Shwetha M Krishnappa

COMPANIES ACT 2013

LESSON 13
Learning Objectives

 Understand specific features of Companies

Act 2013 with respect to CSR
Companies Act 2013

 These rules came in to force from 1st April,

2014.
 The government of India made it mandatory
for companies to undertake CSR activities
under the Companies Act, 2013.
 The concept of CSR is defined in clause 135
of the Act
CA 2013 Applicability

 Section 135 applicable to Companies with

 Net worth Rs. 500 crore or more,
 Turnover Rs 1000 Crore or more or
 Net Profit Rs. 5 Crore or more during any financial
year
Clause 135, Companies Act, 2013

 The Act encourages companies to spend at

least 2% of their average net profit in the
previous three years on CSR activities.
 CSR policy of a company should ensure that
surplus arising out of a CSR activity will not
become part of business profits.
 Section 135(5) states that Companies shall give
preference to the local areas and the areas around
which it operates for spending the amount earmarked
for CSR activities.
 The companies can carry out these activities by
collaborating either with a NGO, or through their
own trusts and foundations or by pooling their
resources with another company
 Currently, International Organizations are not eligible
to undertake CSR activities unless they are a Section
8 company, a registered trust or a registered society
in India.
CA 2013- CSR Committee Composition

 At least 3 directors, one of whom should be an

independent director
 In a company where appointment of an
independent director is not mandatory
 CSR committee of a private company having
only two directors can have only two members
 CSR committee would be a committee of the
board
CA 13- Disclosure

 Companies are required to disclose details of

CSR in their Annual Reports.
 In case a company has failed to spend 2% of
the average net profit, the reason for doing so
should be mentioned in the annual board
report.
 CSR Reporting is made under ‘Additional
Information’ in the Notes to Accounts of the
Profit and Loss Statement.
CA 2013 - CSR expenditure

 Average Net Profit shall be calculated as per

Section 198 of Companies Act 2013
 It shall not include the net profit of an
overseas branch or branches, whether operated
as separate company or otherwise
 CSR Budget Can Be Spent on
1. Eradicating Hunger, Poverty and Malnutrition,
2. Promoting Education
3. Promoting Gender Equality
4. Ensuring Environmental Sustainability
5. Protection of National Heritage, Art and Culture
6. Measures For The Benefit of Armed Forces
7. Training to Promote Rural Sports
8. Contribution To The Prime Minister’s National
Relief Fund
9. Contributions or Funds Provided By Technology
Incubators
10. Rural Development Projects
Source:CSR Box
CSR Spending – Public Sector Units
CSR Spending – Non Public Sector
Units
Need for Corporate Social Responsibility

 To reduce the social cost.

 To enhance the performance of employees.
 It is a type of investment.
 It leads to industrial peace.
 It improves the public image.
 Can generate more profit.
 To provide moral justification.
 It satisfies the stakeholders.
 Helps to avoid government regulations & control.
 Enhance the health by non polluting measures.
 • Improved Brand Image
• Customer loyalty • Reducing non financial risk
• Employee retention • Maximizing social impact of
• Competitive advantage their investment
• Cost savings
• Value chain
• Fund raining

Organization Shareholders

Employees Society

• Better infrastructure and • Improved quality of life

welfare facilities • Education
• Employment
• Healthcare
• Community wellbeing
• Environmental benefits
Challenges of CSR

 Lack of Awareness of General Public in CSR

Activities
 Need to Build Local Capacities
 Issues of Transparency
 Non-Availability Of Well Organized Non-
Governmental Organizations
 Visibility Factor
 Narrow Perception towards CSR Initiatives
 Non-Availability of Clear CSR Guidelines
 Lack of Consensus
Thank You