ASHOK KUMAR SINGH

Saturday, May 10, 2025

Corporate Social Responsibility (CSR) Compliance under the Companies Act, 2013

The Companies Act, 2013 mandates Corporate Social Responsibility (CSR) for certain companies. This is aimed at encouraging companies to contribute towards social, environmental, and economic welfare. CSR activities can range from improving education, healthcare, environmental sustainability, and supporting disadvantaged communities.

Key Provisions for CSR Compliance under the Companies Act, 2013

1. Applicability of CSR Provisions

Section 135 of the Companies Act, 2013:

Companies Required to Comply:
- Companies having a net worth of ₹500 crore or more.
- Turnover of ₹1,000 crore or more.
- Net profit of ₹5 crore or more during any financial year.
If a company satisfies any one of these criteria in a given financial year, it is required to comply with CSR provisions.
Exemptions:
- One Person Companies (OPC) and small companies (companies with a paid-up share capital of less than ₹50 lakh and turnover of less than ₹2 crore) are exempt from CSR provisions.

2. CSR Committee Formation

Section 135(1) – CSR Committee:

Companies that meet the CSR criteria must form a CSR Committee of the board of directors.
The committee should consist of at least 3 directors, and at least one of them should be an independent director.

The role of the CSR Committee includes:

Formulating CSR Policy.
Recommending CSR activities to be undertaken.
Monitoring CSR spending and ensuring it is in line with the approved policy.

3. CSR Policy

Section 135(4) – CSR Policy:

The company must develop a CSR Policy, which should clearly outline:
- CSR initiatives the company plans to undertake.
- Focus areas of CSR (e.g., education, healthcare, environment, rural development).
- Budget allocated for CSR activities.
- Mechanisms to monitor the implementation of CSR projects.
The CSR Policy must be approved by the board of directors and should be publicly available.

4. CSR Spending Requirement

Section 135(5) – CSR Expenditure:

A company must spend at least 2% of its average net profit (calculated over the last three financial years) on CSR activities.
- Example: If the company’s average net profit over the last three years is ₹10 crore, the minimum CSR expenditure should be ₹20 lakh (2% of ₹10 crore).
If the company fails to spend the required 2%, it must provide a reason for the shortfall in its Board Report.

5. CSR Activities and Projects

Schedule VII of the Companies Act, 2013:

The Act defines the list of eligible CSR activities in Schedule VII, which include:

Eradicating hunger, poverty, and malnutrition.
Promoting education, including special education and employment.
Promoting gender equality and empowering women.
Ensuring environmental sustainability.
Protection of national heritage, art and culture.
Measures for reducing child mortality and improving maternal health.
Employment enhancing vocational skills.
Social business projects that promote health, education, and employment.
Contribution to government-funded funds like the PM CARES Fund.

6. Monitoring and Reporting CSR Activities

Section 134(3) – Board’s Report:

The company must disclose CSR activities in the Annual Report (in the Board’s Report section).
- The report should include:
  - The CSR Policy adopted by the company.
  - The amount of CSR spent during the year.
  - The nature of the projects and programs funded.
  - The explanation for any shortfall in CSR spending.
Form CSR-2: Companies need to file Form CSR-2 with the Registrar of Companies (RoC) detailing CSR activities, especially if the company is spending on CSR through third-party implementation.

7. Penalties for Non-Compliance

Section 134(8) – Penalties for Non-Compliance:

If the company fails to spend the mandated 2% of its average net profit on CSR activities:
- Fine: ₹50,000 to ₹25 lakh.
- Imprisonment: The company may face imprisonment of up to 3 years for officers in default.
Non-disclosure of CSR Activities in the board’s report could also attract penalties.

8. CSR Implementation by Companies

a. Direct or Indirect Implementation:

Companies may directly implement CSR projects through their internal teams or indirectly through third-party organizations like NGOs, trust, or Section 8 companies.
When implementing indirectly, the company should ensure proper monitoring and transparency to ensure the funds are being used appropriately.

b. Contribution to CSR Funds:

Companies may also donate to government-approved CSR funds (e.g., the PM CARES Fund, Clean Ganga Fund, etc.) for certain types of projects.

9. CSR Compliance in Practice

Example 1: Infosys Ltd.

