1

PROJECT ON
CORPORATE SOCIAL RESPONSIBILITY UNDER COMPANIES ACT 2013


SUBMITTED
TO
Mr. SHAYAMTANU PAUL
(FACULTY OF Corporate law)

SUBMITTED BY NILESH KUMAR BAGHEL
ROLL NO. 81
SEMESTER VI
SECTION C
Submitted on: 5.04.2014


HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR




ACKNOWLEDGMENT


2


I, NI LESH KUMAR BAGHEL, feel myself highly elated, as it gives me tremendous plea
sure to come out with work on the topic
First and foremost, I take this opportunity to thank Mr, S SH HY YA AM MT TA AN NU U P PA AU UL L , Faculty,
Corporate Law, HNLU, for allotting me such topic to work on. She has been very kind in providi
ng inputs for this work, by way of lectures and suggestions.
I would also like to thank my dear colleagues and friends in the University, who have hel
ped me with ideas about this work. Last, but not the least I thank the University Administration f
or equipping the University with such good library and I.T. facilities, without which, no doubt thi
s work would not have taken this shape in correct time.

NILESH KUMAR BAGHEL








METHODOLOGY
3

Methodology used in this project work is both Doctrinal and Secondary electronic research. This
project work contains extensive research work on CORPORATE SOCIAL RESPONSI BI LI TY
UNDER COMPANI ES ACT 2013This project is based on theoretical study as well.



















TABLE OF CONTENTS
4



ACKNOWLEDGEMENTS


2

LIST OF ABBREVIATIONS


3

METHODOLOGY


4

INTRODUCTION:
5


WHAT IS CORPORATE SOCIAL RESPONSIBILITY (CSR)?


6-7


CSR IN INDIA

8-9


ANALYSIS OF THE SECTION

10-14

CONCLUSION

15

REFRENCES


16








5

INTRODUCTION:

This research paper analyses the fist statutory provision relating to Corporate Social Responsibili
ty in the world. India is the first country to implement CSR through statutory provisions. The bas
ic idea behind CSR is that the company should also return something to the society from which it
makes its profit. Earlier this was guided by philanthropic views but with the passage of time, the
concept of CSR has evolved and a new meaning is provided to CSR. Section 135 of the New Co
mpanies Act 2013 deals with the CSR. This section gives the applicability of CSR provision to v
arious companies and also the amount which needs to spent on CSR. For this purpose, A CSR
Committee need be formed which will function to recommend and provide the Board with the pr
oposals. The paper further deals with the eligibility of the fund to spend on some specified areas
as provided under Schedule VII of the Companies Act 2013. The main focus of the companies sh
ould be on the local areas as well on the places where they operate their business. The paper then
focuses on the problems associated with the provision of Section 135. The paper then concluded
by providing some insights into the problem.











6


WHAT IS CORPORATE SOCIAL RESPONSIBILITY (CSR)?
There exists no universal definition of CSR. But every definition that exists now underpins the i
mpact that businesses have on society at large and also on individuals. The idea of CSR was origi
nally based on philanthropic views like charity, donations etc. but with the change of times, the c
oncept of CSR has evolved and has now broadened to include various aspects of business that in
one way or other is linked to the society. Beyond making profits, companies are responsible for t
he totality of their impact on people and the planet.
1
People constitute the companys stakehold
ers: its employees, customers, business partners, investors, suppliers and vendors, the governmen
t, and the community. This is evident in some of the definitions presented below:
The European Commission1
2
defines CSR as the responsibility of enterprises for their impacts
on society. To completely meet their social responsibility, enterprises should have in place a pr
ocess to integrate social, environmental, ethical human rights and consumer concerns into their b
usiness operations and core strategy in close collaboration with their stakeholders
The World Business Council for Sustainable Development defines CSR as
3
the continuing com
mitment by business to contribute to economic development while improving the quality of life o
f the workforce and their families as well as of the community and society at large.

According to the United Nations Industrial Development Organisation
4
, Corporate social respon
sibility is a management concept whereby companies integrate social and environmental concern
s in their business operations and interactions with their stakeholders. CSR is generally understoo
d as being the way through which a company achieves a balance of economic, environmental and
social imperatives (Triple-Bottom-Line Approach), while at the same time addressing the expect
ations of shareholders and stakeholders. In this sense it is important to draw a distinction betwee

