CORPORATE SOCIAL RESPONSIBILITY (CSR) UNDER COMPANIES ACT, 2013 (PART II)

[Dr. Sanjiv Agarwal]

Companies (Accounts) Rules, 2014

The rules prescribed for Chapter IX i.e. Companies (Accounts) Rules, 2014 have come into effect from 01/04/2014. The rules regarding CSR specify that the contents of Corporate Social Responsibility Policy in the Board’s report and on the company’s website, if any, shall be as per Annexure attached to the Companies (Corporate Social Responsibility Policy) Rules, 2014.

The activities to be covered under CSR and how to be implemented shall be governed by the Companies (Corporate Social Responsibility Policy) Rules, 2014.

Companies (Corporate Social Responsibility Policy) Rules, 2014

In order to implement the provisions of Section 135 of the Act on Corporate Social Responsibility, the Central Government has prescribed the Companies (Corporate Social Responsibility Policy) Rules, 2014, which shall be adhered to.

The definition of Corporate Social Responsibility means the following but is not limited to :

1. Projects or programs relating to activities specified in Schedule VII to the Act; or
2. Projects or programs relating to activities undertaken by the Board of Directors of a company in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act.              

The activities mentioned to in Schedule VII to the Act shall be considered as activities eligible for Corporate Social Responsibility.

Moreover, the activities which are recommended by the Board of Directors on the recommendation of the CSR Committee of the Board shall also be so construed. However, such policy shall cover only the subjects stated in Schedule VII of the Act or must be in relation to the activities specified therein to be eligible expenditure under CSR.

Eligibility of CSR Activities

The CSR Policy Rules, 2014 state that the activities to be undertaken by the company shall be in accordance with its CSR Policy. However, the activities undertaken by the company shall not be done in ordinary course of its business.

The company is allowed to undertake CSR activities approved by the CSR Committee through a registered trust or a society. However, the trust or the society through which such activities are to be carried out shall have an established track record of three years in undertaking such projects. The company must specify the programs or projects to be undertaken through such activities.

CSR activities done in India only shall amount to eligible CSR expenditure.

Any activity done for the benefit of employees of the company shall not be regarded as eligible expenditure under the CSR Policy Rules, 2014.

The CSR expenditure with such trusts shall not exceed five percent of total CSR expenditure of the company in one financial year.

CSR Expenditure

CSR expenditure includes all expenditure including contribution to corpus, for any projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee. However , the expenditure on an item which is not in conformity or not in line with activities which fall within the purview of Schedule VII of the Act shall not be regarded as eligible CSR expenditure.

The company may contribute in the following manner:

1. By Charity: Company can donate money to various charitable trusts, societies, NGOs etc. who work for social economic welfare of society.
2. By Contract: Company can tie up with an NGO or any such other agency which can carry out the projects on behalf of the company.
3. By Itself: Company can take up a project on its own or create its own trust and use its own staff for its proper working/ monitoring or through other trusts/ societies.

The companies may adopt any one, more or all of the above ways for the purpose of CSR activities .

Any activity by way of contribution to the trust shall be eligible contribution provided its activities are in adherence with these prescribed in Schedule VII of the Act. The contribution should not be for the employees and the activities are must be undertaken in India.