REGULATORY AND POLICY FRAMEWORK

REGULATORY & POLICY FRAMEWORK

CONTENTS

• PROVISIONS OF THE COMPANIES ACT 2013

• SEBI’s GUIDELINES
• PSU’s GUIDELINES
• UN GLOBAL COMPACT
• INTERNATIONAL STANDARDS
REGULATORY & POLICY FRAMEWORK

• PROVISIONS OF THE COMPANIES ACT 2013 AND

SECTION 135

• RULES IN RESPECT OF THE ABOVE ACT

• CLARIFICATIONS ISSUED BY THE MINSTRY OF

CORPORATE AFFAIRS , GoI
CSR PROVISIONS AS FACILITATORS
 They will promote and facilitate the efforts
of corporates to reach out to
poor/marginalized/deprived sections of
the community through responsible, capable
and credible implementing agencies;
 They are expected to foster collaboration
and synergy among corporates to make a
significant impact on our development-centric
agenda;
 They will facilitate a movement from cheque
book charity/philanthropy to strategic
CSR. 4
MILESTONES IN CSR

18 08 30 27
1 Apr Dec Aug Feb
2010 Aug
2012 2013 2013 2014
• DPE • Companies • Companies • Gazette • Rules on
Guidelines Bill 2013 Bill 2013 Notification section 135
on CSR approved by approved by of the New Notified on
Lok Sabha the Rajya Companies MCA’S
Sabha Act 2013 website

6
HIGHLIGHTS

OF THE

LEGISLATION

(Section 135)
7
QUALIFYING CRITERIA
 Section 135, sub-section 1 of the Companies Act,
2013 provides the qualifying criteria;
 Every company having
i. net worth of rupees five hundred crore or more,
ii. or turnover of rupees one thousand crore or
more,
iii. or a net profit of rupees five crore or more

during any financial year is mandated to constitute a

Corporate Social Responsibility Committee of the Board.

Any financial year refers to any of the three preceding

financial years.
8
COMPOSITION OF CSR COMMITTEE
A Corporate Social Responsibility Committee of
the Board consists of three or more directors,
out of which at least one director shall be an
independent director.

An unlisted public company or a private

company covered under Section 135(1) of the
Act, which is not required to appoint an
independent director, shall have its CSR
Committee without such director .

8 9
COMPOSITION OF CSR COMMITTEE
(CONT’D)
A private company with two directors on
Board should constitute its CSR Committee
with only two directors;

The CSR Committee shall institute a

transparent monitoring mechanism for
implementation of the CSR projects or
programs or activities undertaken by the
company.

10
 ROLE OF THE CSR COMMITTEE
CSR Committee

Three or more directors with at

least one independent

Formulate and recommend a

CSR policy to the board

Recommend activities and the

amount of expenditure to be
incurred

Monitor the CSR policy

11
 The Board’s report shall disclose the
composition of the Corporate Social
Responsibility Committee;

 Amount to be spent - at least two per cent

of the average net profits of the company made
during the three immediately preceding FYs;

 For CSR activities company shall give

preference to the local area/areas around where
it operates.

12
Role of the Board
Form a CSR Committee
Approve the CSR Policy, disclose its
contents in the Board’s Report and
place it on the company's website
Ensure Implementation of CSR
activities

Ensure 2% spend
Disclose reasons for not spending
under clause (o) of sub - section (3)
of Section 134 13
PENALIZATION PROVISIONS for COMPANIES
Sub Section (8) of Section 134

If a company contravenes the provisions of this

section clause (o of sub - section (3) of Section 134)
,the company shall be punishable with fine which
shall not be less than fifty thousand rupees but which
may extend to twenty-five lakh rupees and every
officer of the company who is in default shall be
punishable with imprisonment for a term which may
extend to three years or with fine which shall not be
less than fifty thousand rupees but which may extend
to five lakh rupees, or with both.

14
Schedule VII – CSR THEMATIC AREAS

1. Eradicating hunger,
2. Promotion of
poverty and malnutrition,
education, special
promoting health care,
education and
sanitation & safe drinking
vocational skills
water

3. Gender Equality, 5.
4.
Women Benefits to
Protection
empowerment , armed
of National
senior citizens and forces
Heritage,
economically veterans,
art and
backward groups war
culture
widows 15
Schedule VII – CSR THEMATIC AREAS…

6. Ensuring
7.
environmental 8. Rural
Technology
sustainability, sports,
incubators
ecological Paralympic
within
balance, wildlife & and Olympic
academic
natural resources sports
institutions
conservation

9. PM National Relief Fund and

any other funds setup by the 10. Rural
Central Govt. for socio economic Development
development & welfare of projects
SC/ST/OBC 16
SIGNIFICANT

ASPECTS

OF THE

RULES
17
RULES EFFCETIVE FROM 1st APRIL’2014

 Provisions apply to every Indian

company including its holding company
or subsidiary company;

 Surplus arising out of the CSR Projects

or programs or activities shall not form
part of the business profit of a company;

 CSR projects or programs or activities

undertaken in India only shall amount to
CSR Expenditure.
18
PROVISIONS for FOREIGN COMPANIES
 Section 135 applies to foreign companies having
their branches or project offices in India;

 Net profit of such companies shall be determined

as per the profit and loss account prepared under
section 381(1)(a) read with section 198 of the
Companies Act, 2013;

 CSR Committees of such companies shall

comprise of at least two persons of which one
shall be as specified under clause (d) of sub-
section (1) of section 380 of the Act and another
person to be nominated by the foreign company.
19
 CSR POLICY

 The policy shall include a list of CSR projects

or programs which a company plans to
undertake falling within the purview of the
Schedule VII of the Act, specifying modalities
of execution of such projects or programs and
implementation schedules for the same;

 It will also elaborate the Monitoring process

for such projects or programs.

20
CONTENTS OF CSR POLICY OF A
COMPANY
The CSR Policy of a company would include,
among others, the following:

Company’s vision about CSR;

Projects/programs envisaged to be undertaken

by the companies under CSR;

Amount allocated for each of those

projects/programs;

21
CONTENTS OF CSR POLICY OF A
COMPANY (CONT’D)
Implementation schedules;

Indication about the implementing

agency/agencies for executing such projects,

Modalities of monitoring the implementation

of CSR projects,

Provisions for impact evaluation.

22
 CSR EXPENDITURE
 CSR expenditure shall include all expenditure
including contribution to corpuses of
trusts/societies/section 8 companies which are
created exclusively for undertaking CSR
activities or for purposes directly relatable to a
subject covered in Schedule VII;

 A company cannot make any contribution to

any political party or political purpose.

23
 CSR EXPENDITURE
 Activities undertaken in pursuance of the
normal course of business of the company
will not count as CSR;

 CSR Projects or programs or activities that

benefit only the employees of the company
and their families shall not be considered as
CSR activities.

24
 CSR EXPENDITURE ON CAPACITY
BUILDING

 For building CSR capacities of their own

personnel as well as of those of their
implementing agencies, companies may incur
expenditure up to 5 per cent of their CSR
budgets;

 Must be done through institutions with

established track records of at least 3 years.

25
METHOD OF IMPLEMENTATION
OF CSR
The Board of a company may decide to
undertake its CSR activities approved by the
CSR Committee, through
a registered trust
or a registered society
or a company
established by the company or its holding or
subsidiary or associate company under
section 8 of the Act or otherwise:

26
METHOD OF IMPLEMENTATION OF
CSR (CONT’D)
Provided that:
If such trust, society or company is not
established by the company or its holding or
subsidiary or associate company, it shall have an
established track record of three years in
undertaking similar projects or programs;

The company has specified the project or

programs to be undertaken through these
entities, the modalities of utilization of funds on
such projects and programs and the monitoring
and reporting mechanism.
•
27
COLLABORATION AMONG COMPANIES
FOR IMPLEMENTING CSR

 A company may also collaborate with

other companies for undertaking projects
or programs or CSR activities;

 Provided CSR Committees of respective

companies are in a position to report
separately on such projects or programs in
accordance with these rules.

