached presentation by Ms Gayatri Subramanian, Program Coordinator - CSR & Corporate Governance, Indian Institute of Corporate Affairs, New Delhi, presents a clear picture on the new CSR Bill.

Published in: Business, Economy & Finance
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    CSR will create new carrier opportunities.
    Pl visit www.icsm.in . We are offering MBA-CSR, Phd. CSR

    Sanjeev Chaudhary
    Head Social Advisory & Marketing ICSM
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CSR as Defined in Section 135 of The Companies Act

  2. 2. Historic and Social EconomicContextReligious backgroundCharity and Philanthropy Principle of Trusteeship Social Responsibility - The Western Thought Environmental Concerns CSR and Beyond Business Responsibility- A Holistic Approach
  3. 3.  PM’s Ten Point Social Charter 2007 MCA and CSR Voluntary Guidelines on CSR, 2009 Released in Dec 2009, in presence of the President of India A statement of intent by the national government Intended to be replaced by a more comprehensive guideline National Voluntary Guidelines on Social, Environmentaland Economic Responsibilities of Business 2011 Planning Commission and Task Force on BusinessRegulationGovernment and BusinessResponsibility
  4. 4. The Indian economy has gained a lot from therole that corporates have been playing. Inrecent years they have become: Key drivers of economic growth; Delivery mechanisms for change; Agents of innovation.Indian corporate houses today are pervasiveand have tremendous reach cutting acrossgeographies, ethnicities, culture, languagesetc.Corporate India: Drivers of EconomicGrowth4
  5. 5. The CSR provisions of the Bill seek to create anenabling environment;They will allow corporates to harness andchannelize their core competencies as well asdevelop effective business models;They will promote and facilitate far betterconnect between businesses and communities.The Purpose of Inclusion of CSR in theCompanies Bill5
  6. 6. They will facilitate deeper thought and longerterm strategies for addressing some of our mostpersistent social, economic and environmentalproblems;They will assist in synergizing partnershipsbetween Corporates, Governments, Civil SocietyOrganizations, Academic Institutions and SocialEntrepreneurs.The Purpose of Inclusion of CSR in theCompanies Bill {Contd.}6
  7. 7. The Bill also provides great flexibility to businessand industry for strategising and conducting theirCSR initiatives;Intention of government and purpose of bill is notto make a rigid structure which will constrain thecreativity and imagination of the corporates;It will actually enhance their efforts, provide aneven broader platform and re-energize theirefforts.Catalytic Role of the Bill7
  8. 8. There are many outstanding examples of corporateCSR activity;Indian entrepreneurs and business enterprises havea long tradition of working within the values thathave defined our nation’s character for millennia;Indian businesses have engaged in philanthropic andcharitable activities even from pre-colonial days;However, in recent times, organizations in India haveshown both innovation and business acumen intaking up CSR initiatives and integrating them intotheir business processes.Already a Track Record for Corporatesin CSR8
  9. 9. Development-Centric Agenda forIndian CSROur CSR Agenda should be ours. What we do in CSRshould have a strong Indian orientation and we mustuse our CSR initiatives to address our particularSocial, Economic and Environmental challenges;Quite clearly the challenges of the nation should notand cannot be borne by government alone;Business resources can be channeled into a diversearray of programmes to address these problems andto bring about a sustainable future for all.9
  10. 10. There are a large variety of activities/programmesto which corporates may direct their energies andindeed many corporates have developed a greatdeal of momentum in areas of their choice;However, these efforts are largely individual; There should be a greater synergy amongcorporates to address some areas unitedly, for agreater impact - otherwise resources would bespread too thin for tangible outcomes to emerge;Combined efforts will lead to results that will beboth demonstrable and measurable.Synergy among Corporates10
  11. 11. Provisions of the Companies BillRelating to CSRSECTION 1351) Every company having a net worth of rupees fivehundred crore or more, or a turnover of rupees onethousand crore or more, or a net profit of rupeesfive crore or more during any financial year shallconstitute a Corporate Social ResponsibilityCommittee of the Board consisting of three or moredirectors, out of which at least one director shall bean independent director.2) The Boards report under sub-section (3) of section134 (o) shall disclose the composition of theCorporate Social Responsibility Committee.11
  12. 12. SECTION 135 {CONTD.}3) The Corporate Social Responsibility Committeeshall,a. formulate and recommend to the Board, aCorporate Social Responsibility Policy whichshall indicate the activities to be undertaken bythe company as specified in Schedule VII;b. recommend the amount of expenditure to beincurred on the activities referred to in clause(a); andc. monitor the Corporate Social ResponsibilityPolicy of the company from time to time. 12
