Corporate Social Responsibility –Applicability, Contribution, Implementation and Penalty

 

Corporate Social Responsibility (CSR)

It is statutory obligation performed by company in accordance with the provision of Section 135 of the Companies Act, 2013 and rules made thereunder.  However, the concept introduced for the betterment of society and environment.  In generally corporates earn profit from the society so there should be responsibility to uplift the privileged section of the society. Similarly, due to manufacturing activities or use of plastic etc. Corporates harm the environment and earn profit, so there should be responsibility to clean the environment as well.

We do not adopt responsible behavior generally, e.g many individuals do not use helmet/ seat belt for safety unless it is mandated by law. So, recognizing this behavior Government made spending of CSR mandatory by the introducing the provision in Companies Act, 2013.

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Pursuant to the Section 135 of the Companies Act, 2013 if company covered under the any point mentioned below, then the company required to spend at least 2% of the average net profits of the company made during the immediately preceding three financial years,

1. Net worth of the company should be Rs 500 Crore or more.

2. Turnover of the company should be Rs 1000 Crore or more

3 Net Profit of the company should be Rs 5 Crore or more

In such case the company shall constitute CSR committee, if the spending amount is Rs 50 Lakhs or more. 

 

Benefits of CSR

1. CSR is not expenses it is investment to create the brand value of your business.

2. It helps to improve public image and enables media visibility.

 

Mandatory provision of the Section 135 and CSR Rules

1. The Board report shall disclose the composition of CSR committee and annex the CSR Report.

2. If the CSR committee is not applicable, the boars shall perform the duties of CSR committee.

3. The CSR committee / Board shall formulate the CSR policy.

4. The CSR committee / Board shall ensure the spends of CSR amount in activities prescribed in schedule VII of the Companies Act, 2013

5. The composition of CSR committee shall consist of three or more directors in which one director should be independent, if appointment of independent director is not mandatory then only two shall be sufficient to  formulate the CSR Committee.

6. The calculation of Net profit should be in accordance with Section 198 of the Companies Act, 2013

7. The company shall give preference to the local area for spending the money where operates it businesses. 

8. If company fails to spend the minimum required CSR contribution, the board shall in its report mention the reason for not spending the contribution.

9. Any unutilized amount unless it is connected with the ongoing project, shall be transferred to fund specified by the central government in schedule VII within period of six months from the end of financial year.

10. Any excess amount spend by the company shall be set off in any succeeding year against the minimum contribution required by the company.

11. This section is applicable on every company including holding, subsidiary, foreign company having branch office, project office in india.

12. The money can be spent by the company itself or through implementing agencies.

13. Implementing agencies can be a company established under section 8 of the Act, or a registered public trust or a registered society, exempted under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10 or registered under section 12A and approved under 80 G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.

14. Implementing agencies must be registered on MCA portal by filing the form CSR -1 and after filing the form the agencies will get the Unique CSR Registration code.

15. Every company having an average CSR obligation of Rs 10 Crore or more in three immediately preceding financial year required to take impact assessment report form an independent agency.

In the Case of Non - Compliance:

In the case of non-compliance of the provision of Section 135 of the Companies Act, 2013, the penalty shall be applicable as follows:

A. For Company: - Twice the amount required to transfer in fund specified in schedule VII or unspent CSR Account.   (Maximum One Crore)

B. For officer in default: - 1/10^th of the amount required to transfer in fund specified in schedule VII or unspent CSR Account. (Maximum Two Lakh)

Conclusion:

Compliance is much easier than noncompliance. People think that the cost of compliance is too heavy but it is far easier to non - compliance. Non compliance is not only monetary loss for the company but also destroy the brand image, public trust and creates negative publicity.

Author:  CS Prahalad Kumar Principal Associate at Khurana and Khurana, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.