28
 REPORTING TEMPLATE
1. 2. 3. 4. 5. 6. 7. 8.
Sr CSR Sector in Projects/P Amount Amount Cumu Amount
N project/ac which the rogramme outlay spent on the lative spent
o. tivity project is s (budget programme spen Direc
identified covered ) /project d t or
1.Local
project/ Subheads upto throu
areas/ot
program 1.Direct the gh
hers
me wise expenditu repor imple
2.Specify
re on ting menti
the
projects perio ng
state/di
2.Over d agen
strict
heads cy*

* Give details of Implementing Agency

28
Reporting on CSR Initiatives
Signed

…………………………………………..
(CEO/Managing Director/Director)

……………………………………
(Chairman CSR Committee)

……………………………………
(Person specified under clause (d) of sub-section (1) of section 380
of the Act) (wherever applicable)

30
 CSR

CLARIFICATIONS

31
 CLARIFICATIONS IN MCA CIRCULAR
(18.06.2014)
Project Mode (slide no. 37 & 38);

One-off events such as

marathons/awards/charitable
contributions/advertisements/sponsorships of
TV programmes etc. would not qualify as CSR.

32
LIBERAL INTERPRETATION OF
ACTIVITIES COVERED IN SCHEDULE
VII
It has been clarified through issuance of a
General Circular dated 18th June 2014 which
provides, inter alia, the following:
Schedule VII must be interpreted liberally
so as to capture the essence of the subjects
enumerated in the said Schedule;

The items enlisted in the amended Schedule

VII of the Act, are broad-based and are
intended to cover a wide range of activities.
33
 CLARIFICATIONS….

Beyond compliance: Expenses incurred by

companies for the fulfillment of any
Act/Statute or regulations would not count;

Salaries paid to regular CSR staff &

volunteers (in proportion to company’s time
spent specifically on CSR) can be factored into
CSR project cost;

 Any FY referred in under Sub-section (1) of

Section 135 of the Act, implies “any of the
three preceding FYs”. 34
 CLARIFICATIONS….
Expenditure incurred by Foreign Holding
Company for CSR activities in India will
qualify as CSR spend of the Indian subsidiary
if expenditures are routed through Indian
subsidiaries and if it is required to do so as per
Section 135;
Supplementing & complementing (but not
duplicating) govt. schemes & programs will
count as CSR;
‘Registered Trust’ would include Trusts
registered under Income Tax Act 1956, for
those States where registration of Trust is not
mandatory. 35
 CLARIFICATIONS….

 Contribution to Corpus: CSR expenditure

shall include contribution to corpuses of
trusts/societies/section 8 companies which are
created exclusively for undertaking CSR
activities or for purposes directly relatable to a
subject covered in Schedule VII;

Other specific issues are covered in Annexure

to this circular (MCA circular no. 21/2014
dated 18.06.2014, www.mca.gov.in).

36
PROJECT MODE APPROACH
Baseline survey

Detailed Project Report (DPR)

Duration of the Project (Start

Date / End Date)

Amount allocated to the Project

Amount allocated to the Project

in current FY

37
PROJECT MODE APPROACH
Selection of Implementing
Agency (IA)

Release of fund to IA

Documentation & Monitoring

Objective Evaluation
(Concurrent, Final & Impact
Assessment)
38
ACTIVITIES NOT FALLING IN THE AMBIT
OF CSR
 The CSR projects that benefit only the
employees of the company and their families
shall not be considered as CSR activities in
accordance with section 135 of the Act;

 One-off events such as marathons/ awards/

charitable contribution/
advertisement/sponsorships of TV programmes
etc. would not be qualified as part of CSR
expenditure;