1
Sir Geoffrey Chandler, Defining Corporate Social Responsibility, ETHICAL PERFORMANCE BEST PRACTICE, FALL 2
001.
2
Corporate Social Responsibility, EUROPEN UNION COMMISSION, http://ec.europa.eu/enterprise/policies/sustainableb
usiness/corporate-social-responsibility/index_en.htm
3
Corporate Social Responsibility, WORLD BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT, http://www.wbcsd
.org/work-program/businessrole/previous-work/corporate-social-responsibility.aspx
4
What is Corporate Social Responsibility, UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANISATION http://ww
w.unido.org/what-we-do/trade/csr/what-is-csr.html#pp1[g1]/0/
7

n CSR, which can be a strategic business management concept, and charity, sponsorships or phil
anthropy. Even though the latter can also make a valuable contribution to poverty reduction, will
directly enhance the reputation of a company and strengthen its brand, the concept of CSR clearl
y goes beyond that.
From the above definitions, it is clear that
5
:
The CSR approach is holistic and integrated with the core business strategy for
addressing social and environmental impacts of businesses.
CSR needs to address the well-being of all stakeholders and not just the companys
shareholders.
Philanthropic activities are only a part of CSR, which otherwise constitutes a much larger
set of activities entailing strategic business benefits.



















5
Handbook on Corporate Social Responsibility in India, CONFEDERATION OF INDIAN INDUSTRY.
8


CSR IN INDIA

Previously, in India there was no mandatory concept of CSR. Although Corporate Social Respon
sibility Voluntary Guidelines 2009 was available to assist the businesses to adopt responsible go
vernance practices and also focuses on some of the core elements that businesses need to focus o
n while conducting their affairs. These guidelines have been prepared after taking into account th
e governance challenges faced in our country as well as the expectations of the society.
6

Now, the concept of CSR is governed by the provision of Sec 135 of the Companies Act 2013.
When the President of India gave assent to the Companies Bill, 2013, India became the first coun
try to mandate spend on CSR activities through a statutory provision. In India, while many corpo
rate houses have been traditionally engaged in doing CSR activities voluntarily, the new CSR pr
ovisions put formal and greater responsibility on companies to set out clear framework and proce
ss to ensure strict compliance.
7

Sec 135 of the Companies Act 2013 provided that
(1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees
one thousand crore or more or a net profit of rupees five crore or more during any financial year
shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or
more directors, out of which at least one director shall be an independent director.
(2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the
Corporate Social Responsibility Committee.
(3) The Corporate Social Responsibility Committee shall,
(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy whi
ch shall indicate the activities to be undertaken by the company as specified in Schedule
VII;

6
Corporate Social Responsibility, LOK SABHA SECRETARIAT PARLIAMENT LIBRARY AND REFERENCE, RESEARCH, D
OCUMENTATION AND INFORMATION SERVICE (LARRDIS) MEMBERS REFERENCE SERVICE, REFERENCE NOTE NO. 11 /
RN/REF./2013
7
Ibid at note 5
9

(b) recommend the amount of expenditure to be incurred on the activities referred to in cl
ause (a); and
(c) monitor the Corporate Social Responsibility Policy of the company from time to time.
(4) The Board of every company referred to in sub-section (1) shall,
(a) after taking into account the recommendations made by the Corporate Social Respons
ibility Committee, approve the Corporate Social Responsibility Policy for the company a
nd disclose contents of such Policy in its report and also place it on the company's websit
e, if any, in such manner as may be prescribed; and
(b) ensure that the activities as are included in Corporate Social Responsibility Policy of
the company are undertaken by the company.
(5) The Board of every company referred to in sub-section (1), shall ensure that the company spe
nds, in every financial year, at least two per cent. of the average net profits of the company made
during the three immediately preceding financial years, in pursuance of its Corporate Social Re
sponsibility Policy:
Provided that the company shall give preference to the local area and areas around it where it o
perates, for spending the amount earmarked for Corporate Social Responsibility activities:
Provided further that if the company fails to spend such amount, the Board shall, in its report ma
de under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the am
ount.
Explanation.For the purposes of this section average net profit shall be calculated in accor
dance with the provisions of section 198.




10

ANALYSIS OF THE SECTION
1. APPLICABILITY
An analysis of this section tells us that this provision is applicable to any company, during any fi
scal year, with (1) a net worth of rupees 500 crore (about U.S. $90 million) or more; (2) a turnov
er of rupees 1,000 crore (about U.S. $180 million) or more; or (3) a net profit of rupees 5 crore (a
bout U.S. $900,000) or more. Any company not falling under any of the above three categories is
not mandatorily required to follow the provisions of Section 135.
The CSR Clause will only apply to some of the over 800,000 companies in India, including over
8,000 publicly listed companies and multinational companies. The accounting firm Ernst & You
ng estimates that the law would cover over 2,500 companies in India and generate over U.S. $2 b
illion of CSR spending in local communities.
8
Under the CSR rules, net profit is defined to mean
net profit before tax as per books of accounts and shall not include profits arising from branche
s outside India.
9


