Presentation by ms gayatri subramaniam

CORPORATE SOCIAL RESPONSIBILITY

– OVERVIEW OF THE SECTION 135,

COMPANIES ACT, 2013

Gayatri Subramaniam

111/17/2014

Historic and Social Economic Context

Religious background

Charity and Philanthropy

Principle of Trusteeship

Social Responsibility - The Western Thought

Environmental Concerns

CSR and Beyond

Business Responsibility- A Holistic Approach

Government and Business Responsibility

2007

• PM’s Ten-Point

Social Charter

2009

• Voluntary

Guidelines on

CSR

2011

• National

Voluntary

Guidelines on

Social,

Environmental

and Economic

Responsibilities

(NVGs)

2012

• SEBI mandate

on disclosure in

the form of

Business

Responsibility

Reports (BRRs)

on NVGs for

top 100 listed

companies

2013

• Section 135 of

Companies’

Act, mandating

CSR spend of

2% profit

3

Ministry of Corporate Affairs & CSR

MILESTONES IN CSR

2

1 Apr 2010

18 Dec

2012

08 Aug 2013

30 Aug

2013

27 Feb

2014

• Companies

Bill 2013

approved by

Lok Sabha

• DPE

Guidelines

on CSR

• Companies

Bill 2013

approved by

Rajya Sabha

• Gazette

Notification

of the New

Companies

Act 2013

• Rules on

section 135

Notified on

MCA’S

website

4

CSR PROVISIONS OF THE COMPANIES ACT SECTION 135

1) Every company having a net worth of rupees five hundredcrore or more (100 million $ or more), or a turnover ofrupees one thousand crore or more (200 million $ ormore) , or a net profit of rupees five crore or more (1million $ or more) during any financial year shallconstitute a Corporate Social Responsibility Committeeof the Board consisting of three or more directors, out ofwhich at least one director shall be an independentdirector;

2) The Board's report shall disclose the composition of theCorporate Social Responsibility Committee.

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SECTION 135 {CONTD.}

3) The Corporate Social Responsibility Committeeshall:

a. formulate and recommend to the Board, aCorporate Social Responsibility Policy whichshall indicate the activities to be undertaken bythe company as specified in Schedule VII;

b. recommend the amount of expenditure to beincurred on the activities referred to in clause(a); and

c. monitor the Corporate Social ResponsibilityPolicy of the company from time to time.

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4) The Board of every company referred to in sub-section(1) shall,

a) After taking into account the recommendationsmade by the Corporate Social ResponsibilityCommittee, approve the Corporate SocialResponsibility Policy for the company anddisclose the contents of such Policy in its reportand also place it on the company's website, ifany, in such manner as may be prescribed; and

b) ensure that the activities as are included inCorporate Social Responsibility Policy of thecompany are undertaken by the company.

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5) The Board of every company referred to in sub-section (1), shall ensure that the company spends,in every financial year, at least two per cent ofthe average net profits of the company madeduring the three immediately preceding financialyears, in pursuance of its Corporate SocialResponsibility Policy.

8


Provided that the company shall give preference to thelocal area and areas around it where it operates, forspending the amount earmarked for Corporate SocialResponsibility activities;

Provided that if the company fails to spend suchamount, the Board shall, in its report made underclause (o) of sub-section (3) of section 134, specifythe reasons for not spending the amount.

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CSR Committee

Three or more directors with at least one independent

ROLE OF THE CSR COMMITTEE

810

Formulate and recommend a CSR policy to the board

Recommend activities and the amount of expenditure to be

incurred

Monitor the CSR policy

Role of the Board

Formulate a CSR Committee

Approve the CSR Policy, disclose its contents in the Board Report and place it on the company's website

Ensure Implementation of CSR activities

Ensure 2% spend

Disclose reasons for not spending under clause (o) of sub - section (3)

of Section 134911

Sub Section (8) of Section 134

If a company contravenes the provisions of this sectionclause (o of sub - section (3) of Section 134), thecompany shall be punishable with fine which shall notbe less than fifty thousand rupees but which mayextend to twenty-five lakh rupees and every officerof the company who is in default shall be punishablewith imprisonment for a term which may extend tothree years or with fine which shall not be lessthan fifty thousand rupees but which may extendto five lakh rupees, or with both.

PENAL PROVISIONS for COMPANIES

1012

Schedule VII – CSR THEMATIC AREAS

1. Eradicating hunger, poverty and malnutrition, promoting health care,

sanitation & safe drinking water including

contribution to SwachaBharat kosh

2. Promotion of education, special

education and vocational skills

3. Gender Equality, Women

empowerment , senior citizens and

economically backward groups

4. Protection of National Heritage, art and culture

5. Benefits to

armed forces

veterans, war

widows 11

Schedule VII – CSR THEMATIC AREAS…

6. Ensuring environmental sustainability, ecological balance, wildlife & natural resources conservation including clean Ganga movement

7. Technology incubators within

academic institutions

8. Rural sports, Paralympic and Olympic sports

9. PM National Relief Fund and any other funds setup by the Central Govt. for socio economic development &

welfare of SC/ST/OBC

1417-11-2014

10.Rural Development Projects

11.Slum Development

1517-11-2014



Promoting gender equality, empowering women,

setting up homes and hostels for women and

orphans, setting up old age homes, day care

centers, and such other facilities for senior

citizens and measures for reducing inequalities

faced by socially and economically backward

groups

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AMOUNT TO BE SPENT ON CSR

Every company which is falling under the CSRbracket, should spend, in every financial year, atleast two per cent of the average net profits(section 198) of the company made during thethree preceding financial years.

Net profit should not include:-

Dividend received from other companies

Income received from overseas/foreign branchesor subsidiaries.