Infosys commits to promoting education and sustainability under its CSR initiatives, focusing on skills development, primary education, and environmental projects.
In their annual report, Infosys clearly mentions the CSR activities undertaken, the amount spent (which complies with the 2% requirement), and future goals.

Example 2: Tata Group

The Tata Group is known for its extensive CSR programs, including initiatives in healthcare, education, infrastructure development, and environmental sustainability.
The Group has robust monitoring mechanisms, ensuring all CSR funds are used for their intended purposes and reported in the board’s annual report.

Summary Checklist for CSR Compliance:

Determine Applicability: Check if your company meets the net worth, turnover, or net profit criteria to be subject to CSR provisions.
Form a CSR Committee: Establish a CSR committee with at least 3 directors, including an independent director.
Create a CSR Policy: Draft and implement a CSR policy that aligns with Schedule VII of the Companies Act, 2013.
Allocate CSR Budget: Ensure the company spends at least 2% of its average net profit over the last 3 years on CSR activities.
Disclose CSR Activities: In the annual report, disclose all CSR activities, the amount spent, and the reason for any shortfall.
File CSR Form: File Form CSR-2 with the Registrar of Companies if required.

Conclusion

CSR compliance is essential not just for legal reasons but also for companies aiming to contribute positively to society. Having clear governance around CSR activities helps in ensuring transparency, accountability, and meaningful contributions to various social causes.

the practical aspects of conducting an AGM and compliance requirements under the Companies Act, 2013.

the practical aspects of conducting an AGM and compliance requirements under the Companies Act, 2013.

1. Steps to Conduct an AGM

a. Planning the AGM:

Set a Date: Ensure the AGM is held within 9 months from the end of the company’s first financial year and within 15 months from the last AGM.
Choose the Venue: The AGM can be held at the company’s registered office or any location that is accessible to shareholders.
Time and Duration: Plan for a time that’s convenient for shareholders to attend (typically in the afternoon or evening).
Agenda: Prepare a detailed agenda for the meeting. This could include:
- Approval of financial statements.
- Appointment/reappointment of directors.
- Approval of dividend declaration.
- Appointment or reappointment of auditors.
- Any special business that requires a special resolution.

b. Notice of the AGM:

Draft and Send the Notice: The notice must be sent to all members, directors, and auditors at least 21 clear days before the meeting.
- Mode of Notice: It can be sent by post, email, or newspaper (depending on the company’s practice).
- The notice should include the date, time, and venue of the meeting along with the agenda and resolutions to be passed.

c. Proxy Appointment:

Proxy Forms: Shareholders who cannot attend the AGM can appoint a proxy to vote on their behalf. The proxy form should be received at least 48 hours before the AGM.
- Ensure proxies are submitted in proper format and have no conflicts with resolutions being voted on.

d. Quorum Check:

Minimum Shareholders: Ensure the required quorum is present for the meeting to be valid:
- Private companies: Quorum is typically 2 members.
- Public companies: Usually 2 members, but it can vary depending on the articles of association.
If quorum is not achieved within 30 minutes from the scheduled time, the meeting may be adjourned.

2. Key Resolutions to be Passed at the AGM

a. Ordinary Resolutions:

These resolutions require a simple majority (more than 50% of votes) and are used for routine matters such as:
- Approval of Financial Statements.
- Dividend Declaration.
- Appointment/Reappointment of Directors (if retiring by rotation).
- Appointment of Auditors.

b. Special Resolutions:

These resolutions require a three-fourths majority of the members present and voting. They are usually passed for:
- Altering the Articles of Association.
- Changing the name or address of the company.
- Approving mergers, acquisitions, or other significant corporate changes.

3. After the AGM – Key Compliance Steps

a. Filing with Registrar of Companies (RoC):

Form MGT-7 (Annual Return): This form must be filed within 60 days from the date of the AGM. It includes:
- Details of shareholders and directors.
- Shareholding pattern.
- Directors’ report and auditor’s report.
Form AOC-4 (Financial Statements): This must be filed within 30 days from the AGM with the RoC.
- It contains the audited balance sheet, profit & loss account, and cash flow statement.

b. Minutes of the AGM:

Minutes of the Meeting: Prepare and sign the minutes of the AGM and ensure that they are recorded in the minutes book.
- These minutes should reflect all resolutions passed, votes cast, and other key discussions.

c. Documentation:

Ensure all proxy forms, attendance registers, and voting papers (if applicable) are maintained properly for future reference.

