2. THE SIZE OF THE CSR SPACE
Around 16000 companies fall within the purview
of Section 135;
Around 22-25,000 crores in total, will be spent by
Corporates each year on CSR;
Around 30,000 Directors of Boards will be directly
involved.
4/17/2024 2
3. CSR APPLICABILITY- 1st APRIL, 2013
3
Every Company
(Pub or Pvt)
Net Worth of
Rs. 500 Cr or
more
Turnover of
Rs. 1000 Cr
or more
Net Profit of
Rs. 5 Cr or
more
During any Financial Year
Shall constitute a Corporate Social Responsibility Committee of
the Board consisting of Minimum 3 directors, out of which at
least one director shall be an independent director.
4. Role of 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
4/17/2024 4
5. Role of the Board
Formulate a CSR Committee
Approve the CSR Policy, disclose its
contents in the Board 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
4/17/2024 5
6. Implementation of CSR
As per the Rules prescribed for Section 135 of the
Companies Act, 2014, the Board of a company that
falls in the CSR ambit, may decide to undertake its
CSR activities approved by the CSR Committee,
through any of the following three agencies:
A registered trust
A registered society
A Section 25/8 company
4/17/2024 6
7. Implementation of CSR
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.
•
4/17/2024 7
8. THE SECTION 135: IMPLEMENTATION PROCESS
Developing a CSR Strategy
Operationalizing the
institutional mechanism –
partners identification &
capacity building
Identifying the
Implementing Agencies
(conducting due diligence,
if required) Project Development –
Detailed Project Report
(DPR)
Clear identification of CSR
Budget
Finalizing agreement with
the implementing agency
Documentation,
Monitoring (at Board and
Sub-board level)
Project Implementation
Project impact
assessment
Preparation of reporting
format and placement in
public domain
1
3
5
2
4
Identifying the
Implementing Agencies
(conducting due diligence,
if required)
3
6
8
b
7
Project approval –
insertion of the approved
projects in the policy
Evaluation (Concurrent,
Final & preferably Third
Party)
a
9
4/17/2024 8
19. Recommendations of
High Level Committee (HLC)
&
Company Law Committee (CLC)
On
CSR Provisions of the Companies Act,
2013
20. High Level Committee (HLC) -
Scope of Work
Recommendations:
• Methodologies for monitoring
compliance of the provisions of Sec.
135 by the companies
• Measures to be recommended by
Govt. for adoption by companies for
systematic monitoring of their CSR
initiatives
• Monitoring and evaluation of CSR
projects through expert agencies
• Monitoring of CSR undertaken by
PSUs
• Any other item
21. Company Law Committee (CLC) -
Scope of Work
Recommendations:
• Issues arising from the
implementation of Companies Act,
2013
• Recommendations received from
High Level Committee on CSR etc.
22. HLC/TOR-1:Methodologies for monitoring compliance of
the provisions of Sec. 135 by the companies
• 21st report of the Parliamentary Committee on Finance
mandated Govt. to collect only annual statutory
disclosure as a sufficient check on non-compliance. Later
E-form (AOC-4) was notified by MCA for the same.
• Necessity of collation and compilation of company wise
details of CSR expenditure including economic activities
undertaken, geographical area covered under CSR.
• Need for placing the data in public domain to provide
useful feedback for policy formulation, RTI, Parliamentary
questions.
Clarified in FAQs
issued by MCA12th
January, 2016
23. HLC/TOR-2: Measures to be recommended by Govt.
for adoption by companies for systematic monitoring of
their CSR initiatives
• Board of a company is responsible for
monitoring the CSR activities of the company.
• Regarding project mode- Not an issue for large
companies with sufficient CSR funds but difficult
for smaller companies, therefore monitoring the
same by adopting pre-defined methodologies
could be difficult.
Clarified in FAQs
24. TOR-2 RECOMMENDATIONS
CONTD…..
• Unspent amount should be allowed to be
carried forward by Private Companies too
and clarification to this effect be issued.
However there should be a sun set clause
after which the unspent balance should be
transferred to one of the funds listed in
Schedule VII.
