Understanding CSRCOMPANIES’ ACT 2013 | SECTION 135

Contents What is CSR? What is the mandate? What will the companies need to do? What’s the role of the CSR committee? What’s the role of the Board? How can companies undertake their CSR activities? Which activities could be undertaken as part of CSR? Which activities are not eligible as CSR activities? What can Higher Educational Institutions do? How will this process be facilitated? What are the other options? Conclusion Appendix

What is CSR?

CSR is an abbreviation for Corporate Social Responsibility

It is part of the section 135 and schedule VII under companies’ act 2013, which came into effect from April 1, 2014

What is the mandate?

With effect from April 1, 2014, every company, private limited or public limited, which either has a net worth of 500 crore or more, or turnover of 1000 crore or more, or a net profit of 5 crore or more needs to spend at least 2% of its net profit on Corporate Social Responsibility activities

The net profit considered should be the average net profit of immediate preceding three financial years

What will companies need to do?

Company shall constitute a CSR committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director

The Board’s report under sub-section (3) of section 134 shall disclose the composition of CSR committee

What’s the role of the CSR Committee?

Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in schedule VII

Recommend the amount of expenditure to be incurred on the activities referred to in point above; and

Monitor the Corporate Social Responsibility Policy of the company from time to time

What’s the role of the Board?

After taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and

Ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company

contd…

Contd…

The Board of every company, shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local

area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount

How can companies undertake their CSR activities?

through a registered trust or society

through a company established by its holding

Through a subsidiary or an associate company or otherwise

Which activities could be undertaken as part of CSR?

Eradicating hunger, poverty and malnutrition

Promoting preventive healthcare, education and gender equality

Setting up homes for women, orphans and senior citizens

Reducing inequality faced by socially and economically disadvantaged groups

contd…

Contd…

Ensuring environmental sustainability and ecological balance

Animal welfare

Protection of national heritage, arts and culture

Measures for benefit of armed forces veterans, war widows and their dependants

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Contd…

Rural development initiatives

Contribution to Prime Minister’s National relief fund

Socio economic development of SC, ST, OBCs, minorities and women

Contributions or funds provided to technology incubators of academic institutions

Which activities are not eligible as CSR activities?

Projects or programs or activities that benefit only the employees of the company and their families

One off events such as marathons/awards/charitable contribution/advertisement/sponsorships of TV programmes etc.

Expenses incurred by companies for the fulfilment of any other Act/Statute of regulations (such as labour laws, land acquisition act 2013, apprentice act 1961 etc.)

contd…

Contd…

Contribution of any amount directly or indirectly to any political party

Activities undertaken by the company in pursuance of its normal course of business

Projects or programmes or activities undertaken outside India

Issues with CSR funding for Higher Education

Limited to no CSR funds in Higher Education because of focus on primary and secondary education

Legalities involved with mobilizing CSR funds Lack of awareness about CSR Limited to no interaction with the industries Universities don’t approach companies with a value proposition Universities currently lack resources to attract CSR funds

What can Higher Educational Institutions do?

Set up a dedicated CSR desk. Register a trust or a society or a company under section 8 under section11/12A of the Income Tax Act and open bank account for the same

Maintain an alumni database, which would be extremely helpful when reaching out to companies

Create a database of companies and categorize companies according to the departments in the university

contd…

Contd…

Identify the projects in each department which could get CSR funds, or a collaboration in which the partner company could utilize its CSR funds

List projects on the university website, prepare proposals/DPRs (Detailed Project Reports) for such projects and also upload them to the project links listed on the website

Prepare a communication and outreach strategy to reach out to companies. Having a value proposition for companies is important

Leverage the opportunities presented by Government schemes such as Swachh Bharat Abhiyaan, Skill India, Make in India etc.

How will this process be facilitated?

If the company contributes through its own registered trust/society/sec 8 company, it can contribute regulated CSR funds directly to Universities

If the company does not have its own registered trust/society/sec 8 company, but the university (one that is established by a central or state act) has such trust/society/sec 8 company, then the company can contribute the regulated CSR funds directly to the trust/society/sec 8 company established by university

In all other cases, company can route its regulated CSR funds through a trust/society/sec 8 company that has at least 3 years established track record

What are the other options?

SAMMAAN – www.bsesammaan.com – an initiative by BSE and CII

Universities can look at strategic partnerships with either NGOs or foundations or trusts through which the funds could be mobilized

Universities can take professional help by getting CSR consulting companies on board and setting systems in place

NGOBOX – www.ngobox.com – a non-profit CSR market place

Conclusion

The need of the hour is to go beyond traditional philanthropic activities and look for synergies in partnerships and funding

Companies have already started employing dedicated CSR experts to chalk out and implement CSR strategies that align with their long term goals

It’s high time higher educational institutions start having strategies to attract CSR funds and make optimal use of those funds for better educational outcomes, research output and employability

Appendix

Recent changes to section 135

Recently, the Ministry of Corporate Affairs made a change to the section 135 related to the eligibility of registered trust or society

Following is the link to the official notification: http://

gcsra.org/writereaddata/images/pdf/Gazette-Notification.pdf

FAQs

The Ministry of Corporate Affairs has released FAQs pertaining to CSR. The link for the same is follows:

http://www.mca.gov.in/Ministry/pdf/FAQ_CSR.pdf

Additional resources

The following is the link of a discussion on Google+ Hangout facilitated by Shereen Bhan from CNBC TV18, and attended by then Minister of Corporate Affairs, Sachin Pilot, and other experts. This may be viewed to gain more clarity:

https://www.youtube.com/watch?v=i-boKlTJ-7U

Some Consulting companies for CSR