The Companies Bill 2012 has thrown up several opportunities and challenges. This analysis promotes understanding on the provisions and recommends next steps.

1. The Companies Bill 2012 has thrown
up several opportunities and
challenges. This analysis promotes
understanding on the provisions and
recommends next steps.
Getting Ready for
Upcoming Act on
Corporate Social
Responsibility
What should
Companies & NGOs
do?
SAFRG Research Unit; June 2013

2. “Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013
Page1
Getting Ready for Upcoming
Act on Corporate Social
Responsibility (CSR)
1. Understanding CSR provisions in the Company Bill
2012
i. Relevant Parts of the Bill- the sections 134, 135, Schedule III and
Schedule VII of the Companies Bill 2012 deal with CSR. The sections 134 and 135
are part of Chapter IX on Accounts of Companies.
ii. Mandatory Reporting- the Section 134, under subsection 3, clause (o),
states that there shall be attached to (Financial) statements laid before a company
in general meeting, a report by its Board of Directors, which shall include the details
about the policy developed and implemented by the company on corporate social
responsibility initiatives taken during the year.
iii. Which companies are covered- the section 135 provides further details
on the corporate social responsibility initiatives. Under its subsection (1) it defines
the companies for whom formation of a Corporate Social Responsibility Committee
of the Board is mandatory- every company having net worth of INR 500 crore (INR 5
billion) or more, or turnover of INR 1,000 crore (INR 10 billion) or more or a net profit
of INR 5 crore (INR 50 million) or more during any financial year.
iv. Composition of CSR Committee- it will consist of 3 or more directors,
out of which at least one director shall be an independent director. This composition
needs to be disclosed in the mandatory reporting mentioned in sub point ii.
v. Role of the CSR Committee- formulate and recommend to the Board a
CSR Policy, the amount of expenditure to be incurred and monitoring of the Policy
from time to time.
vi. Role of the Board- approval of the policy recommended by CSR Committee;
disclose content of the Policy in its report and company website. The board also has
to ensure that the company undertakes activities as per CSR Policy and spends in
every financial year at least the referred amount in the law.

3. “Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013
Page2
vii. Referred amount for CSR- every financial year the company should
spend at least 2 percent of the average net profits of the company made during the
three preceding financial years.
viii. Preferred Geography for Application of Funds- as per the Bill,
the company shall give preference to the local area and areas around it where it
operates for spending the amount earmarked for CSR activities.
ix. Which Activities may be included in CSR Policy- in Schedule
VII of the Bill there are 9 specified and 1 provisional generic category of activities:
a. Eradicating extreme hunger and poverty
b. Promotion of education
c. Promoting gender equality and empowering women
d. Reducing child mortality and improving maternal health
e. Combating human immunodeficiency virus, acquired immune deficiency
syndrome, malaria and other diseases
f. Ensuring environmental sustainability
g. Employment enhancing vocational skills
h. Social business projects
i. Contribution to the Prime Minister's National Relief Fund or any other Fund
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
j. Such other matters as may be prescribed.
x. Where can you see the amount of expense on CSR- in
Schedule III of the Bill, General Instructions for Preparation of Statement of Profit
and Loss , it is stated that the company shall have to disclose by way of notes in the
Profit and Loss Statement the amount of expenditure incurred on CSR activities.
xi. What if the company fails to spend the referred amount
on CSR- in such case the company will have to specify the reasons for not
spending the amount in the Mandatory Reporting mentioned in sub point ii.
2. Frequently Asked Questions
i. Is CSR Mandatory or Not- The companies that have turnover/net
worth/net-profit as described above, mandatorily need to have a CSR Committee
and a CSR Policy. The board of the company has to ensure that 2% of net-profit is

