Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

Presently Corporate Social Responsibility (CSR) expenditure is at the discretion of the corporate however after enactment of Section 135 of Companies Act 2013 such expenditure is made mandatory for certain corporate.

Corporate Social Responsibility (CSR) has been in existence for a long time and is almost as old as civilization. It is based on the Gandhian Principle of “trusteeship concept” whereby business houses are looked upon as trustees of the resources they draw from society and thus are expected to return them back manifold. CSR is extremely important for sustainable development of all stakeholders (all the people, on whom the business has an impact, including the society at large).

With the enactment of the Companies Act, 2013, India has become the forerunner to mandate spend on Corporate Social Responsibility (CSR) activities through a statutory provision. While many corporate houses have been traditionally engaged in doing CSR activities voluntarily, the new CSR provisions put formal and greater responsibility on companies in India to set out clear framework and processes to ensure strict compliance. However, what the Companies Act does is bring more companies into the fold and increase the total CSR spend. –

Company is a social institution having duties and responsibilities towards the community in which if functions. Its objective is to bring about maximization of social welfare and common good.


India is the only count so far, where CSR has been made mandatory.

Applicability to which CSR provisions applicable:

A. Following below mention companies are required to constitute CSR Committee:

B. Provisions of CSR apply to foreign branch/project office of foreign company:-

The Provisions of CSR are applicable to Foreign Company having Branch office or project in India if it fulfill the above given criteria.

Important Note:

􀂙 The criteria of Net Profit etc. apply only to business operations in India in case of foreign Company/ Project Office.

􀂙 The Committee should institute a transparent monitoring mechanism for implementation of the programme.

􀂙 Board report should disclose composition of CSR Committee.

Ques: When companies get ceases to comply with the provisions of CSR?

Companies covered under CSR provisions goes outside the CSR provisions if it ceases to fulfill the criteria for Three Consecutive Years. [Rule 3(2) of Companies (CSR Policy) Rules, 2014.

Once company again fall within the limit provisions of CSR will be applicable on Company.

Constitutions of CSR Committee: Company to which CSR is mandatory should appoint a CSR Committee to undertake and monitor CSR activities.

􀂙 The CSR Committee shall consist of 3 (Three) or more Director, out of which at least one director shall be an Independent Director.

􀂙 An Unlisted Public Company: This is covered under CSR provisions, but is not required to have Independent Director need not have Independent director on the CSR Committee.

􀂙 Private Limited Company: which is covered under CSR provisions

􀀹 Need not have Independent director on the CSR Committee

􀀹 Can have CSR committee with only Two Directors.

􀂙 In case of Foreign Company: The CSR committee should have at least Two person, out of which

• One person shall be specified under section 380(1)(d) of the 2013 Act and

• Another person nominated by the Foreign Company.

CSR Committee Meeting:

􀂃 Law is silent w.r.t. number of CSR Committee meetings in a year. So it is dependent on the requirement of the Company. However there is no restriction if CSR Committee meeting conduct business by circulation.

􀂃 For CSR Committee Quorum Law is silent again. It is recommended to apply same quorum provisions as are applicable to board meetings under section 174 of the Companies Act, 2013.

􀂃 No time limit prescribed for constitution of CSR Committee. However keeping in view the fact.

Role/ Functions of CSR Committee:

• To formulate and recommend to the board CSR Policy as per activities specified in Schedule VII

• To recommend the amount of expenditure to be incurred on above activities

• To monitor the policy from time to time.

• Prepare a transparent monitoring mechanism for ensuring implementation of the projects / programmes / activities proposed to be undertaken by the company.

Responsibility of the Board of Directors:

• To approve the CSR Policy recommended by the committee

• To disclose contents of the policy in the report & place it on website.

• To ensure that activities reflected in CSR policy are actually undertaken by company.

• To ensure that activities included by a company in its Corporate Social Responsibility Policy are related to the activities included in Schedule VII of the Ac

Net Profit Require spending on CSR Activity:

􀂃 To ensure that at least 2% of average net profit of 3 immediately preceding years is spent on CSR activities every year.

