The document discusses the key aspects of corporate social responsibility (CSR) as outlined in the Companies Act 2013 in India, including: 1) CSR applicability to companies meeting certain criteria, the formation of a CSR committee, and developing a CSR policy. 2) Companies must spend at least 2% of their average net profits of the last 3 years on CSR activities listed under Schedule VII of the Act. 3) Detailed reporting on CSR policies, expenditures, and activities is required in company board reports and on their websites.

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Companies Act, 2013
Corporate Social Responsibility
By CS Mamta Binani
Chairperson (Year 2010), EIRC of ICSI
At the ‘You’ Institute for professionals
SECTION 135 (incorporating notification dated
27.02.2014)
Under Chapter IX

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MCA vide notification dated
27th February 2014, has notified Section
135, Schedule VII of the Companies Act,
2013 (provisions relating to CSR)
and the Companies (Corporate Social
Responsibility Policy) Rules, 2014.
The same is effective from 1st April,
2014.

3. What does CSR mean?
Corporate Social Responsibility (CSR)
As per Rule 2(1)(c) of the Companies (Corporate Social
Responsibility Policy) Rules, 2014: CSR means and includes
but is not limited to:
(i) Projects or programs relating to activities specified in
Schedule VII to the Act; or
(ii) Projects or programs relating to activities undertaken by the
board of directors of a Company (Board) in pursuance of
recommendations of the CSR Committee of the Board as per
declared CSR policy of the company subject to the condition
that such policy will cover subjects enumerated in Schedule
VII of the Act.
(My comments: This is in the nature of an exhaustive
definition but still the language denotes it as an inclusive one)

4. Corporate Social Responsibility (CSR)
– a brief outline (Section 135)
Section 135 of the Act mandates CSR
It encompasses mainly 5 important elements:
• CSR Applicability
• CSR Committee
• CSR Policy & Activities
• CSR Expenditure
• CSR Reporting
135(1): Every company with either of the following 3:
 Net worth of Rs.500 crores or more during any financial year
Turnover of Rs.1000 crores or more during any financial year
Net profit of Rs.5 crores or more during any financial year
shall constitute a CSR Committee of the Board

5. Rule 3 of CSR Rules-Applicability
Rule 3: Who has to be comply with section 135 and its rules?
1. Every company including:
a. its holding company; or
b. its subsidiary company
2. A foreign company (as defined under sec 2(42)) having
its:
a. branch office or
b. project office in India
and
which fulfills the criteria specified in section 135(1) of the
Act shall have to comply with sec 135 and the relevant
Rules

6. What is CSR Committee
Definitions:
• Rule 2(1)(d) defines CSR Committee as:
It means the Corporate Social Responsibility
Committee of the Board referred to in section
135 of the Act.

7. CSR Committee-Composition
Composition (as given in section 135(1):
At least 3 Directors out of which at least 1
Independent Director.
However, an unlisted Public Company or a Private
Company not required to compulsorily appoint an
Independent Director shall have its Committee without
an Independent Director (Rule 5(1)(i)).
A Private Company having only two Directors on Board
shall constitute the Committee with two such Directors
(Rule 5(1)(ii)).
For a Foreign Company-atleast 2 persons. 1 out of these
2, shall be the person mentioned in section 380(1)(d) of
the Act. The other one shall be as nominated by the
foreign company

8. Disclosure of composition of CSR
committee-Sec 135(2)
Sec 135(2): The Board’s Report (u/s 134(3)) shall
disclose the composition of the CSR Committee

9. Section 135(3) - CSR Policy and
Expenditure
The CSR Committee shall (section 135(3))–
formulate the CSR Policy and
recommend the same to the Board
recommend the amount of expenditure to be
incurred on the activities
monitor the implementation of the CSR policy by
the Company from time to time.
• Rule 2(1)(e) defines CSR Policy as:
It relates to the activities to be undertaken by the
company as specified in Schedule VII and the
expenditure thereon, excluding activities
undertaken in pursuance of normal course of
business of a company

10. Section 135(4) – Duty of the Board
The Board of every such company shall –
Take into account the recommendations made
by the CSR Committee and
Approve the CSR policy for the Company
Disclose contents of such policy in the Board’s
Report and
Also place it on company’s website, if any
The Board of the company shall have to ensure
that the activities as are included in the CSR
Policy of the company are undertaken by the
company.

11. CSR Policy – Rule 6
Rule 6(1)
• The CSR Policy shall lay out the list of CSR projects/
programs
• It will specify the modalities of execution
• The implementation schedules
• Monitoring process
Rule 6(2)
The CSR Policy shall have to specify that the surplus
arising out of the CSR projects or programs or activities
shall not form part of the business profits of a
company.