Activities which are not taken up in project

mode. 39
 ACTIVITIES NOT FALLING IN THE
AMBIT OF CSR
Expenses incurred by companies for the
fulfillment of any Act/ Statute of regulations (such
as Labour Laws, Land Acquisition Act etc.) would
not count as CSR expenditure under the
Companies Act;

Contribution of any amount directly or indirectly

to any political party shall not be considered as a
CSR activity;

Activities undertaken by the company in

pursuance of its normal course of business.
40
 COMPUTATION OF NET PROFIT
METHOD FOR COMPUTATION OF PROFIT UNDER SECTION 198
Particulars Amount
(A)Profit before tax as reported in the Statement of Profit and xxxxx
Loss
(B)Less
(i) Profits of a capital nature including profits from the sale of xxxxx
the undertaking or any of the undertakings of the company or
of any part thereof
(ii) Profits in excess of the difference between the original cost xxxxx
of that fixed asset and its written- down value on sale of any
immovable property of fixed assets.
(iii) Change in the fair value of assets or liabilities, recognised xxxxx
as income in the Statement of Profit and Loss
41
COMPUTATION OF NET PROFIT(CONT’D)
(iv) Unabsorbed excess of expenditure over income of xxxxx
previous years computed as per section 198
(C)Add
(i) Excess of depreciation over the amount specified in xxxxx
section 123
(ii) Any compensation, damages or payments made
voluntarily
(iii) Loss of a capital nature including loss on sale of xxxxx
the undertaking or any of the undertakings
(iv) Change in the fair value of assets or liabilities, xxxxx
recognised as income in the Statement of Profit and
Loss
Profit as per section 198 (A-B+C) xxxxx
42
COMPUTATION OF NET PROFIT(CONT’D)
Further, the following would not be included:
Any profit arising from any overseas branch
or branches of the company, whether
operated as a separate company or
otherwise; and

Any dividend received from other companies

in India, which are covered under and
complying with the provisions of section 135
of the Act.

43
TAX BENEFITS EXTENDED TO CSR
SPENDING
As on date no specific tax exemption has been
extended to expenditure incurred on specified
CSR activities;

Spending on several activities like

contributions to Prime Minister’s Relief Fund,
scientific research, rural development projects,
skill development projects, agricultural
extension projects, etc., which find place in
Schedule VII, already enjoy such exemptions
under different sections of the Income Tax Act,
1961.
44
An illustrative list is provided below:
TAX BENEFITS EXTENDED TO EXPENDITURE ON SOCIAL/DEVELOPMENTAL
ACTIVITIES UNDER DIFFERENT SECTIONS OF THE INCOME TAX ACT, 1961
Sl. Section Donation Deduction available for Quantum of
No Based/Activity Deduction
Based
1. 80G Donation Donation to PM’s National 100%
based Relief Fund
2 80G Donation Approved university or 100%
based educational institution of
national eminence
3. 35(1)(ii) Donation Sum paid to research association 1.75 times of
based university, college or other sum paid
institution to be used for
scientific research
4. 35(1)(iia) Donation Sum paid to a scientific R&D 1.25 times of
based company to be used by it for sum paid
scientific research
5. 35(1)(iii) Donation Sum paid to research 1.25 times of
based association, university college or sum paid
other institution to be used in
social science or statistical
45
6. 35(2AA) Donation based Any sum paid to National 2 times of sums
Laboratory or a University or Paid
IIT or a specified person with a
direction that such sum is to be
used for scientific research
7. 35CCC Expenditure on Any expenditure on agricultural 1.5 Times of
agricultural extension project notified by sums paid
extension project CBDT

8. 35CCD Expenditure on Any expenditure (not being 1.5 Times of

skill expenditure in the nature of cost sums paid
development of any land or building) on any
project skill development project
notified by CBDT
9. 35AC Donation based Sum paid to public sector 1Time of sums
company/local authority/etc for paid
carrying out any eligible notified
project for promoting social and
economic welfare of the public
46
 Impact of New Act
Findings of study conducted by NGO Box of 100
companies from 33 sectors whose results are in public
domain. PSUs and Public Sector Banks not included as
results are not available .

