India: Corporate Social Responsibilty Under The Companies Act, 2013

Corporate social responsibility (CSR) is a company's sense of responsibility towards the community and environment in which it operates. It basically refers to a business practice that involves participating in initiatives which benefit the society. Companies are not usually observed engaging into a lot of philanthropic activities. Therefore, as a positive step towards the society, this responsibility has been made mandatory on various companies by the enactment of the new companies act, 2013 (Companies Act) and the Companies (CSR Policy) Rules, 2014 (Rules).

Mr. Sachin Pilot, former minister of State for Corporate Affairs, was of the view that the aim of the CSR law was to encourage "firms to undertake social welfare voluntarily instead of imposing that through 'inspector raj' and [to] make India an attractive and safe investment destination."

The Companies Act provides for CSR on every company1 which has during any of the three preceding financial years2:

  1. net worth of INR 500 crores or more; or
  2. turnover of INR 1000 crores or more; or
  3. net profit of INR 5 crores or more.

The company has to spend, in every financial year, minimum 2% of the average net profits3 of the company made during the 3 immediately preceding financial years. The Companies Act and the Rules have not clarified that the average of net profits for the purpose of CSR would include any loss suffered by a company in a year. However, the logical interpretation is that only the "profits" would be averaged out and not the losses because of the usage of the words "net profits" and not "net earnings" or "net profits/losses".

This criteria would include a lot of companies in India incurring quite a bit of CSR expenditure. Ernst & Young, the audit and advisory company, had estimated that the CSR law would cover about 3,000 companies in India and about USD 2 billion of expenditures on CSR activities.

CSR has been criticised as a mandatory expenditure which is usually tax and that essentially CSR through Companies Act has imposed an additional 2% tax on companies. Companies have also criticised the mandatory clause in the Companies Act as it will decrease the profitability of firms.

However, expenditure on CSR increases firms' profitability by building their image in the eyes of consumers, suppliers and the government. Companies can also strategically differentiate their products from rivals' products in the market on the basis of CSR. As a part of CSR initiatives, two leading companies, Tata Consultancy services and Bharti Airtel had committed to build toilets for girls in schools in the wake of government's Swachha Bharat Abhiyan. Such efforts by the companies will surely be appreciated by the consumers and the society in which these companies operate.

For the convenience of companies, if an Indian subsidiary of a foreign holding company is required to engage into CSR activities as per the Companies Act, then the law permits that such expenditure can be incurred by the foreign holding company for CSR activities in India if, the CSR expenditures are routed through Indian subsidiaries.

On failure by a company to spend such amount, the Board has to specify the reasons for not spending such amount in its report in the general meeting. There is nothing mentioned as to what is a legally valid explanation which gives Boards of the companies scope to provide any sort of explanation which may or may not be reasonable. However, failure to specify the reasons in the report may be punishable with fine which can extend to INR 25,00,000 and every officer of the company who is in default may be punishable with imprisonment for a term which can extend to 3 years or with fine which can extend to INR 5,00,000, or with both.

The Company is required to give preference to the local area and areas around it where it operates for spending the before mentioned amount on CSR activities. However, projects or programs or activities only in India will amount to CSR expenditure.

The above mentioned companies are required to constitute a CSR Committee (Committee) of the Board comprising of at least 3 directors, out of which one director has to be an independent director. Requirement of an independent director is not applicable to an unlisted public company or a private company. Further, a private company having only 2 directors on Board will constitute a Committee with only 2 such directors. For a foreign company, the Committee will constitute of at least 2 persons of which one will be a person4 resident in India authorized to accept on behalf of company service of process and any notices or other documents required to be served on such company and another person will be nominated by the foreign company.

This Committee is required to formulate and recommend to the Board, a CSR Policy (Policy) to indicate the list of projects or programs to be undertaken by the company falling within the purview of the Schedule VII5 of the Companies Act, specifying the modalities of execution of such projects or programs and implementation schedules for those projects or programs. It has been clarified that the activities provided under the Schedule VII of the Companies Act should be interpreted liberally so as to capture the essence of the subjects enumerated in such Schedule. Further, CSR activities cannot include activities undertaken in pursuance of normal course of business of a company. Any project or program or activity benefitting only the employees of the company and their families will not be considered as CSR under the Companies Act. Also, contribution to any political party directly or indirectly will not be considered as CSR activity.

Along with the CSR policy, such Committee is required to recommend the amount of expenditure to be incurred on the CSR activities and also has to monitor the Policy of the company. The Committee has to institute transparent monitoring mechanisms for implementation of the CSR activities.

The Board after approving the recommendations made by the Committee has to disclose the contents of such Policy in its report and also on the company's website, if any, in the format provided under the Rules. It is the responsibility of the board to ensure that all the activities included in the Policy are undertaken by the company.

For ease, a company is allowed to collaborate with other companies for undertaking projects or programs or activities in a manner that the Committees of the respective companies are in a position to report separately on such projects or programs or activities. Further, the Board can undertake its CSR activities through a registered trust or a registered society or a company established by the company or its holding or subsidiary for charitable objects or otherwise if 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 mechanisms. However, if such trust or society or company is not established by the company or its holding or subsidiary, it should have an established track record of 3 years in undertaking similar programs or projects.

Even though the Companies Act and the Rules do not prescribe for any specific provision for penalty if a company fails to spend on CSR, a company may be covered under the general provision of penalty which is for those contraventions for which there has been no penalty or punishment provided elsewhere under the Companies Act. This general provision of penalty provides for a fine which may extend to INR 10,000, and where the contravention is continuing one, with a further fine which may extend to INR 1000 for every day after the first during which the contravention continues. Even though the amount of fine might not be substantial for a company to pay, it might still give the company a bad name and effect its goodwill and reputation in the market.

There is ambiguity regarding the tax treatment of amount spent on CSR activities. However, logically, depending upon the type of CSR activity done by the companies, tax benefits may be available to such companies accordingly.

In light of above, CSR provisions under the Companies Act and the Rules will ensure a better society as the companies are being obligated to return back to the society what they take from the society. Even though such stringent CSR requirements may be criticised by some as a mandatory expenditure, it is definitely an encouraging initiative to bring about a positive difference to the society in which these companies operate and make it a better place.


1 Company can also be a foreign company having branch office or project office in India.

2 Ministry of Corporate Affairs by way of General Circular No. 21/2014 clarified that the threshold limits of CSR are to be checked for the three preceding financial years.

3 "Net Profit" means the profit of a company as per its financial statement prepared in accordance with the provisions of the Companies Act, but will not include the following, namely: a) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and b) any dividend received from other companies in India, which are covered under the CSR provision of the Companies Act and are complying with such provision.

4 At the time of registration of foreign company, documentation with respect to such a person is submitted with the Registrar.

5 Schedule 7 of the Companies Act provides a list of activities which may be included by companies in their Policy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Mansukhlal Hiralal & Company
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Mansukhlal Hiralal & Company
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions