newsletter newsletter_september 2019.pdf · in the e-commerce industry as part of a panel...

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Awards & Recognition Recognized and ranked as a leading law firm in India by the

International Tax Review (ITR) - World Tax 2020 and World

Transfer Pricing 2020

Newsletter

Special Edition on

Corporate Social Responsibility

It gives us immense pleasure to circulate this special edition of

DMD Advocates’ Newsletter focusing on Corporate Social Responsi-

bility (CSR) framework in India.

In this edition, we have covered the recent recommendations of the

High Level Committee, setup on September 28, 2018 to review the

existing CSR framework in India, chaired by Mr. Injeti Srinivas,

Secretary, Ministry of Corporate Affairs. The High Level Committee

submitted its report to the Union Minister of Finance and Corporate

Affairs, Ms. Nirmala Sitharaman on August 13, 2019.

We are pleased to announce that Mr. Sanjiv Malhotra has joined

DMD Advocates as a Senior Director and Chief Economist in our

Delhi office.

We hope you enjoy reading this edition and find it useful in your ar-

ea of work.

Special Edition September 2019

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CSR focusses on engaging

corporations to contribute towards

economic, social and

environmental development that

creates positive impact on society

at large.

CORPORATE SOCIAL

RESPONSIBILITY

•First introduced in Indian law by the Companies

Act, 2013 .

•India was the first country in the world to make

CSR mandatory for corporations.

Existing Law on CSR

• Introduced as a statutory obliga-

tion under Section 135 of the

Companies Act, 2013 (“the Act”).

• Along with Section 135, Sched-

ule VII and the Companies

(CSR) Policy Rules, 2014, pro-

vide a robust CSR framework.

• Mandatory CSR Spend is 2% of

average net profit of the preced-

ing three years for the following

companies:

net worth of INR 500 crore (~$70

million) or more; or

turnover of INR 1000 crore

(~$140 million) or more; or

net profit of INR 5 crore

(~$700,000) or more during im-

mediately preceding financial

year

• Relevant companies to constitute

a CSR Committee

• Companies to disclose details on

CSR implementation annually to

the Ministry of Corporate Affairs

(MCA)

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•Every relevant company is mandated to constitute a CSR committee

•Consists of three or more directors, out of which at least one must be

an independent director; If a company is not required to appoint an

independent director under sub-section (4) of Section 149, such

company to have a CSR committee consisting of two or more directors.

•CSR Committee of a company to formulate and recommend to the

Board (i) CSR Policy indicative of activities to be undertaken as per

Schedule VII of the Act; (ii) amount of expenditure to be incurred on

CSR activities; and (iii) monitor the CSR Policy of the company.

CONSTITUTION OF CSR

COMMITTEE BY A COMPANY

•Over 5000 companies have been issued show cause notices for

non-compliance to CSR in last five years

•In most cases, compounding was done with a small penalty on

the condition that the deficit spend was utilized as prescribed

Obligations under CSR

Reporting obligations under Section 135(5): Provides that in case a compa-

ny fails to spend mandatory CSR amount, the Board has to specify in its report

the reason for not spending the amount under Section 134(3)(o)

Sections 135(6) & 135(7) (Inserted by the Companies (Amendment) Act, 2019;

yet to be notified):

Section 135(6) requires qualifying companies to transfer any unspent CSR

amount to a specified fund

Section 135(7) penalises the company and every officer in default with imprison-

ment or fine or both

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CONSTITUTION OF HIGH LEVEL COMMITTEES

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•Extend applicability of CSR

provisions to Limited Liability

Partnerships (LLPs)

•Extend applicability of CSR

provisions to similarly placed

entities not covered under the

Act through amendments to

other respective statutes, for

example, banks registered under

the Banking Regulation Act,

1949

•For newly incorporated

companies, CSR obligation to

apply after three years of

existence

APPLICABILITY OF

CSR PROVISIONS

RECOMMENDATIONS OF HLC-2018

•Exemption to form a separate CSR

Committee to companies having

prescribed CSR amount below INR 50

lacs (~$70,000)

•Board to carry out the functions of the

CSR Committee instead

CONSTITUTION OF CSR

COMMITTEE

•Unspent CSR amount for a particular year to be transferred to a separate

designated account

•Unspent amount, and the interest earned thereon, to be spent within a period of

three to five years

•In case of failure to spend, CSR amount to be transferred to a fund to be specified

by the Central Government which may be used for innovative, high-impact projects

related to activities listed in Schedule VII

•Only civil penalties to be imposed in case of non-compliance and no imprisonment

OBLIGATION TO CARRY OUT CSR AND CARRYING

FORWARD OF UNSPENT CSR AMOUNT

•Map and align Schedule VII with

SDGs

•Include important items to develop an

SDG+ framework

WIDENING THE SCOPE OF

SCHEDULE VII OF THE ACT

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•All CSR activities listed in

Schedule VII to enjoy uniform

tax benefit

•CSR expenditure to be made

deductible from the income

earned for the purpose of

taxation

•Mode of implementation to be

tax neutral

•IAs to be treated as partners

and not service providers/

vendors for CSR activities to

address the variable incidence of

indirect taxes on them

TAX BENEFITS FOR

CSR ACTIVITIES

•Regulatory oversight to be exercised

through enhanced and granular

reporting wherever CSR funds are used

for creation of capital assets

•Encourage companies to forge

partnerships when creating assets for

public purpose; Ownership to rest with

the public and company to act as a

custodian to operate it and make it self

-sustaining

CREATION OF CAPITAL ASSETS

THROUGH CSR SPENDS

•Emphasis on local area in the Act is

only directory and not mandatory in

nature

•Issue c lar i f i cat ion, advis ing

companies to engage in CSR activities

by balancing local area preference with

national priorities

UNDERTAKING CSR ACTIVITIES

IN LOCAL AREAS

•Companies having average

prescribed CSR amount of INR 5

crore (~$700,000) or more in the

three immediately preceding

financial years to undertake

need and impact assessment

studies of their CSR projects for

that year and disclose the same

in their Board’s Report

•Such studies to be undertaken

once in three years

DEEPENING CSR IMPACT

•Reporting for CSR needs to be

s t rengthened , w i th enhanced

disclosures for better information

dissemination with respect to selection

of projects, locations and IAs to

facilitate better monitoring

REPORTING OF CSR

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•Create Social Impact Companies

(“the SICs”); the SICs will be hybrid

vehicles bringing together private

sector and civil society with a view

to harness their inherent strengths

and thus achieve social outcomes

•Permitted to achieve conditional

profit which can be distributed to

members, however contingent upon

achievement of outcomes having

measurable and tangible social

impact

•Consider, on a pilot basis, CSR

contribution to social impact bonds

raised by such SICs or not-for-profit

companies bringing upfront risk

capital

SOCIAL IMPACT

COMPANIES

•Mere disbursal of funds to IAs will not be

construed as CSR spending

•Board of a company to ensure that CSR

funds are spent on CSR activities specified

under Schedule VII and report on the

modalities of utilization of the CSR funds

ISSUES PERTAINING TO

IMPLEMENTING AGENCIES

•CSR to be brought within the purview of

statutory financial audit, by making details

of CSR spending a part of the financial

statement of a company

CSR AUDIT

•Develop a CSR Exchange

Portal for creating an interactive

platform for all stakeholders,

i n c l u d i n g , c o n t r i b u t o r s ,

beneficiaries and IAs to

maximize potent ial and

outcomes of CSR

CSR EXCHANGE PORTAL

•IAs to be registered with MCA to

carry out CSR activities

•Board to ascertain the credibility of

an IA and carry out necessary due

diligence

REGISTRATION OF

IMPLEMENTING AGENCIES

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Events

Ms. Anuradha Dutt, Founder & Managing Partner of our Delhi of-

fice spoke as part of a panel discussion on "the State of Play for In-

vestment Arbitration in India" during Singapore International Ar-

bitration Centre (SIAC) India Summit 2019 on August 30, 2019.

Other panellists in-

cluded: Mr. Toby Lan-

dau QC (Member,

SIAC Court of Arbitration; Barrister& Arbitrator,

Essex Court Chambers Duxton (Singapore Group

Practice) and Essex Court Chambers (London)),

Mr. Kent Phillips (Partner, Hogan Lovells), and

Mr. Naresh Thacker (Partner, Economic Laws

Practice). The session was moderated by Ms.

Shaneen Parikh (Member, SIAC Court of Arbitra-

tion; Partner, Cyril Amarchand Mangaldas).

Ms. Dutt also spoke against the motion

"Confidentiality in Arbitration Hinders the Growth of Jurisprudence and Common Law" along-

side Mr. Gary Born at the YSIAC Debate India 2019 on August 31, 2019. Mr. Toby Landau and

Ms. Zia Mody spoke for the motion. The YSIAC Debate was part of the two day SIAC India

Summit 2019.

DMD Advocates’ Founder and Managing Partner of Delhi Office, Ms. Anuradha Dutt

spoke as part of a panel and at YSIAC debate during SIAC India Summit 2019

Our Founder and Managing Partner of Mumbai of-

fice, Ms. Fereshte Sethna spoke against the motion

alongside Mr. Nakul Dewan (Senior Advocate, Su-

preme Court of India, Barrister, 20 Essex Street,

Singapore| London) in an Oxford Style Debate on

“the Arbitration and Conciliation (Amendment) Act,

2019 is progressive for the Arbitration ecosystem in

India” at the 3rd ICC India Arbitration Day.

Ms. Madhavi Divan (Additional Solicitor General of India and Senior Advocate, Supreme Court

of India) and Mr. Ritin Rai (Senior Advocate, Supreme Court of India) spoke for the motion. The

Jury consisted of Mr. Salim Moollan QC (Essex Court Chambers, London), Mr. Percival

Billimoria (Head of Chambers, Chambers of P S Billimoria, Delhi; Barrister, Outer Temple

Chambers, London) and Ms. Niti Dixit (Partner, S&R Associates, Delhi).

DMD Advocates’ Founder and Managing Partner of Mumbai Office, Ms. Fereshte

Sethna spoke against the motion in an Oxford-style debate at the 3rd ICC India Arbi-

tration Day

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Our Partner, Sumit Sinha shared his views on reasons for failures

in the E-commerce industry as part of a panel discussion on

“Future of E-commerce in India” at the Leading the New Age Eco-

nomic Laws Summit & Achiever’s

Awards 2019 organized by the Le-

gal League Consulting on August

23, 2019.

Other panellists included Mr. Sameet Gambhir (Jt. VP Com-

pliance & Admin. & CS, DCM Shriram Limited), Mr. Sakya

Singha Chaudhuri (Partner, Neeti Niyaman), Ms. Smriti

Subramanian (GC, Snapdeal), Mr. Rachit Bahl (Partner, AZB & Partners) and Mr. Rishi Anand

(Partner, DSK Legal).

The firm was also awarded "Upcoming Firm in Private Equity Investments in E-Commerce”.

DMD Advocates’ Partner, Sumit Sinha spoke as part of a panel discussion at the Le-

gal League Consulting Summit 2019

Our Partner, Sumit Sinha attended the IBA Annual Conference 2019 from Sep-

tember 22nd-27th held in Seoul. IBA’s annual conference is the world’s largest

and most prestigious international gathering of lawyers to meet, share

knowledge, network and develop business. The IBA attracts more than 6,000

delegates representing over 2,700 law firms, corporations, governments and

regulators.

DMD Advocates’ Partner, Sumit Sinha at the International Bar Association (IBA) An-

nual Conference 2019 in Seoul, South Korea

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DISCLAIMER: The information provided in this document does not constitute a legal opinion/advice by DMD Advocates.

The information provided through this document is not intended to create any attorney-client relationship between DMD

Advocates and the reader and, is not meant for advertising the services of or for soliciting work by DMD Advocates. DMD

Advocates does not warrant the accuracy and completeness of this document and readers are requested to seek formal

legal advice prior to acting upon any information provided in this document. Further, applicable laws and regulations are

dynamic and subject to change, clarification and amendment by the relevant authorities, which may impact the contents of

this document. This document is the exclusive copyright of DMD Advocates and may not be circulated, reproduced or oth-

erwise used by the intended recipient without our prior permission.

Please feel free to address any further questions or request for advice to: [email protected]

MUMBAI

121, Maker Chambers – IV, Nariman Point

Mumbai –400 021

Tel: + 91 22 4356 5555 | Fax: + 91 22 4356 5550 |

E-mail: [email protected]

NEW DELHI

30, Nizamuddin East

New Delhi – 110 013

Tel: + 91 11 4719 4400 | Fax: + 91 11 4050 6977 |

E-mail: [email protected]

Partners & Directors Anuradha Dutt

Founder & Managing Partner, Delhi

Litigation,

International Arbitration

Vijayalakshmi Menon

Founder & Senior Partner, Delhi

Litigation, Intellectual Property Rights

Pawan Sharma

Partner, Delhi

Regulatory, Competition

Ekta Kapil

Partner, Delhi

Litigation

Sanjiv Malhotra

Senior Director & Chief Economist, Delhi

Transfer Pricing

Anay Banhatti

Partner, Mumbai

Taxation

Sachit Jolly

Partner, Delhi

Taxation

Fereshte D Sethna

Founder & Managing Partner, Mumbai

International Litigation,

Alternate Dispute Resolution

Rashi Dhir

Senior Partner, Delhi

Corporate

Jeremy Lynn Pereira

Partner, Delhi

Litigation, Arbitration

Tushar Jarwal

Partner, Delhi

Taxation

Anish Kapur

Partner, Delhi

Litigation, Arbitration

Sumit Sinha

Partner, Delhi

Corporate

Our Offices

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