  13. 13. SECTION 135 {CONTD.}4) The Board of every company referred to in sub-section(1) shall,a) After taking into account the recommendationsmade by the Corporate Social ResponsibilityCommittee, approve the Corporate SocialResponsibility Policy for the company anddisclose the contents of such Policy in its reportand also place it on the companys website, ifany, in such manner as may be prescribed; andb) ensure that the activities as are included inCorporate Social Responsibility Policy of thecompany are undertaken by the company. 13
  14. 14. SECTION 135 {CONTD.}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 theaverage net profits of the company made during thethree immediately preceding financial years, inpursuance of its Corporate Social ResponsibilityPolicy;Provided that if the company fails to spend suchamount, the Board shall, in its report made underclause (o) of sub-section (3) of section 134, specifythe reasons for not spending the amount. 14
  15. 15. SCHEDULE VII
  17. 17. Under Clause (o) of Sub-Section (3)of Section 134There shall be attached to statements laid before acompany in a general meeting, a report by its Boardof Directors, which shall include:(o) The details about the policy developed andimplemented by the company on corporate socialresponsibility initiatives taken during the year.17
  18. 18. If a company contravenes the provisions of thissection, the company shall be punishable withfine which shall not be less than fifty thousandrupees but which may extend to twenty-five lakhrupees and every officer of the company who isin default shall be punishable withimprisonment for a term which may extend tothree years or with fine which shall not be lessthan fifty thousand rupees but which may extendto five lakh rupees, or with both.Sub Section (8) of Section 13418
  19. 19. Guiding PrincipleCompanies should not limit themselves to usingresources to engage in activities that increase theirprofits. They have to be socially responsiblecorporate citizens and also contribute to the socialgood. Corporate Social Responsibility (CSR) is aboutintegrating economic, environmental and socialobjectives with the company’s operations andgrowth. An organisation can accomplish sustainabledevelopment if CSR becomes an integral part of itsbusiness process. 19Thought process under Companies Bill interms of rules
  20. 20. 1. These Rules may be called Corporate SocialResponsibility (CSR) Rules, 2013. They shall comeinto force on the date of their publication in theofficial gazette;2. Companies may engage in CSR activities in differentmodes – projects or ongoing programmes. Suchactivities may focus on integrating innovativebusiness models with social and environmentalpriorities and processes in order to create sharedvalue. Corporate Social Responsibility (CSR) is theconcept whereby organisations serve the interests ofsociety by taking responsibility for impact of theiractivities on stakeholders, communities and theenvironment in all aspects of their operations.20Thought process under Companies Bill interms of rules
  21. 21. 3. The CSR Committee of the Board constituted undersection 135 of the Act, while formulating the CSRPolicy subject to Board’s approval, shall specify thesector along with specificactivities/projects/programmes to be undertakenduring the financial year in pursuance of such CSRPolicy;4. The CSR Committee shall prepare a comprehensivemonitoring mechanism for ensuringimplementation of the projects / programmes /activities proposed to be undertaken by thecompany.21Thought process under Companies Billin terms of rules
  22. 22. 5. Where a company has set up an organization which isregistered as a Trust or section 8 Company, or Society orany other form of entity incorporated in India to facilitateimplementation of its CSR activities in accordance withits stated CSR Policy:The promoting/contributing company should specifyactivities to be undertaken by such an organizationutilizing funds provided by it;The promoting/contributing company shall establisha monitoring mechanism to ensure that the allocationis spent for the intended purpose only; 22Thought process under Companies Bill interms of rules
  23. 23. Only such contributions by thepromoting/contributing company as are aligned withits CSR Policy can be included in the CSR spend, whichqualifies under Section 135 of the Companies Act;Corpus funds to such organizations by thepromoting/contributing company may also beincluded as a part of CSR spends for that year.However, those funds shall be required to be utilizedin accordance with the CSR Policy of the Company.However, interest on corpus accrued by theorganization cannot be considered as CSR spend of thepromoting/contributing company;Subsidiaries, associates and joint ventures may alsocontribute to such organisation.23Thought process under Companies Bill interms of rules