4. Consequences of Non-Compliance with AGM Requirements

a. Penalties:

Failure to Hold AGM: If the company fails to hold an AGM, the company and every officer in default can be fined under Section 99 of the Companies Act, 2013. The penalty can range from ₹1 lakh to ₹5 lakh.

b. Late Filing:

Late Filing of Returns (Form MGT-7 and AOC-4): If returns are not filed on time, the company could be subject to penalties under Section 92 and Section 137.

5. Practical Examples of AGM Compliance

Example 1: Infosys Ltd. AGM

Infosys holds its AGM virtually, where shareholders can participate remotely, ask questions, and vote electronically.
The financial statements are presented with detailed insights into revenue growth, strategic goals, and upcoming projects.
Shareholders approve the dividend declaration, appoint or reappoint directors, and vote on resolutions to enhance corporate governance.

Example 2: HDFC Ltd. AGM

HDFC Ltd. ensures that its AGMs are transparent and follow best practices of corporate governance. Shareholders approve the financial reports, and key business decisions like mergers and corporate restructuring are discussed and voted on.

6. Checklist for AGM Preparation and Compliance

Pre-AGM:
- Ensure the AGM date complies with legal timelines.
- Prepare a draft notice with all required information.
- Send the notice to all shareholders at least 21 days in advance.
- Prepare financial statements and auditor’s reports.
- Prepare proxy forms and other documents.
During the AGM:
- Ensure quorum is present before starting the meeting.
- Follow the agenda and pass resolutions (both ordinary and special).
- Record minutes of all discussions and resolutions.
Post-AGM:
- File Form MGT-7 and AOC-4 with the Registrar of Companies within the prescribed timelines.
- Maintain proper documentation for all proceedings (proxies, minutes, resolutions).

Annual General Meeting (AGM) - Key Points under the Companies Act, 2013

The Annual General Meeting (AGM) is a mandatory yearly gathering of a company’s shareholders. During the AGM, the company’s financial performance, decisions on key matters, and future strategies are presented and discussed.

1. Legal Requirement for Holding an AGM:

Section 96 of the Companies Act, 2013:

Every company (except for One Person Companies) is required to hold an AGM every year.
The first AGM must be held within 9 months from the end of the first financial year.
Subsequent AGMs must be held within 15 months from the date of the last AGM.

Key Dates:

First AGM: Must be held within 9 months from the end of the first financial year.
Subsequent AGMs: Must be held within 15 months from the previous AGM.
Gap between two AGMs: Should not exceed 15 months.

2. Purpose of the AGM:

The AGM serves several important purposes for both the company and its shareholders:

Approval of Financial Statements: Shareholders review and approve the company’s annual financial statements, including the balance sheet, profit and loss statement, and cash flow statement.
Declaration of Dividends: Shareholders are given the opportunity to approve the dividend declaration (if applicable).
Appointment or Reappointment of Directors: The company may propose the appointment or reappointment of directors, including any directors who are retiring by rotation.
Appointment or Reappointment of Auditors: The AGM also involves the appointment or reappointment of auditors for the coming year.
Other Business: Any special resolutions (such as changes to the company’s articles, mergers, etc.) are also passed during the AGM.

3. Notice of the AGM:

Section 101 – Notice of Meeting:

Minimum Notice: A clear 21-day notice must be given to shareholders before the AGM.
Mode of Notice: The notice can be sent through hand delivery, post, electronic means, or newspapers.
Contents of the Notice:
- The date, time, and venue of the AGM.
- Agenda of the meeting, including resolutions to be passed.
- Financial statements and annual report for the shareholders to review.

Shorter Notice:

The AGM can be held with shorter notice (less than 21 days) if consent is obtained from members holding at least 95% of the company’s voting shares.

4. Quorum for the AGM:

Section 103 – Quorum:

Quorum is the minimum number of shareholders required to be present for the AGM to be valid.
- Private Companies: The quorum is usually 2 members.
- Public Companies: The quorum is typically 2 members (for a public company with a private company structure).
If quorum is not present within 30 minutes of the scheduled time, the meeting is adjourned.

5. Proxies and Voting:

Section 105 – Proxy:

Shareholders who cannot attend the AGM may appoint a proxy to attend and vote on their behalf.
Proxy Forms must be submitted to the company before the meeting.
A proxy cannot vote on certain matters (such as a resolution involving the remuneration of directors).