Matter was referred to Company
Law Committee and…..
25. Recommendation of CLC
• The Committee felt that while a carry
forward might be desirable, the
requirement of mandatorily transferring
the unspent amount at the end of five-
years would go against the principle of
‘comply or explain’ and would not be
appropriate. In view of this, the
Committee recommended the
continuance of the current provisions,
where the actual expenditure was
reported with no obligation to carry over.
26. HLC/TOR-3: Monitoring and Evaluation of CSR
projects through expert agencies
• Mandatory provisions of annual disclosure of CSR
expenditure is sufficient to ensure compliance under
the legislation.
• Company must make a disclosure regarding CSR
policy and expenditure. Explanation for any short-fall
vis-à-vis mandatory 2% of average net profits, has to
be placed in public domain.
• Monitoring of efficacy and quality of CSR expenditure
is responsibility of company through its Board and
CSR committee.
Clarified in FAQs
27. HLC/TOR-4 Monitoring of CSR
undertaken by Govt. companies
• DPE guidelines are stringent in respect to eligibility criteria- It mandates all profit
making companies to undertake CSR activities irrespective of their threshold level
• Companies irrespective of their ownership, could be treated at par in implementation
of CSR provisions of the companies act.
• DPE guidelines pertain only to the CPSUs and do not specify any monitoring
mechanism to be adopted centrally but 3% weightage is given during performance
evaluation and there is negative marking of 1% for non compliance.
• CSR policies and CSR expenditure of CPSU are subject to audit of Comptroller and
Auditor General. In addition, Parliamentary committee on Public undertaking (COPU)
also undertakes horizontal studies on CSR by CPSUs
• Practice of signing MoU between CPSUs and the administrative ministry is expected to
put in place some monitoring mechanism.
To be taken up with
concerned
Ministries/Departments/CO
PU
28. HLC/TOR-4 Monitoring of CSR
undertaken by Govt. companies
• CSR policies and CSR expenditure of CPSU are
subject to audit of Comptroller and Auditor
General. In addition, Parliamentary committee on
Public undertaking (COPU) also undertakes
horizontal studies on CSR by CPSUs.
• Practice of signing MoU between CPSUs and the
administrative ministry is expected to put in place
some monitoring mechanism.
To be taken up with concerned
Ministries/Departments/COPU
29. HLC/TOR-5 Any other matter
• Tax provisions: Although no tax benefits have been
given for CSR but there exists windows like PMNRF
under 80G, Section 35 series of Income Tax act, which
lures companies to direct at least a part of their budget
to PMNRF to avail double benefit.
• Allocation of CSR funds across development sectors
may be distorted in the absence of uniformity in tax
treatment for CSR expenditure on all eligible activities.
Clarified in FAQs
30. HLC/TOR-5 Any other matter contd….
• Although Schedule VII has been amended three times, but
since development priorities are dynamic in nature, there
should be an omnibus clause of “public good” in Schedule VII
to include all such activities which are for larger public good
preferably for under privileged population. Smaller companies
can take advantage of it.
• Whether “carry forward” provision for unspent balances of
CSR fund should be extended to non-govt. companies and
clarification to this effect is required to be issued.
Clarified in FAQs
31. HLC/TOR-5 Any other matter contd….
• Since most of the Section 8 companies
carry out social welfare activities already
included in schedule VII, it may not be
necessary to do CSR outside the ambit of
their normal course of business. The
Committee feels that the CSR provisions
should not be applicable to Section 8
companies.
Matter was referred to
Company Law Committee
and…..
32. Recommendation of CLC
• The Committee, however, felt that it would not be
appropriate to give differential treatment to section 8
companies in the matter of providing exemptions
from compliance of CSR provisions, as there are
certain areas where examples could be found of
section 8 and other companies co-existing, for
example, companies in microfinance business.
Further, there should not be a difficulty in section 8
companies using the prescribed percentage of its
surplus for CSR activities. Thus, it was decided not
to recommend for exemption of Section 8
companies from the CSR provisions of the Act.