􀂃 For Financial Year 2014-15 Calculation: Average net profit of FY 2011-12, 2012-13 & 2013-14 needed to be considered.

“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:

i. any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and

ii. Any dividend received from other companies in India, which are covered under and complying with provisions of Section 135 of the.




􀂃 Activities shall be undertaken as per CSR policy excluding activities undertaken in pursuance of its normal course of business.

􀂃 Board may decide to undertake its CSR activities approved by the CSR Committee, through a registered trust or a registered society or a company established by the company or its holding or subsidiary or associate company under section 8 of the Act.

􀂃 A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR Committees of respective companies are in a position to report separately on such projects or programs

􀂃 CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure. Preference must be given to the local area in which the company


• Activities undertaken in normal course of business.

• Activity undertaken outside India.

• CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act

• Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.

• Activity not covered within schedule VII of the 2013 Act.


• ‘CSR Policy” relates to the activities to be undertaken by the company as specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company. The CSR Policy of the company shall, inter-alia, include the following, namely :-

- a list of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act, specifying modalities of execution of such project or programs and

- monitoring process of such projects or programs:

• The CSR Policy of the company shall specify that the surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company.

• CSR expenditure shall include all expenditure including contribution to corpus, or on projects or 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.


1) Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water,

2) Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects,

3) Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward ,

4) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air and water;

5) Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts,

6) Measures for the benefit of armed forces veterans, war widows and their dependents;

7) training to promote rural sports, nationally recognised sports, paraolympic sports and Olympic sports; 8) 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, the Scheduled Tribes, other backward classes, minorities and women;

9) contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government,

10) Rural development projects,

11) Slum Area Development


Company may build CSR capacity of their own personnel as well as those of their implementing agencies through institutions with established track record of three years are permissible. However, such expenditure shall not be more than 5% of total CSR expenditure of company in one financial year.


If a company fails to provide ors spend such amount, the Board shall specify reasons for not spending the amount in its report.

Thus, spending on CSR activities is not mandatory and no penalty can be imposed for non-compliance.


Expenditure on CSR is required. However, allow ability of expenditure on CSR as deduction under section 37 of Income Tax Act is not yet clear, particularly because spending on CSR is not mandatory.


o Any surplus arise of the CSR project will not form part of the Business income.

o The Board of Director’s report undertakes Section 134(3) of the 2013 Act shall disclose the composition of the Corporate Social Responsibility Committee.


“RESOLVED THAT pursuant to the provisions of Section 135 of the Companies Act, 2013, a Corporate Social Responsibility (CSR) Committee of the Board of Directors of the Company be and is hereby constituted comprising of the following members of the Board of Directors of the Company as members of CSR Committee:

1. Mr. A

2. Mr. B

3. Mr. C

RESOLVED FURTHER THAT the terms of reference of CSR Committee shall, interalia, Include the following:

a. To formulate and recommend to the Board, a CSR policy which shall indicate the activities to be undertaken by the Company as per the Companies Act, 2013

b. To review and recommend the amount of expenditure to be incurred on the activities to be undertaken by the company

c. To monitor the CSR policy of the Company from time to time

d. Any other matter as the CSR Committee may deem appropriate after approval of the Board of Directors or as may be directed by the Board of Directors from time to time.

RESOLVED FURTHER THAT the quorum for the CSR Committee Meeting shall be one third of its total strength (any fraction contained in that one third be rounded off as one) or two members, whichever is higher.

RESOLVED FURTHER THAT Company Secretary to the Company shall act as Secretary to the CSR Committee.”

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at 


Published by

CS Divesh Goyal
(Practicing Compnay Secretary)
Category Corporate Law   Report

6 Likes   68 Shares   22515 Views


Popular Articles

Follow taxation Exam20 Book Book

CCI Articles

submit article

Stay updated with latest Articles!