Meaning of Corporate Social Responsibility (CSR) and impact of amended rules 2021

Corporate Social Responsibility (CSR) activity means an activity undertaken by a company in pursuance of its statutory obligation laid down in Sec 135 of the Act. Every company having a net worth of rupees five hundred crores or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crores or more during the immediately preceding 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. On January 22, 2021, the Government of India amended the exiting Companies (Corporate Social Responsibility Policy) Rules, 2014, and brought into effect the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (“Rules”).

The amended rules 2021 shifted CSR spending mandatory from the voluntary. The Board of every company referred to in section 135 sub-sections (1), shall ensure that the company spends, in areas or subject, specified in  Schedule VII (listed below) 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 or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. The company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities. In case the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount [and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year].If the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for a such number of succeeding financial years and in such manner, as may be prescribed. In case of any amount remaining unspent under sub-section (5), pursuant to an ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.

The list of CSR specified in Schedule VII:

 The following activities are  included in the list of CSR specified in  Schedule VII such as  eradicating extreme hunger and poverty;(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,syndrome, 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 relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and (x) such other matters as may be prescribed.

Activities excluded from the list of CSR activities:

The following activities are excluded from the list of CSR activities:-

(a) Activities undertaken in pursuance of the normal course of business of the company except R&D of a new vaccine, drugs, and medical devices related to Covid 19 for the Financial Years 2020-21, 2021-22, and 2022-23 in their normal course of business. The details of such activities shall be disclosed separately in the Board’s Report under the heading ‘Annual report of CSR

(b) Any activity is undertaken by the company outside India save training of Indian sports personnel representing any State at a national level or India at the International level.

(c) Contribution of any amount directly or indirectly to any political party under section 182 of the Act.

(d) The activities benefitting employees of the company.

(e) The activities supported by the companies on a sponsorship basis for deriving marketing benefits for its products or services;

(f) The activities carried out for the fulfillment of any other statutory obligations under any law in force in India

The amended CSR Rule 4 which is completely revised in the amendment Rule 2021states that a Company can undertake CSR activities by itself or through any (i) company incorporated under Section 8 of the Act; (ii) registered pubic trust; (iii) registered society under Sections 12A and 80G of the Income Tax Act, 1961; (iv) any entity established under an Act of Parliament or a State legislature; or (v) any company incorporated under Section 8 of the Act, registered pubic trust, registered society under Sections 12A and 80G of the Income Tax Act, 1961 which has an established track record of at least three years in undertaking similar activities. The amended Rule 4 also places an additional obligation on the Chief Financial Officer of the company. Any funds disbursed for a CSR Project is required to be utilized to the satisfaction of the board in the manner approved by it and shall be certified by the Chief Financial Officer (CFO) or the ‘person’ in charge of financial management. Any entities that wish to undertake any CSR activity will have to register themselves with the Central Government. These entities would be required to fill the CSR-1 Form electronically with the Registrar of Companies from April 1, 2021. As per Rule 4(3), a company may engage international organizations for designing, monitoring, and evaluation of the CSR projects or programs as per its CSR policy as well as for the capacity building of their personnel for CSR. Further, under Rule 4(4), a company may collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs in accordance with these rules. As a result of the amended Rule 4, the relevant provisions of Rule 6 have now been incorporated in Rule 4 itself.