12. Display of CSR activities on its website
Rule 9
The Board of Directors of the company shall,
after taking into account the
recommendations of CSR Committee,
approve the CSR Policy for the company &
disclose contents of such policy in its report
and the same shall be displayed on the
company’s website, if any, as per the
particulars specified in the Annexure

13. CSR Expenditure
Section 135 (5)
The Board of every company covered under CSR
shall ensure for every financial year that:
At least 2% of average net profits of the company
made during 3 immediately preceding financial
years is spent on CSR.
This spending to be made in pursuance of its laid
CSR Policy.

14. What is ‘Net Profit’
Rule 2(1)(f) of the Rules:
‘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:
a. any profit arising from any overseas
branch(es) of the company, whether operated
as a separate company or otherwise; and
b. any dividend received from other
companies in India, which are covered under
and complying with provisions of sec 135

15. What is ‘Net Profit’
Net Profit definition continued:
• Provided that net profit in respect of a FY for
which the relevant financial statements were
prepared in accordance with the provisions of
the Companies Act, 1956 shall not be required
to be re-calculated in accordance with the
provisions of the Act.
• In case of a foreign company here, net profit
means the net profit of such company as per
profit and loss account prepared in terms of
clause (a) of sec 381(1) read with sec 198 of the
Act.

16. CSR Expenditure
Section 135 (5) - Provisos
1st Proviso: Companies shall give preference to local
areas and areas around it where it operates, for
spending the amount earmarked for CSR activities.
2nd Proviso: If the Company fails to spend such amount,
the Board shall have to specify the reasons for not
spending the said amount. This reporting will have to
be made under clause (o) of section 134(3).
Section 135 (5) – Explanation
For the purposes of section 135, ‘average net profit’
shall be calculated as per section 198.

17. CSR Expenditure
Rule 7
CSR expenditure shall include all expenditure
including contribution to:
a. corpus; or
b. on projects; or
c. 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.

18. CSR Reporting
Rule 8(1)
The Board’s Report of a company covered under
these rules pertaining to a financial year
commencing on or after the 1st day of April, 2014
shall include an annual report on CSR containing
particulars specified in Annexure.
Rule 8(2)
In case of foreign company, the balance sheet filed
under sub-clause (b) of sec 381(1) shall contain an
Annexure regarding report on CSR.

19. CSR Activities
Schedule VII lays down the activities to be
undertaken by Companies in their CSR policies.
The Central Government, vide notification dated
27.02.14, has amended the existing Schedule VII with
an intent of making it more exhaustive.
Activities relating to –
i. eradicating extreme hunger, poverty and malnutrition,
promoting preventive health care and sanitation and
making available safe drinking water; [scope widened,
clubbing clauses i and iv of earlier Schedule]

20. CSR Activities contd.
ii. promoting education, including special education and
employment enhancing vocational skills, especially among
children, women, elderly, and the differently abled and
livelihood enhancement projects; [scope widened; clauses ii and
vii clubbed from earlier Schedule]
iii. promoting gender equality, empowering women, setting up
homes and hostels for women and orphans; setting up old age
homes, day care centre and such other facilities for senior
citizens and measure for reducing inequalities faced by socially
and economically backward groups; [no effective change, well
defined from earlier Schedule]
iv. ensuring environmental sustainability, ecological balance,
protection of flora and fauna, animal welfare, agro forestry,
conservation of natural resource and maintaining quality of
soil, air and water; [Clause vi from earlier Schedule, further
detailed]

21. CSR Activities contd.
v. protection of national heritage, art and culture including
restoration of buildings and sites of historical importance and
work of art; setting up public libraries; promotion and
development of traditional arts and handicrafts; [new insertion]
vi. measures for the benefit of armed forces veterans, war widows and
their dependents; [new insertion]
vii. training to promote rural sports, nationally recognised sports,
paralympic sports and Olympic sports; [new insertion]
viii.contribution to the Prime Minister’s 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,
Scheduled Tribes, other backward classes, minorities and women;
[corresponds with Clause ix of earlier Schedule. However,
‘contributions to funds set up by State Governments’ has been
excluded in the revised Schedule]

22. CSR Activities contd.
ix. contributions or funds provided to technology incubators
located within academic institutions which are approved by
the Central Government; [new insertion]
x. rural development projects. [new insertion]
Deviations from earlier Schedule VII:
Activities relating to –
 Social business projects; and
 Combating human immunodeficiency virus, acquired
immune deficiency syndrome, malaria and other diseases;
have been excluded in the revised Schedule. Although, clause
(i) of revised Schedule includes ‘promotion of preventive
health care’.

