Corporate Social Responsibility

CSR is a concept whereby companies takes care of the interest of society and the environment by taking responsibility for the impact of their activities on stakeholders, environment, consumers, employees, communities, and all other members in the public sphere rather than not only consider their profitability and growth. The basic premise is that when the corporation gets bigger in size, apart from economic responsibility of earning profits, there are many other responsibilities attached to them which are more of non-financial/social in nature. These are certain expectations of the society from the corporate to give something in return to the society with which explicitly or implicitly help these entities ultimately.

CSR aims to fulfill expectations that society has of businesses and it is viewed as a comprehensive set of social policies, practices and programs that are integrated throughout business operations. The concept of CSR has evolved over the years and now used as strategy and a business opportunity to earn stakeholder goodwill.

Is CSR applicable on Section 8 Companies (Not for profit Organisations)?

As per Section 135 “(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 200 [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.”

And Section 135 (5) specifies that “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”

As the Section 135 clearly states that EVERY COMPANY and Every company includes Private Limited Companies/ Public Limited Companies/ Foreign Companies/ Section 8 Company and every company incorporated under the Companies Act 2013 or any other previous law, as may be applicable thereon.

View of Directors/ Promoters of Section 8 Companies

Since the promoters/ and Directors of many Section 8 companies are of the  view that the Section 8 companies had been formed with the object of carrying out the Charitable activities or for the benefit of the society. And in view of this, many section 8 companies had raised this issue and sent the requests and representations to the Ministry for providing such Section 8 companies, the exemption from being applicability of Section 135 over them.

Views of High level Committee formed for reviewing the existing framework of CSR

In view of this, the High Level Committee which was formed to review the existing framework and for recommending the roadmap for the future CSR, had published its report on 07.08.2019 and expressed its views on page No. 57, para 3.1 regarding Section 8 Companies:

“The Committee perused the requests that had been received seeking exemption for such companies as they are not-for-profit and carry out charitable activities for the benefit of society. A Section 8 company is one which “has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, and protection of environment or any such other object”. The Committee has been apprised that all Section 8 companies are not necessarily formed with charitable objects. The aspect of them being not-for-profit does not mean that they do not generate profits, rather, the surplus of income over expenditure is ploughed back to promote its objects and not distributed to its shareholders. Aside from this, a Section 58 8 company is like any other company defined under the Act. In view thereof, there seems to be no justification to exclude them from the CSR mandate.”

Hence from above its clear that the High Level Committee didn’t had the intent to exempt the Section 8 companies from.