Views of Dr Bhaskar Chatterjee, DG & CEO, Indian Institute of Corporate Affairs

1) Should corporates in India do CSR only in districts where they have factories or offices?
Answer: NO. The first proviso to Section 135(5) indicates that the “Company should give preference to the local area/s around where it operates”. This proviso was largely included to involve companies whose production/manufacturing/plant & other major activities were located in backward/rural/remote areas so that people in these locals could receive assistance. This would also be helpful in creating a positive and constructive environment for the companies’ operational work to progress. However companies are always free to undertake CSR activities wherever their board feels that such activities would have the most impact and add value to the company.

2) What will then happen to the growth of states / union territories where there are no offices or factories like most of the NE states or J&K?
Answer: Answer to (1) will clarify this.


3) If corporates and large philanthropists (who get their maximum funds through shares in these corporates), invest in communities then the government can use their funds in management of CSR and to see how corporates and donors use their funds better?
Answer: The purpose and spirit of CSR law is not that government is to use any funds either for management of CSR or for doing CSR management in any way. The purpose of legislation and the rule is to allow companies to undertake CSR project/programme out of their own profits. Thus concept of CSR in act and rule is that of “Strategic and result oriented CSR” so that their project and programme are not seen as charity or donations. If however philanthropists wish to conduct philanthropic activities they are most welcome to do so. But these will not constitute CSR.

4)What is the role of Indian government in this 2% CSR rule ?
Answer: Role of Indian government is limited to that of enabler and facilitator. Government will do its best to create an enabling environment so that companies are motivated, encouraged and inspired to undertake meaningful, impactful, sustainable and result oriented projects and programmes on the ground.

5) Should corporates move from donation in philanthropy to investments in community philanthropy? This means they should not give just money but see it as an investment. This will be good for global promotion as well as with Indian investors, stock exchanges … because they may be fine with philanthropy but want the results of this investments…
Answer: NO. It has to be understood that philanthropy and CSR are two different concepts and should not be confused with each other. The CSR Legislation in India aims to harness a share of the profits of major companies and link it directly to the inclusive and development agenda of the nation. If however corporate entities also want to undertake donations or philanthropic investments they are free to do so but theses will not constitute CSR under the Companies Act.

6) What is your estimate of the amount Indian corporates have to give to philanthropy with this 2% rule? And what is your estimate in philanthropy before the 2% rule?
Answer: As indicated above, philanthropy does not fall within the purview of CSR.

7) How many Indian corporates will come under this 2% rule ?
Answer: Presently it is estimated that somewhere nearly 14 thousand to 16 thousand companies are likely to come under the ambit of CSR Legislation.

8) The 2% amount will be substantially high. Most of the smaller NGOs do not have capacity to use that money for community philanthropy? Can a company invest in capacity building of NGOs ?
Answer: Companies can spend on capacity building of NGOs. As per CSR Notified Rules, rule 4 (6) – “Companies can build CSR capacities of their own personnel as well as those of their implementing agencies through institutions with establish track record of at least three financial years but such expenditure of the company shall not exceed five percent of total CSR Expenditure”.

 

 

 

9) Can the NGOs use some of these funds to promote the cause and get more money from other corporates, funding agencies, philanthropists…..
Answer: NO. The whole concept of CSR is project oriented. Companies are to provide funding to NGOs/Trusts/Section 8 companies to undertake specific, time bound project or programme. Their funds are not intended to be used to leverage other kinds of funding.

10) Corporates want credible NGOs. What % of funds can be used by good corporate to do research for good NGOs or to advertise the project involving good NGOs so that other corporates can invest in these credible NGOs?
Answer: This has not been specified under the Act and the rules. Expenditure incurred in location of credible NGO do not fall under the purview of CSR.

11) Can corporates advertise on international sites may be or may not be from India so that more corporate across the world can participate in developing India and their country faster? What percentage of money can go for such advertisements?
Answer: Same as above.

12) How many other countries have the CSR budget percentage law? (whether 2% or more or less.)
Answer: Nowhere in the world.

13) How is Indian government promoting this law globally so that more countries take the community development route.
Answer: At this point Indian Government has no immediate plan to undertake promotion of the law globally.

14) What should be done by progressive or developed countries invest more funds in developing or less developed countries, so that these countries become developed faster?
Answer: This question does not pertain to CSR Legislation in India.

15) What % of this 2% can be used by corporate on initiatives like capacity building, fund raising, admin…
Answer: As per CSR Notified Rules, rule 4 (6) “such expenditure of the company shall not exceed five percent of total CSR Expenditure”. Please also refer circular dated 12th Sept’2014.

16) Can the companies value volunteering time as part of 2%? Say management competencies in HR to build capacity of the people working in the NGO or volunteers from the PR or communication department to promote goodness of the NGO or people in developing children’s awareness about environment, water etc? In this way the NGOs can go beyond the present community only in one state, to other states and help India’s development?
Answer: Fine, they are free to do so, however this will not come under the ambit of CSR.

17) Can Indian companies fund community investment abroad say some countries in Africa so that the world develops faster ? The NGOs which get these funds can approach governments / corporates / funding agencies …. to follow India
Answer: NO

Download the pdf files given below
82_Circular_36_CSR_17092014.pdf
General_Circular_21_2014_CSR.PDF
MCA Circular 12 Sep 14.pdf
Notification regarding Schedule VII.pdf
Schedule VII.pdf
Ministry of Corporate Affairs (MCA)

 

 

 


Government of India : Section 135 & Schedule VII

Section 135 : Corporate Social Responsibility.

(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 which shall indicate the activities to be undertaken by the company as specified in Schedule VII;
(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (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 Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, 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 spends, 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 Responsibility Policy:
Provided that 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:
Provided further that if 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.
Explanation.—For the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198

 

 

SCHEDULE VII

(See sections 135)
Activities which may be included by companies in their Corporate Social Responsibility Policies
Activities relating to :—
(i) 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

SCHEDULE VII
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