• 27 % of the companies only spent more than the

mandated limit
• 64% spent less than the limit
• 2% of companies spent no amount
• 9% spent only the prescribed amount
 Impact of New Act
Top ten companies as per expenditure made :
1.Wipro - 103.7 %
2.Tata Power – 104.4 %
3. Bhart Forge – 106.3 %
4. Torrent Pharma – 109.6 %
5.Marico – 117.8 %
6.Godrej Consumer Products – 129.6 %
7.Relaince Industries Ltd – 142.7 %
8.UPL Ltd – 153.2 %
9.Tech Mahindra – 172.3 %
10 VIP Industries Ltd – 210.1 %
 Impact of New Act
company Exp ( 2013-14) % of PAT Exp (2014-15) % of PAT
TCS Rs 93.58 Cr 0.48 % Rs253.55 Cr 1.53 %
Reliance Rs 712.00 Cr 3.24% Rs 761.00 Cr 3.35 %
HDFC NA 0.74 % Rs 118.55 Cr 1.20 %
Bank
ITC Rs106.63 Cr 1.2 % Rs 214.06 Cr 2.01 %
Infosys Rs 9.00 Cr NA Rs 239.50 Cr 1.96 %

This is for 5 top private companies by market

capitalisation
Source : www.GovernanceNow.com
REGULATORY & POLICY FRAMEWORK

SEBI’S GUIDELINES
REGULATORY & POLICY FRAMEWORK
SEBI’S GUIDELINES

SEBI in 2012 made it mandatory to report the sustainability

performance against 9 principles related to Environmental,
Social and Governance (“ESG”) for 100 listed companies
based on capitalisation.

A Business Responsibility Report (BRR) in a prescribed

format is to submitted to SEBI each year by these listed
companies along with their Annual Reports.
REGULATORY & POLICY FRAMEWORK
GLOBAL COMPACT NETWORK
 UN Global Compact is a strategic policy initiative for
businesses that are committed to aligning their
operations and strategies with ten principles.

 It is voluntary organisation of businesses and at present

there are about 8500 corporates and institutions from 161
countries are its members.

 It has its chapter in India and about 200 companies are its
members and NTPC is also one of them.
REGULATORY & POLICY FRAMEWORK
GLOBAL COMPACT NETWORK

Human Rights;
• Principle 1: Businesses should support and
respect the protection of internationally
proclaimed human rights; and

• Principle 2: make sure that they are not complicit

in human rights abuses
REGULATORY & POLICY FRAMEWORK
GLOBAL COMPACT NETWORK
Labour:
Principle 3: Businesses should uphold the freedom of
association and the effective recognition of the right to
collective bargaining;
Principle 4: the elimination of all forms of forced and
compulsory labour;
Principle 5: the effective abolition of child labour; and
Principle 6: the elimination of discrimination in respect of
employment and occupation.
REGULATORY & POLICY FRAMEWORK
GLOBAL COMPACT NETWORK
Environment:
Principle 7: Businesses should support a precautionary approach
to environmental challenges;
Principle 8: undertake initiatives to promote greater
environmental responsibility; and
Principle 9: encourage the development and diffusion of
environmentally friendly technologies.
Anti Corruption:
Principle 10 : Businesses should work against corruption in all its
forms, including extortion and bribery.
Members are required to report their performance in respect
of 10 principles every year
REGULATORY & POLICY FRAMEWORK
INTERNATIONAL STANDARDS

ISO 2 6000 : Voluntary social responsibility standard

ISO 14000 : Standard for Environment Management
SA 8000 ; Certification for adopting socially acceptable
practices
Global Reporting Framework : Reporting Framework for
Sustainability