Recommendation of CLC
33. TOR-5 Any other matter contd….
• Foreign companies: Foreign companies are
defined as either branch office or project office or
liaison office of a company incorporated outside
India, Therefore section 135 should not be
applicable to foreign companies.
Recommendation: There is a need for further
clarity on applicability of Section 135 of the act to
the foreign companies.
Matter was referred to Company Law
Committee and the Committee,
therefore, recommended that Section
384 of the Act may specifically
include this requirement.
…..
34. HLC/TOR-5 Any other matter contd….
Recommendation: It is necessary to clarify
the definition of the term “net profit” used
under Section 135(1) and Section 135(5)
of the act and rule 2(f) of companies (CSR
policy rules) 2014, by making necessary
amendments to section 135 of act and
rules thereunder.
Matter was referred to
Company Law Committee
and…..
35. Recommendation of CLC
Rule 2(1)(f) of CSRP Rules, 2014, requires
dividend income, etc. to be excluded while
calculating the net profit for the purposes of
CSR spending. This would lead to an
incongruous situation, wherein companies
which were not required to spend on CSR,
would nevertheless, be required to constitute
CSR Committees. Thus, the Committee
recommended for this inconsistency to be
removed by providing prescriptive powers
to exclude certain sums from net profit in
Section 135(1) itself.
36. HLC/TOR-5 Any other matter contd….
• Section 198 seems to be not applicable to
Indian companies because second proviso to
the same rule explicitly states applicability of
section 198 to the foreign companies.
• Therefore it is considered necessary to issue
clarifications regarding the definition of Net
Profit under section 135(1) and Section
135(5).
Matter was referred to Company
Law Committee and…..
37. Recommendation of CLC
• The Explanation below Section 135(5) provides
that for the purpose of this provision, the ‘average
net profit’ shall be calculated in accordance with
Section 198. The High Level CSR Committee
has recommended in para 4.16 of the report for
the term “average net profit” to be replaced
with the words “net profit”, to remove any
ambiguity. The Committee also agreed with the
recommendation. Further, prescriptive powers
were also recommended to be introduced for
specifying the manner of calculation of ‘net
profits’ of a foreign company, through Rules,
while referring to Section 381.
38. TOR-5 Any other matter Contd…
Reference to “any financial year’ in Section
135(1) of the act, needs to be re-examined
by the MCA with a view to making
necessary amendment(s) either in Section
135(1) or in the relevant rule.
Matter was referred to
Company Law Committee and
The Committee recommended
that the words “any financial
year” be replaced by the words
‘preceding financial year’.
39. HLC/TOR-5 Any other matter
Contd…
Ideally distribution of goods and services as well
as Employee contribution should be part of
Companies CSR after proper monetization,
however in practice, this might not be feasible as it
could become subjective, if not arbitrary in
allocating cost of the employees’ time spent on
CSR activities. The committee has decided not to
recommend monetization of the services of
corporate employees for counting towards CSR
expenditure of the company.
Clarified in FAQs
40. HLC/TOR-5 Any other matter
Contd…
• The ceiling of administrative overhead
expenditure of companies under CSR should
be increased from the present provision of
5% to 10% of the total CSR expenditure.
This would require appropriate amendments
to the relevant provisions of the Act/Rules.
These costs should, however, not include
expenditure incurred on capacity building of
the implementation agencies.
If agreed, rules would be
amended
41. Recommendation of CLC
• Section 135 (1) requires every company having a net worth of
Rupees Five Hundred Crore or more; or a turnover of Rupees One
Thousand Crore or more; or a net profit of Rupees Five Crore or
more, during any financial year, to constitute a ‘Corporate Social
Responsibility Committee’ of the Board, consisting of three or more
directors, out of which at least one director has to be an
independent director. Rule 5(1) of CSR Policy Rules, 2014, allows
unlisted companies, private companies, and foreign companies, to
have the Committee with less than three directors, and without
Independent Directors, where they were not required to be
appointed. In this regard, the Committee recommended that, the
composition of CSR Committee for companies not required to
appoint Independent Directors be prescribed as ‘having two or
more Directors’.