4. “Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013
Page3
spent on CSR. Such companies also have to report mandatorily about their CSR. In
case the company fails to spend it can report the reasons in above mentioned
report. However, since the report would be publically available, the companies will
be continuously under the scrutiny of various stakeholders and will have to perform.
They cannot consistently default, which makes CSR mandatory to a large extent.
ii. Does it include all companies or only the listed ones- The
section 135 dealing with CSR states that it is applicable for every company with
specified turnover/net worth/ net profit. However, the composition of CSR
Committee mandates inclusion of an independent director. The independent
directors under the Company Law are compulsory only for the public listed
companies. Therefore it certainly applies for public listed companies meeting the
turnover/net worth/ net income criterion, but for other companies clarity is still
needed.
iii. Will the companies be able to spend this kind of money-
as per the ‘CSR 10 India Index 2012’, the top 10 companies, which could be
bellwether for CSR spending, currently spend less than 50% of what they need to in
next couple of years. Therefore, the task looks difficult but companies will have to
ramp up their infrastructure. Please see ‘What should Companies do?’
iv. Will the NGOs be able to absorb the money- the NGOs will also
have to ramp up their infrastructure to deliver. It could be a blessing in disguise as
NGOs never had enough resources to invest in increasing efficiency and
effectiveness. Please see ‘What should NGOs do?’
v. What happens if my cause is not in the list- the list in the
Companies Bill 2012 while specifying activities under CSR states- ‘activities which
may be included by companies in their Corporate Social Responsibility Policies’;
and the listed activities are largely as specified in UN Millennium Development
Goals. So the list does not appear to be binding but suggestive in nature. Moreover,
if one sees the new guidelines for Central Public Sector Enterprises, they also
recognise ‘preservation and promotion of heritage, art, music and culture in keeping
with Indian tradition’ as a CSR activity.
3. What should Companies do?
The companies would have to do a lot as the CSR spends are slated to increase
several folds. Some basic steps are listed below:
i. Draw up a core CSR team and organize capacity building program to bring people
up to date.

5. “Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013
Page4
ii. Appoint a CSR Committee of the Board, if it does not exist already. Engage
independent directors that have strategic and hands-on development experience.
iii. Develop/Modify the CSR Policy. Central Public Sector Enterprises have merged
their CSR and Sustainability effort. This could be a direction to follow, so as to bring
unified impact.
iv. Gear up the CSR infrastructure - staff, advisors, consultants that can help in
strategizing, planning, monitoring, evaluation and implementation. Monitoring and
impact assessment preferably should be done by external experts to maintain
objectivity.
v. Network with credible non-profit organisations to leverage their expertise and
capacities.
vi. Choose few projects but go for in-depth and long-term support, so that social impact
is visible and can be credibly reported upon.
4. What should NGOs do?
The NGOs also need to gear up if they want to leverage corporate funds/resources for
creating further impact. Some basic steps are listed below:
i. Develop a CSR ready infrastructure proactively- staff, advisors, consultants that can
help in implementing the program in a Project Management mode- with identified
steps, anticipated impact, indicators, timeline, people responsible etc. NGOs should
not wait for the CSR funds to come knocking and start working on it immediately.
ii. Build capacities of existing staff on seeking and implementing CSR funds. The
capacities of corporate partnerships staff will have to be different now than before.
They would need to be more process oriented and strategic. Since CSR becomes
an agenda at the level of board, staff will need capacity building in aspects like
communications, strategic thinking and negotiations (not necessarily financial).
iii. Develop products for corporations that show larger social impact than just activities,
pictures, stories and so on. The products should be in line with the CSR policies of
the partnering companies. These should also be measurable and scalable.
iv. Invest in reporting and communication resources. Often NGOs in India do excellent
work but are not good in this aspect, which in the newer scenario is equally
important.
v. Invest in good program management, accounting and reporting systems, as
increased transparency at ‘Donor Company’ will only increase demands for
transparency at the NGOs end.

6. “Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013
Page5
5. Base Documents for Analysis
i. The Companies Bill 2012, as passed by Lok Sabha on 18/12/2012
ii. Guidelines on Corporate Social Responsibility and Sustainability for Central Public
Sector Enterprises; effective from April 01, 2013
iii. CSR 10 India Index 2012
iv. UN Millennium Development Goals
6. About SAFRG
SAFRG is a not-for-profit think tank on Corporate Social Responsibility (CSR) and
Philanthropy in South Asia. It builds capacities, conducts research and promotes
dialogue on these issues. Thousands of NGOs and CSR professionals have benefited
from SAFRG's programmes since 1989. SAFRG board and advisory group comprises
of leading names from NGO and CSR world in India and internationally. For more
details visit www.safrg.org or write to at@safrg.org / nandita@safrg.org