In case of Foreign Companies the net profit ofsuch company shall be determined as per theprofit and loss account prepared under section381(1)(a) read with section 198 of the CompaniesAct, 2013.

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SURPLUS GENERATED FROM CSR ACTIVITIES

The CSR Policy of the company shallspecify that the surplus arising out ofthe CSR Projects or programs oractivities shall not form part of thebusiness profit of a company.

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CSR EXPENDITURE & MODES OFIMPLEMENTATIONCSR expenditure shall include all expenditure includingcontribution to corpus on projects or programs relating to CSRactivities approved by the Board on the recommendation of its CSRCommittee but does not include any expenditure on an item not inconformity or not in line with activities which fall within thepurview of the Schedule VII of the Act.

A company may also collaborate with other companies forundertaking projects or programs or CSR activities in such amanner that the CSR Committees of respective companies are in aposition to report separately on such projects or programs inaccordance with these rules.

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MACRO PICTURE - SIZE OF THE CSR SPACE

Around 16,000 companies fall within thepurview of Section 135;

Around ₹ 20,000 crores in total, will bespent by Corporates in current FY on CSR;

148 CPSUs* will contribute CSR spend to

the tune of approx ₹3378 cr.;

184 SLPEs** will contribute CSR spend to

the tune of approx ₹263 cr;

The rest are private sector companies.

Around 25 pc would be contributed by PSUs

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* CPSU-Central Public Sector Undertaking

* * SLPE-State Level Public Enterprises

METHOD OF IMPLEMENTATION OF CSR

The Board of a company may decide toundertake its CSR activities approved by theCSR Committee, through any of the followingthree agencies:

A registered trust

A registered society

A Section 8 company

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METHOD OF IMPLEMENTATION OF CSR (CONT’D)

Provided that:

If such trust, society or company is notestablished by the company or its holding orsubsidiary or associate company, it shall have anestablished track record of three years inundertaking similar projects or programs;

The company has specified the project orprograms to be undertaken through theseentities, the modalities of utilization of fundson such projects and programs and the

monitoring and reporting mechanism.

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ACTIVITIES NOT ADMISSIBLE AS CSR

The CSR projects that benefit only theemployees of the company and theirfamilies shall not be considered as CSRactivities in accordance with section 135 of theAct (rule 4 (5));

One-off events such as marathons/ awards/charitable contribution/ advertisement/sponsorships of TV programmes etc. would notbe qualified as part of CSR expenditure (MCAcircular dated 18-06-14);

Activities which are not taken up in projectmode (rule 4 (1))

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ACTIVITIES NOT ADMISSIBLE AS CSR CONTD:

Expenses incurred by companies for thefulfillment of any Act/ Statute ofregulations (such as Labour Laws, LandAcquisition Act etc.) would not count as CSRexpenditure under the Companies Act;

Contribution of any amount directly orindirectly to any political party shall not beconsidered as a CSR activity;

Activities undertaken by the company inpursuance of its normal course of businesswill not be considered as fulfillment of CSRobligation.

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Companies may incur expenditure up to 5per cent of their CSR budgets for buildingCSR capacities of their own personnel as wellas of those of their implementing agencies,;

Must be done through institutions withestablished track records of at least 3 years.

CSR EXPENDITURE ON CAPACITY BUILDING

1825

1.

S

r

N

o.

2.

CSR

project

/

activity

identifi

ed

3.

Sector in

which

the

project is

covered

4.

Projects/ Progra-mmes

1.Local

areas/

others

1.Specify

the state/ district

5.

Amount

outlay

(budget)

project/

programm

e wise

6.

Amount

spent on

the

programme

/ project

Subheads

1.Direct

Expenditure

on projects

2.Over

heads

7.

Cumulat

ive

spend

up to

the

reportin

g period

8.

Amount

spent

Direct

or

through

Implem-entingagency*

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REPORTING TEMPLATE

* Give details of Implementing Agency 26

Signed

…………………………………………..

(CEO/Managing Director/Director)

……………………………………

(Chairman CSR Committee)

……………………………………

(Person specified under clause (d) of sub-section (1) of section 380

of the Act) (wherever applicable)

Reporting on CSR Initiatives

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Project Mode;

One-off events;

Schedule VII must be interpreted liberally so as tocapture the essence of the subjects enumeratedtherein;

Beyond compliance;

Supplementing & complementing (but notduplicating) govt. schemes & programs will count asCSR;

Contribution to Corpus of a Trust/Scoeity/Section 8 companies will qualify as CSR as long as that body is created exclusively for a purpose directly relatable to a subject covered in Schedule VII.

CLARIFICATIONS IN MCA CIRCULAR (18.06.2014)

2328

A CSR project needs to have

Baseline survey

Duration of the Project

Amount allocated to the Project

Amount allocated to the Project in current FY

Start Date / End Date

Monitoring and Documentation

Objective Evaluation

THE SECTION 135: IMPLEMENTATION PROCESS

Developing a CSR Strategy Operationalizing the

institutional mechanism –team identification &

capacity building Identifying the

Implementing Agencies (conducting due diligence,

if required) Project Development –Detailed Project Report

(DPR)Clear identification of CSR Budget

Finalizing agreement with the implementing agency

Documentation, Monitoring (at Board and

Sub-board level)

Project Implementation

Project impact assessment

Preparation of reporting format and placement in

public domain

1

3

5

2

4

Identifying the Implementing Agencies

(conducting due diligence, if required)

3

6

9

8

7

Project approval –insertion of the approved

projects in the policy

Evaluation (Concurrent, Final & preferably Third

Party)

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THANK YOU

Let us show that we do care

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