42. Recommendation of CLC
• Section 135(3)(a) requires that the CSR Policy
shall indicate ‘the activities to be undertaken by
the company as specified in Schedule VII’.
Schedule VII indicates broad areas, which have
been further explained to be interpreted liberally in
circular no. 21/2014 issued by MCA. The
Committee felt that it would be appropriate for
the said clause to be modified to refer to
subjects in Schedule VII within which CSR
activities could be taken up by an eligible
company.
43. Recommendation of CLC
Section 135 (5) provides that a company has to give
preference to the local area, and areas around its areas
of operations, for spending the amount earmarked for
CSR activities. It had been suggested that government
companies be allowed to deposit CSR funds into state
coffers/ any CSR Authority established by the State
Government, so that it could channelize these according
to its priorities. The Committee felt that this would
defeat the intent behind the provision and take away
the flexibility available with the company. Further,
the Committee felt that the requirement with respect
to CSR are new provisions, and as such, all
companies should be given the required flexibility
for a reasonable period, say five-years, to experience
the implementation of this provision. Accordingly, no
amendment was recommended.
45. Where are we today ?
• Adhoc
• One Off
• Professional
• Strong relationship with Corporates
• Have a CSR Policy/ NGOs Strategy
• What is the cost implications of planning…and
what would it be of not planning
• Find it difficult
45
46. Difference between CSR then and now
• Mandatory (Only 16,000 companies)
• Project Mode
• Easier identification of Corporates-Policy
• Need of both-Corporates & NGOs
• Not Philanthropy but business sense
• Much more resources available-An
Opportunity to make a difference
46
47. Why Corporates Engage with NGOs
What are the Corporate needs –
Think about Future Business Responsibilities
Demonstrate a commitment to society’s values and
contribute to society’s social, environmental and
economic goals through real action.
Protect society from the negative impacts of company
operations, products and services
Share benefits of company activities with key
stakeholders
Demonstrate that the company can make more by doing
the right thing
47
50. WHO IS AN IMPLEMENTATION AGENCY?
As per the Rules prescribed for Section 135 of the
Companies Act, 2014, the Board of a company that
falls in the CSR ambit, may decide to undertake its
CSR activities approved by the CSR Committee,
through any of the following three agencies:
A registered trust
A registered society
A Section 25/8 company
50
14
51. India witnessing NGO boom, there
is 1 for every 600 people -
THE TIMES OF INDIA
Dhananjay Mahapatra, TNN | Feb 23, 2014, 01.08AM IST
NEW DELHI: For a country which till recently had a weak civil society movement, India is
now witnessing a boom in the NGO sector. With a population of 1.2 billion, the country
could well be the land of opportunities for non-governmental organizations (NGOs)
with the Central Bureau of Investigation conservatively estimating 20 lakh of them
already operating in states and union territories.
The mind-boggling figures boil down to one NGO per every 600 people. Compare this
to the latest government data on police. According to the latest figures from the Union
home ministry, India has just one policeman for every 943 people.
But there is an accountability deficit among the NGOs. And that's how CBI got into the
picture as the Supreme Court responded to a PIL. Many don't submit details of receipt
of grant and spending to income tax authorities, the CBI told the apex court.
52. First official estimate: An NGO for every 400 people in
India – THE INDIAN EXPRESS
Archna Shukla: New Delhi, Wed Jul 07 2010, 09:05 hrs
India has possibly the largest number of active non-government,
not-for-profit organizations in the world. A recent study
commissioned by the government put the number of such entities,
accounted for till 2009, at 3.3 million. That is one NGO for less
than 400 Indians, and many times the number of primary schools
and primary health centres in India.
Even this staggering number may be less than the actual number
of NGOs active in the country. This is because the study,
commissioned in 2008, took into consideration only those entities
which were registered under the Societies Registration Act,1860
or the Mumbai Public Trust Act and its variants in other states.