  24. 24. 6. A company may also fund programmes of Trusts,Societies or section 8 companies incorporated inIndia, which are not set up by the company itself.Such spends may be included as part of itsprescribed CSR spend only if such organizationshave established track record of atleast three/fiveyears in carrying on activities in areas specified bythe promoting/contributing company.24Thought process under Companies Bill interms of rules
  25. 25. 7. Companies are encouraged to meaningfully engageand consult intended beneficiaries/ targetcommunities to ensure effective implementation ofCSR initiatives. Companies may collaborate or poolresources with other companies to undertake theCSR activities and any expenditure incurred onsuch collaborative efforts would qualify forcomputing the CSR Spending.25Thought process under Companies Bill interms of rules
  26. 26. 8. Expenditure incurred towards CSR initiatives inIndia alone will be counted for the purposes ofcompliance under the Act.;9. Companies are encouraged to build capacity oftheir people on CSR across their hierarchy. Allcorporate trainings/orientations with regard toimplementation of provisions of Section 135 ofthe Act could be included in the CSR spending.26Thought process under Companies Bill interms of rules
  27. 27. 10. Salary, perks of employees engaged exclusively inCSR activities may be included as part of company’sCSR spend;11. Any activity that is undertaken exclusively for thebenefit of employees of the company or their familymembers shall not be considered as CSR activity for thepurposes of compliance with this section.27Thought process under Companies Bill interms of rules
  28. 28. 12.All companies falling under the provision of Section135 (1) of the Act shall report the following on CSRinitiatives as part of the Directors’ Report in theAnnual Report which should also be available on thecompany’s website:All companies are mandated to report on informationas specified in Reporting Framework (Annexure 1);Whereas all companies shall mandatorily report onCSR within their Annual Report as specified above, itis entirely voluntary on part of companies to preparedetailed CSR reports or include CSR reporting in otherreporting frameworks in India and elsewhere; 28Thought process under Companies Billin terms of rules
  29. 29. Brief description on each CSR activityundertaken during the year stating the date ofcommencement and status of implementationof each activity.;Any other information or data that would berelevant and useful to the stakeholders andauthorities to appreciate the CSR activitiesundertaken by the company;The expenditure undertaken by the companyon their CSR activities.29Thought process under Companies Billin terms of rules
  30. 30. 1. Contours of the company’s CSR policy including thestatement of intent reflecting the ethos of thecompany, broad areas of interest and activitiesproposed to be undertaken. A web-link of the Policywould be provided;2. Composition of the CSR Committee of the Board;3. The amount earmarked/ allocated for CSR spendingin accordance with clause (5) of Section 135.30Reporting on CSR Initiatives
  31. 31. 4. Details of CSR activities undertaken during the yearin the following or any other format:31Reporting on CSR Initiatives…{CONTD.}S.No. CSR areas identifiedin CSR Policy of thecompanySalient features oftheprogramme/project/activityundertakenAllocationduring the year(INR)Spend duringthe year(INR)1.2.3.Total
  32. 32. 5. Observations of the CSR Committee on theimplementation of CSR initiatives by the companyincluding such other information as may berelevant and useful to the stakeholders toappreciate the CSR activities undertaken by thecompany;6. A company may provide information beyond themandatory details as mentioned in 4 and 5 above.32Reporting on CSR Initiatives…{CONTD.}
  33. 33. 7. In case the company fails to spend the amountprescribed under clause (5) of Section 135; they haveto give reasons for not spending the amount;8. Activities undertaken in compliance of any otherCentral or State Act (other than the Companies Act)would not count as CSR activities for the purposes ofthis clause.33Reporting on CSR Initiatives…{CONTD.}
  34. 34. In pursuance of item (x) of Schedule VII of the Act, thefollowing activities may be included by thecompanies in their Corporate Social ResponsibilityPolicy:Poverty;Food security;Education;Gender Equality and Women Empowerment &Safety;Infant and Maternal Health Care;Public Health, Combating Diseases and Sanitation;34Proposed Schedule VII
  35. 35. Non-commercial provision of public goods;Environment, Energy, Ecology, Biodiversity;Skills, Employment and Livelihoods;Social Business Projects;Welfare Measures for the old, homeless anddestitute;35Proposed Schedule VII.. {CONTD.}
  36. 36. Promoting diversity and inclusion of theunderprivileged; Rural Development;Disaster Management Activities including thoserelated to mitigation;Promotion of sports;Promotion of art, heritage and culture;36Proposed Schedule VII.. {CONTD.}
  37. 37. Welfare measures for differently - able persons;Adoption of villages;Providing alternate energy resource such as solarenergy to the community;Other matters which the Board may consider to beappropriate in light of the declared CSR Policy of thecompany. 37Proposed Schedule VII.. {CONTD.}
  38. 38. THANK YOU38