2. CSR COMMITTEE
The CSR Clause requires a targeted company to make changes within its board of directors and t
o form a Corporate Social Responsibility Committee (CSR committee) within the board of dire
ctors that will devise, recommend, and monitor CSR activities, and the amounts spent on such ac
tivities, to the rest of the Board.
10
The Act lists out a set of activities eligible under CSR. Compa
nies may implement these activities taking into account the local conditions after seeking board a
pproval. The indicative activities which can be undertaken by a company under CSR have been s
pecified under Schedule VII of the Act.
11

Every qualifying company needs to constitute a CSR committee of the Board consisting of 3 or
more directors, one of whom must be an independent director as defined under section 149(6) of

8
The 2% CSR Clause: New Requirements for Companies in India, KORDANT PHILANTHROPY ADVISOR, http://www.
kordant.com/assets/2-Percent-India-CSR-Report.pdf
9
Corporate Social Responsibility, New Companies Act, 2013 Insight Series Volume IV, 13 September 2013, KP
MG FLASH NEWS, KPMG IN INDIA
10
Id.
11
Ibid at note 5
11

the Companies Act 213. However in respect of number of directors in a CSR committee, the que
stion that crops is with relation to the qualifying private companies (which requires minimum tw
o directors only) would be required to appoint one more director only to constitute CSR committ
ee and comply with the CSR provisions.
12

The functions of the Board will be threefold:
13

To formulate and recommend a CSR policy to the Board;
To recommend amount of expenditure to be incurred on CSR activities;
To monitor the CSR policy of the company from time to time.
3. RESPONSIBILITY OF THE BOARD
The Board of every qualifying company is required to hold following responsibilities:
14

To approve the CSR policy recommended by the CSR committee and disclose the
contents of such policy in its report and place it on companys website;
To ensure the CSR activities are undertaken by the company;
To ensure 2 percent spending on CSR activities;
To report CSR activities in Boards report and disclose non-compliance (if any) with the
CSR provisions.
The draft CSR rules provide the format in which all qualifying companies shall report
the details of their CSR initiatives in the Directors report and in the companys website.
4. CSR SPENDING
This Act also stipulates where the approved money will be spent. This is clearly provided under
Schedule VII of the Act. The bare wordings of schedule VII are as:
Activities which may be included by companies in their Corporate Social Responsibility Policies
Activities relating to:
(i) eradicating extreme hunger and poverty;

12
Ibid at note 9
13
Id.
14
Id.
12

(ii) promotion of education;
(iii) promoting gender equality and empowering women;
(iv) reducing child mortlity and improving maternal health;
(v) combating human immunodeficiency virus, acquired immune deficiency syndro
me, malaria and other diseases;
(vi) ensuring environmental sustainability;
(vii) employment enhancing vocational skills;
(viii) social business projects;
(ix) 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 r
elief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other back
ward classes, minorities and women; and
(x) such other matters as may be prescribed.
It is clear that the companies need to focus on the local areas as well as the areas where they oper
ate their business. The draft CSR rules further provide following guidelines / manner in which th
e company can undertake CSR activities and incur CSR spend:
15

The company can set-up a not-for-profit organisation in the form of trust, society or non-
profit company to facilitate implementation of its CSR activities. However, the
contributing company shall specify projects / programs to be undertaken by such an
organisation and the company shall establish a monitoring mechanism to ensure that the
allocation to such organisation is spent for intended purpose only.
A company may also implement its CSR programs through not-for-profit organisations
that are not set up by the company itself.
Such spends may be included as part of companys prescribed CSR spend only if such
organisations have an established track record of at least 3 years in carrying on activities

15
Ibid at Note 9.
13

in related areas.
Companies may also collaborate or pool resources with other companies to undertake
CSR activities.
Only CSR activities undertaken in India would be considered as eligible CSR activities.
CSR activities may generally be conducted as projects or programmes (either new or
ongoing), however, excluding activities undertaken in pursuance of the normal course of
business of a company.
CSR projects / programs may also focus on integrating business models with social and
environmental priorities and processes in order to create shared value.
CSR activities shall not include activities exclusively for the benefit of employees and
their family members.
There are many issues that still need to be resolved with regards to Schedule VII of the Act. Suc
h as:
16

The concepts of business process integration and shared value are not defined in the
Act / draft CSR rules.
While the draft CSR rules specify that CSR activities shall not be exclusively for the
benefit of employees / their families, it does not provide any objective criteria of certain
benefits (not exclusive) given to employees / their families that could be regarded as CSR
activities.
Whether the list of activities specified under Schedule VII of the Act is exhaustive?
While the draft CSR rules suggest that tax treatment of CSR spend will be in accordance
with the Income-tax Act, 1961 as may be notified by Central Board of Direct Taxes
(CBDT), one will have to wait and watch for notification from CBDT and whether the
same provides adequate certainty on tax treatment of CSR spend .
All these areas require more clarification.