Such organisations can be registered under a plethora of Acts
such as the Societies' Act, 1860, Indian Trust Act, 1882, Public
Trust Act, 1950, Indian Companies Act, 1956 (Section 25),
Religious Endowment Act,1863, The Charitable and Religious Trust
Act, 1920, the Mussalman Wakf Act, 1923, the Wakf Act, 1954,
and Public Wakfs (Extension of Limitation Act) Act, 1959, etc.
53. Then what's the problem???
• 16000 Companies
• Around 3.3 Million IAs
54. The problem is lack of mutual
trust....
Corporates....
Implementation Agencies
55. Only 2% NGOs registered
with Govt – TOI
PTI | Mar 23, 2014, 09.42AM IST
• Despite voluntary organizations receiving over Rs 11,500 crore of foreign funds
annually, only two per cent of the 20 lakh odd NGOs operating in the country
have been registered.
• NEW DELHI: Despite voluntary organizations receiving over Rs 11,500 crore of
foreign funds annually, only two per cent of the 20 lakh odd NGOs operating in
the country have been registered, raising eyebrows in the home ministry.
According to a home ministry report, although there is no centralized database
on the number of NGOs in the country and the quantum of finance involved in
their operations, unofficial figures indicate that there are over 20 lakh NGOs
registered under Societies' Registration Act, Trust Act etc.
However, the number of NGOs registered under Foreign Contribution
Regulation Act would be less than 2 per cent of the total number of NGOs.
56. IMPLEMENTATION OF CSR
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.
•
56
15
57. Role of Implementation
Agencies.....
It is important for Implementing
agencies to understand their role in the
effective implementation of Corporate
Social Responsibility
58. Grant Based to Open Market
Approach.....
It is important to learn the existing
funding/fundraising landscape in
CSR Activities and how it can be
transformed in accordance with the
requirements of the compliance
(Section 135)
59. Gift Economy
Philanthropic
giving,
voluntary
donations,
pure charity.
Grant Fund
Restricted
funds
provided to
deliver
specified
outputs
Structured
Mkt.
Payment
for goods
or services
according
to
the terms
set out in a
contract.
Open Market
To do the
effective
implementatio
n of the CSR
Projects as
specified and
approved by
the Company’s
Board.
Asking……………………………………….Earning
Grant Based to Open Market Approach.....
60. The resources invested in
the efforts to achieve
development must provide
a reasonable return in
terms of measurable and
clearly observable
outcomes, e.g.
71. The Corporates need to understand and
accept that :
- The implementation agencies are dealing with people who
have their own dynamics : and it is more difficult to deal
with people as compared to machines.
72. - To work with communities and community groups requires
specific skills and competences and cannot be done by
anyone anywhere.
73. - To meet this requirement Ias require professional and
trained people who need to be paid.
74. - The civil society organisations cannot make ‘profit’ but they
need finances to run their organisations.
75. Trust Building
The Civil Society Organisations need to understand
and accept the legitimate ‘profit making’ drive of the
corporates without being negatively judgmental.
76. • Both need to reach out to each other in an
understanding and collaborative manner.
78. Why Business-NGO partnerships
Creating business value and socio-
environmental gains;
Raising the bar on socio-environmental
performance;
Leveraging skills and perspectives not available
in the organization.
79. Need of the time now is...
To develop and carve a new age relationship! A
partnership that is based on factors as diverse as
historical record, thematic priorities, geographic
preferences, resource utilization, management
information system, financial management and
convergence of economic benefits with social
returns in the long run, requires deep
understanding of either party’s vision and values.
80. Therefore it is essential that
the Implementing Agencies...
Carry out a self- assessment exercise
Identify their core strengths to create
shared value for sustainability
Build their capacities for CSR
partnership with businesses
Create an enabling environment for
strategic CSR and social innovation
Get registered at an authentic database
to show their presence
81. They also need to understand....
The scope for NGOs in CSR partnerships:
Partnership models, innovations and value
addition;
Opportunities and risks for partnerships.
82. They also need to understand....(contd...)
How to do business mapping for CSR partnerships:
PSUs, MNCs and MSMEs;
What businesses want and how to deliver;
Concept note writing and developing proposals;
Social Return on Investment (SRoI) and
sustainable partnerships;
Reporting & Monitoring.
