Corporate Social Responsibility

[hardeep sandhu]

Corporate Social Responsibility (CSR)

India is the first country to make CSR a statutory requirement. It aims at curbing some of the major problems faced by India. This is a very generous/benevolent step towards the development of the country, whereby companies are mandatorily required to incur expenditure on certain specified activities such as eradication of poverty, promoting education and gender equality, women empowerment etc. The provisions relating to CSR are contained in section 135 & CSR activities are specified under schedule VII. The Companies (Corporate Social Responsibility Policy) Rules, 2014 are also issued in support of section 135

1.  Applicability of the section

This section applies to the companies satisfying any of the following limits in any financial year:

Net worth ≥ 500 crore

Turnover ≥ 1000 crore

Net Profit ≥ 5 crore

2. Board Duties

The provision of CSR requires certain duties to be performed by the BOD of the company, which are as follows

Board shall:

1. Constitute Corporate Social Responsibility committee in case company satisfy any of the above mentioned parameters

2. Approve the CSR policy as recommended by CSR committee

3. Ensure that activities as are included in CSR policy are undertaken by the company

4. Ensure that company spends atleast 2 percent of the average net profits of the company in pursuance of CSR policy

5. Give disclosure of following matters in its report u/s 134:

• Composition of CSR committee
• Content of the CSR policy
• Average net profit of the Company for last 3 financial years
• Responsibility statement of CSR committee that implementation and monitoring of CSR programmes, is in compliance with CSR policy of the Company
• Give reasons in Report, in case company fails to spend the minimum amount in CSR activities
• Details of amount incurred in the prescribed manner

3.  Responsibilities of CSR committee

1. Formulate and recommend CSR policy to board, indicating the activities specified in schedule VII

2. Recommend the amount of expenditure for CSR policy activities

3. Monitoring the CSR programmes of the company

4.    Additional requirement

1. As per part II of Schedule III Company shall disclose by way of notes the amount of expenditure incurred on CSR activities.

2. Net Profit shall be computed as per section 198. It means Net Profit before tax after certain adjustments as per Sec 198.

5.  Activities for CSR

Schedule VII provides the exhaustive list of activities to be undertaken by the company to which the provisions of section 135 apply.

Activities relating to: -

1. Eradicating extreme hunger and poverty;

2. promotion of education

3. promoting gender equality and empowering women;

4. reducing child mortality and improving maternal health;

5. combating human immunodeficiency virus(HIV), acquired immune efficiency syndrome(AIDS), malaria and other diseases;

6. ensuring environmental sustainability;

7. employment enhancing vocational skills;

8. social business projects;

9. contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and

10. Such other matters as may be prescribed.

 6.    Clarification on inclusion of following items under schedule VII

S. No.		Whether covered under Schedule VII
	Renewable energy projects	Schedule VII (vi)
	Sustainable urban development and urban public transport systems	Not covered
	Research and Studies in the areas specified in Schedule VII.	Under the respective areas of items defined in Schedule VII. Otherwise under point no. (ii)
	Clarity on Rural development projects	Any project meant for the development of rural India will be covered under this.
	Trauma care around highways in case of road accidents	Schedule VII (i) under health care
	Non Academic Techno park TBI not located within an academic Institution but approved and supported by Department of Science and Technology.	Schedule VII (ii) under “promoting education”, if approved by Department of Science and Technology
	Provisions for aids and appliances to the differently- able persons - ‘Request for inclusion	Schedule VII (i) Under ‘promoting health care including preventive health care.’
	Promotion of Road Safety through CSR: (i) (a) Promotions of Education, “Educating the Masses and Promotion of Road Safety awareness in all facets of road usage, (b) Drivers’ training c) Training to enforcement personnel, (d) Safety traffic engineering and awareness through print, audio and visual media” should be included (ii) Social Business Projects: “giving medical and Legal aid, treatment to road accident victims” should be included.	(a) Schedule VII (ii) under “promoting education”. (b) For drivers training etc. Schedule VII (ii) under “vocational skills (c) It is establishment functions of Government (cannot be covered).  (d) Schedule VII (ii) under “promoting education”. (ii) Schedule VII (i) under ‘promoting health care including preventive health care.’
	The company contemplates of setting up ARTIIC (Applied Research Training and Innovation Centre) at Nasik Centre will cover the following aspects as CSR initiatives for the benefit of the predominately rural farming community: (a)  Capacity building for farmers covering best sustainable farm management practices. (b)  Training Agriculture Labor on skill development. (c)  Doing our own research on the field for individual crops to find out the most cost optimum and Agri-ecological sustainable farm practices.  (Applied research) with a focus on water management. (d) To do Product Life Cycle analysis from the soil conservation point of view	Item no. (ii) of Schedule VII under the head of “promoting education” and “vocational skills” and “rural development”. (a) “Vocational skill” livelihood enhancement projects. (b) “Vocational skill” (c) ‘Ecological balance’, ‘maintaining quality of soil, air and water’. (d) “Conservation of natural resource” and ‘maintaining quality of soil, air and water’.
	To make “Consumer Protection Services” eligible under CSR. (Reference received by Dr. V.G. Patel, Chairman of Consumer Education and Research Centre). (i) Providing effective consumer grievance redressal mechanism. (ii) Protecting consumer’s health and safety, sustainable consumption, consumer service, support and complaint resolution. (iii) Consumer protection activities. (iv) Consumer Rights to be mandated. (v) all consumer protection programs and activities” on the same lines as Rural Development, Education etc.	Consumer education and awareness can be covered under Schedule VII (ii) “promoting education”.
	a) Donations to IIM [A] for conservation of buildings and renovation of classrooms would qualify as promoting education” and hence eligible for compliance of companies with Corporate Social Responsibility. b) Donations to IIMA for conservation of buildings and renovation of classrooms would qualify as “protection of national heritage, art and culture, including restoration of buildings and sites of historical importance” and hence eligible for compliance of companies with CSR.	Conservation and renovation of school buildings and classrooms relates to CSR activities under Schedule VII as “promoting education”.
	US-India Physicians Exchange Program – broadly speaking, this would be program that provides for the professional exchange of physicians between India and the United States.	Not Covered
	Disaster Relief	Disaster relief can cover wide range of activities that can be appropriately shown under various items listed in Schedule VII.  For example,  (i) Medical aid can be covered under ‘promoting health care including preventive health care.’  (ii) Food supply can be covered under eradicating hunger, poverty and malnutrition. (iii) Supply of clean water can be covered under ‘sanitation and making available safe drinking water’.
	Supplementing of Govt. schemes like mid-day meal by corporate through additional nutrition would qualify under Schedule VII.	Covered under Schedule VII, item no. (i) under poverty and malnutrition’.
	Capacity building of government officials and elected representatives – both in the area of PPPs and urban infrastructure.	No.
	Enabling access to, or improving the delivery of, public health systems be considered under the head preventive healthcare” or “measures for reducing inequalities faced by socially &economically backward groups”	Can be covered under both the heads of “healthcare” or “measures for reducing inequalities faced by socially & economically backward groups”, depending on the context.
	Likewise, could slum re-development or EWS housing be covered under “measures for reducing inequalities faced by socially & economically backward groups”?	Yes.
	(i) Are the initiatives mentioned in Schedule VII exhaustive? (ii) In case a company wants to undertake initiatives for the beneficiaries mentioned in Schedule VII, but the activity is not included in Schedule VII, then will it count (as per 2(c)(ii) of the Final Rules, they will count)?	Item no. (i) & (ii) of Schedule VII is to be liberally interpreted so as to capture the essence of subjects enumerated in the schedule.

Discussions to this article

[SPIROTECH HEAT EXCHANGERS PVT LTD]

Dear Sandhu ji

i think net profit means profit after tax - as per rule define net profit means that net profit in respect of a financial year for which the relevant financial statement were prepared in accordance with provision of Companies Act shall not be required to bere-calculated in accordance with the provision of the Act.s