Company Law

Corporate Social Responsibility [S.135]

1.

Applicability to

[S. 135(1), Explanation to 
S. 135, R. 3(1)]

Every company having

  • net worth [S. 2(57)]≥ ₹ 500 crores, or
  • turnover [S. 2(91)]≥₹1000 crores or
  • a net profit as per S.198 [Explanation to S. 135]≥₹ 5 crores

during 25the immediately preceding FY

including its HoldCo/Sub Co, and

a foreign Co defined u/s. 2(42) of Co Act, 2013 having its Branch/Project Office in India

2.

Computation of Net Profit u/s. 198

Credits to P&L

NOT to be credited to P&L
  • bounties and subsidies received from Govt./public authority
  • premium on shares or debentures
  • profits on sale of forfeited shares
  • capital profit on sale of
    • undertaking
    • immovable property/fixed asset
  • reserve on measurement of asset or liability at fair value
  • unrealised gains, notional gains or revaluation of assets

Debits to P&L

NOT to be debited to P&L
  • all the usual working charges
  • directors’ remuneration
  • bonus/commission paid/payable
  • tax on
    • excess or abnormal profits
    • business profits imposed for special reasons/in special circumstances
  • Income tax
  • compensation, damages or payments made voluntarily
  • losses of capital nature incl. loss on sale of undertaking
  • loss on measurement of asset or liability at fair value
   
  • interest on debentures, mortgages, loans and advances whether secured or unsecured
  • repairs except repairs of capital nature
  • Contribution to bona fide charitable or other funds u/s. 181
  • Depreciation as specified u/s. 123
  • Losses of prior periods not set off/adjusted earlier
  • compensation/damages to be paid in virtue of any legal liability
    • insurance against this risk
  • bad debts written off
  

3.

Immediate Action to be taken by such Co

[S. 135(1)]

constitute a CSR committee of BoD consisting of ≥ 3 directors, out of which at least 1 director should be an ID

  • 26A Co not requiring to appoint an ID u/s 149 shall have CSR committee of ≥ 2 directors

4.

CSR Committee – Relaxation

[R. 3(5)]

Type of Co↓

CSR committee to comprise of↓

unlisted Public Co/Pvt Co having > 2 Directors, not required to appoint an ID➔

≥ 3 directors without ID

Pvt Co having 2 Directors➔

2 Directors

Foreign Co➔

at least 2 persons of which:-

  • 1 person shall be Authorised Representative resident in India as specified u/s. 380(1)(d) of Co Act, 2013 and
  • another person shall be nominated by the Foreign Co

5.

Role of CSR Committee 
[S. 135(3), R. 5(2)]
  • formulate and recommend to BoD, a CSR Policy indicating the activities to be undertaken by the Co as specified in Schedule VII;
  • recommend the amount of expenditure to be incurred on the activities referred to above; and
  • monitor CSR Policy [R. 6] of the Co from time to time
    • institute a transparent monitoring mechanism for implementation of the CSR projects/programs/activities [R.4, Sch. VII] undertaken by the Co

6.

Activities NOT considered as CSR activities [R. 4(6),(7)]
  • activities undertaken in pursuance of its normal course of business
  • those which benefit only the employees of the Co and their families
  • contribution of any amount directly or indirectly to any political party u/s. 182 of Co Act 2013

7.

Responsibility of Board

[S. 135(4), (5), (6), Explanation to S. 135 & R. 6(1) 2nd proviso]
  • after taking into account the recommendations made by the CSR Committee, approve the CSR Policy for the Co;
  • ensure that the activities included in CSR Policy of the Co are :
    • related to the activities included in Schedule VII of Co Act, 2013
    • undertaken by the Co
  • Co spends, in every FY, at least 2% of the average net profits of the Co made during 3 immediately preceding FYs 26a(or where the Co has not completed 3 FYs since its incorporation, during such immediately preceding FYs)
    • if the Co fails to spend such amount 26a(unless the unspent amount relates to any ongoing project referred to below) ➔ the Board’ report should specify the reasonsfor not spending the amount 26a(and transfer the unspent amount to a Fund specified in Schedule VII within 6 months from the expiry of FY
    • If amount remaining unspent pursuant to any ongoing project fulfilling prescribed conditions ➔ the Co to open a special a/c for that FY in any scheduled bank to be called the Unspent Corporate Social Responsibility Account and transfer unspent amount to such account within 30 days from the end of FY
      • If any amount remaining unspent at the end of 3rd FY ➔ transfer the unspent amount to a Fund specified in Schedule VII within 30 days from the date of completion of 3rd FY)
  • Preference for CSR spend should be given to the local area and areas around it where it operates

8.

Co ceasing to be covered 
u/s. 135

[R. 3(2)]

Every Co which ceases to be covered u/s. 135(1) of Co Act, 2013 for 3 consecutive FYs shall not be required to –

  1. Constitute a CSR Committee; and
  2. Comply with the provisions S. 135 (2) to (5);

till such time it meets the criteria specified in S. 135(1)