16
Ibid at Note 9.
14

5. FAILURE TO COMPLY
While a company is not subject to liability for failing to spend on CSR, a company and its officer
s are subject to liability for not explaining such a failure in the annual report of the board of direc
tors. There is currently no guidance as to what constitutes a sufficient or statutorily valid explana
tion for failure to spend in the board report. In addition, a company and its directors are liable ev
en if they fail to report on CSR activities that actually were conducted.
Failure to explain is punishable by a fine on the company of not less than 50,000 rupees (about U
.S. $900) and up to 25 lakh rupees (about U.S. $46,000). Further, officers who default on the rep
orting provision could be subject to up to three years in prison and/or fines of not less than 50,00
0 rupees (about U.S. $900) and as high as 5 lakh rupees (about U.S. $9,200).
17

6. SOME CLARIFICATION BY DRAFT RULES.
The draft rules (as of September 2013) provide a number of clarifications and while these are aw
aiting public comment before notification, some the highlights are as follows:
18

Surplus arising out of CSR activities will have to be reinvested into CSR initiatives, and
this will be over and above the 2% figure
The company can implement its CSR activities through the following methods:
-- Directly on its own
-- Through its own non-profit foundation set- up so as to facilitate this initiative.
-- Through independently registered non-profit organisations that have a record of at least
three years in similar such related activities
-- Collaborating or pooling their resources with other companies
Only CSR activities undertaken in India will be taken into consideration
Activities meant exclusively for employees and their families will not qualify
A format for the board report on CSR has been provided which includes amongst others,
activity-wise , reasons for spends under 2% of the average net profits of the previous
three years and a responsibility statement that the CSR policy, implementation and
monitoring process is in compliance with the CSR objectives, in letter and in spirit. This
has to be signed by either the CEO, or the MD or a director of the company

17
Ibid at Note 9
18
Id.
15

CONCLUSION
Amid various practical difficulties which may have to be encountered at least in the initial phases
of implementation of the new CSR provisions, the initiative of the government is no doubt appre
ciable. The new provisions may be viewed as the result of the changing corporate philosophy in I
ndia and worldwide which entrusts the responsibilities on giant corporates towards social welfare
of the population which comprise of their present or prospective employees, customers or other
stakeholders in varied roles. In order to ensure meeting the true spirits of the new CSR law, a wel
l organized, professionally capable and independent team needs to be formed. It is possible only
when companies come forward and join together for this common good goal. Building an expert
and trained team of professionals is needed for managing funds earmarked for CSR purposes is r
equired. One step forward has been put forward by Indian Institute of Corporate Affairs (IICA) i
n this regard. The Institute is planning to initiate a certificate programme on Corporate Social Re
sponsibilities activities for working executives. As the thousands of giant corporates may be invo
lved with funds amounting to thousands of crores of rupees, it will a better idea for the governme
nt that rather than fixing responsibility of spending by individual companies, the government sho
uld encourage making a common corpus to be managed collectively by experienced professional
s to be nominated by the participating corporates. The funds of the corpus may be invested in ris
k free securities and the income from such investments may be used for gigantic social welfare p
rojects which are capable of covering a large number of populations by raising their income and
standards of living who in turn would become the part of growth story of varied industries in Indi
a. The new CSR law, being a Rule Ruled by Rules (called so because section 135on CSR spend
ing require detailed and comprehensive guidelines towards implementation of new CSR law), sin
ce the rules are under finalisation, once the rules are in place, we hope to have a better picture of
the various aspects of new CSR provisions.




16

REFRENCES
Books Referred:
1. Majumdar, A.K; Dr. Kapoor, G.K; Company Law and Practice; Taxmann Publication,
17
th
Edn., 2012.

2. Singh, Avtar, Company Law, Eastern Book Company, 15
th
Edn., 2007.


3. Palmer's Company Law: Annotated Guide to the Companies Act 2006; Sweet Maxwell
2007 Publication.

Websites Referred:

1. www.pwc.in/.../handbook-on-corporate-social-responsibility-in-india.

2. 164.100.47.134/intranet/CorporateSociaResponsbility.

3. www.indiacsr.in/en/?tag=corporate-social-responsibility

4. http://timesofindia.indiatimes.com/business/india-business/Corporate-Social-
Responsibility-rules-soon-will-include-10-major-areas/articleshow/30822317.cms