23. CSR via section 8 companies
Rule 4(2)
The BOD may decide to undertake its CSR activities
approved by the CSR Committee:
• through a registered trust; or
• a registered society; or
• a sec 8 company established by the company or its
holding company or its subsidiary company or
associate company

24. Some pre-conditions-Proviso to Rule 4(2)
• If the trust, society or company is not established by
the company or its holding/subsidiary/associate
company, it shall have an established track record of
three years in undertaking similar programs or
projects.
• In all cases, the company has to specify:
a. project or programs to be undertaken through
these entities
b. the modalities of utilisation of funds on such
projects and the programs
c. the monitoring mechanism
d. the reporting mechanism

25. Collaboration with other companies
Rule 4(3)
A company may also collaborate with other companies
for undertaking CSR activities in such a manner that
the CSR Committees of respective companies are in a
position to report separately on such activities in
accordance with the CSR Rules.
Rule 4(4)
The CSR activities undertaken in India only shall
amount to CSR expenditure.
Rule 4(5)
The activities that only benefit the employees of the
company & their families shall not be considered as
CSR for the purpose of section 135.

26. Contribution to political party-not CSR
Rule 4(7)
Contribution of any amount directly or indirectly to
any political party under section 182, shall not be
considered as CSR activity.
Rule 4(6)
Companies may build CSR capacities of their own
personnel as well as those of their implementing
agencies through Institutions with established track
records of atleast 3 FY’s but such expenditure shall not
exceed 5% of total CSR expenditure of the company in
1 FY.

27. Format of Reporting – Annexure
Provide a brief outline of the company’s CSR policy
Provide overview of projects or programs proposed to be
undertaken
Provide a reference to the web-link to the CSR policy and
projects or programs
The composition of the CSR Committee
Average Net Profit of the company for last 3 financial
years
Prescribed CSR expenditure (2% of the amount
mentioned above)

28. Format of Reporting – Annexure (contd)
Details of CSR spent during the financial year:
a) total amount to be spent for the FY
b) amount unspent, if any
c) manner in which amount spent during the financial
year as per the format given in the annexure. It is quite
exhaustive. There are 8 columns. They are:
i. Serial number
ii. CSR project or activity identified
iii. Sector in which the project is covered
iv. Projects or programs:
a) Local area or other
b) Specify the state & district where undertaken from

29. Format of Reporting – Annexure (contd)
Contd…
v. Amount outlay (budget) project or programs wise
vi. Amount spent on the projects or programs: Sub-
heads:
a) Direct expenditure on projects or programs
b) Overhead
vii. Cumulative expenditure up to the reporting period
viii. Amount spent: Direct or through implementing
agency

30. Format of Reporting – Annexure (contd)
Point 6 of the annexure
The report also has to mention that in case the company
has failed to spend the 2% of the average NP of the last 3
FY’s or any part thereof, the company will have to provide
the reasons for not spending the amount in its BOARD’s
REPORT
Point 7 of the annexure
A responsibility statement of the CSR Committee that
the:
a) implementation and
b) monitoring of CSR policy
Is in compliance with the CSR objectives and policy of the
Co.

31. Format of Reporting – Annexure (contd)
Signature on this annexure
This report will have to be signed by the following persons:
a. CEO or MD or Director
b. Chairman – CSR Committee
c. Person specified under clause (d) of section 380(1) of the
Act – (this is relating to foreign companies only)
(This brings us to an end of the annexure)

32. CSR Practices worldwide
The fact that the older organizations with well known
CSR practices were founded in the 1980s and early 90’s
and even earlier is an evidence that the concept of
‘Corporate Social Responsibility’ is there for a long
long time.
Its world-over acceptance leaves no doubt that CSR is
no longer looked as a nice-to-have piece of corporate
business strategy!

33. Strategic CSR
It is about the business contribution to
sustainable development — how business can take
into account the economic, social and environmental
impact their operations will have on the society.
Strategic CSR could be conceived in this way...
“CSR can be much more than a cost, a constraint, or a
charitable deed—it can be a source of opportunity,
innovation, and competitive advantage.”
[The Centre for Business and Government at Harvard University]

34. Corporate Responsibility Index –
measuring Strategic CSR
The Corporate Responsibility Index (CR Index), is a robust
benchmarking tool that enables Companies to systematically
measure, manage and integrate responsible business practices.
Developed in consultation with leading global business
leaders, the first CR Index survey (The Corporate
Responsibility Index) was launched in 2002 in UK.
Unilever, Heineken, Marks & Spencer, Lloyds Banking Group
are few of the Companies which have been participating in the
Index since its inception.

35. CR Index Framework
The CR Index follows a
systematic approach to
measure, manage and
integrate responsible
business practices.
Companies are assessed
using the framework here.

36. India in CSR initiatives
CSR is not new to India. Companies like TATA and BIRLA have
been imbibing the case for social good in their operations for
decades long before CSR become a popular cause.
ITC's e-Choupal is one such very successful case study. It is a
powerful illustration of a unique business model that delivers
large societal value by co-creating markets with rural
communities. The initiative has won the Stockholm Challenge
award apart from several others.
However, inspite of having such life size successful examples,
CSR in India is in a very nascent stage.
To facilitate greater corporate participation in CSR areas, BSE
(Bombay Stock Exchange) has recently signed a MoU with
Indian Institute of Corporate Affairs (IICA) to collaborate and
develop a CSR index and increase awareness about CSR.