Voting Mechanisms:

Poll Voting: Members may cast their votes either by a show of hands or electronically (via electronic voting systems).
Resolution Types:
- Ordinary Resolutions: Most decisions made at AGMs (like approval of accounts) are made by an ordinary resolution.
- Special Resolutions: Require a three-fourths majority of votes in favor, usually for more significant decisions (like changing the company’s name or articles of association).

6. Key Resolutions and Approvals at an AGM:

Approval of Financial Statements: Shareholders review the company’s financial performance and approve the balance sheet, profit and loss statement, and the director’s report.
Appointment of Directors:
- Some directors are required to retire by rotation at each AGM, typically those who have been in office for three years.
- Re-election: The retiring directors may be re-elected unless there is a proposal for a change.
Appointment or Reappointment of Auditors:
- The AGM will appoint an external auditor or reappoint the existing auditor for the following year. The auditor’s report is also presented.
Declaration of Dividends:
- The shareholders approve the dividend proposed by the company. If dividends are declared, a portion of the company’s profit is distributed to shareholders.
Special Resolutions:
- These resolutions are passed for major decisions, such as altering the company’s constitution, approving mergers, or making other substantial changes to the company.

7. Penalties for Non-Compliance with AGM Requirements:

Non-holding of AGM: If a company fails to hold an AGM within the prescribed time, it may be penalized under Section 99. The penalty could be a fine ranging from ₹1 lakh to ₹5 lakh.
Penalty for Default in Filing AGM Minutes: Failing to file the minutes of AGM with the Registrar of Companies (RoC) can lead to fines.

8. Annual Return and Filing with the Registrar of Companies (RoC):

Section 92 – Annual Return:

After the AGM, companies must file an Annual Return (Form MGT-7) with the Registrar of Companies (RoC), which includes:
- Details of directors.
- Shareholding pattern.
- CSR activities (if applicable).
- Financial summary.

9. AGM in Practice – Real-World Examples:

Infosys Ltd.: Infosys’s AGM typically includes the approval of audited financial statements, declaration of dividends, and appointment of directors. It is one of the most transparent AGMs in the tech sector, with clear resolutions and shareholder engagement.
Hindustan Unilever (HUL): HUL’s AGM is well-known for its detailed discussion of financial performance and corporate governance, with active participation from its stakeholders.

Summary Checklist for AGM Compliance:

Hold AGM on time (within 9 months for first AGM, and 15 months for subsequent AGMs).
Ensure that 21-day notice is given to all shareholders with the agenda.
Ensure the quorum is met for the meeting to be valid.
Appoint a proxy if necessary and ensure all voting is conducted correctly.
Ensure resolutions (both ordinary and special) are properly passed.
File Annual Return (Form MGT-7) with the Registrar.

Practical Compliance Checklist

Board Composition:
- Ensure the Board has the required number of directors (3 for public companies, 2 for private).
- Confirm that independent directors are appointed where necessary.
Financial Statements and Reporting:
- Directors’ Report must be comprehensive, covering financials, CSR, and corporate governance.
- Financial statements should be prepared according to Indian GAAP or Ind AS and audited by an external auditor.
Audit Committee:
- Appoint an Audit Committee with the required composition.
- Review financial statements, risk management, and audit findings regularly.
Loans to Directors:
- Ensure no loans are provided to directors unless required by the business and in compliance with Section 185.
CSR Compliance:
- Companies meeting the thresholds should create a CSR Committee and ensure they spend at least 2% of net profits on eligible activities.
Secretarial Audit:
- For large or listed companies, ensure a secretarial audit is conducted annually.

Section 96 – Annual General Meeting (AGM)

Key Points:

Every company (except a One Person Company) must hold an AGM each year.
The first AGM must be held within 9 months from the end of the first financial year.

Compliance Steps:

Send notice for the AGM to all shareholders at least 21 days before the meeting.
Prepare an agenda and ensure resolutions are passed, including approval of financial statements, declaration of dividends, and appointment of auditors.

Example:

ITC Ltd. conducts its AGM in compliance with the Companies Act, presenting detailed financial reports and facilitating discussions on strategic decisions with its shareholders.

Section 204 – Secretarial Audit

Key Points:

Certain classes of companies, like listed companies or large public companies, must have a secretarial audit conducted by a Company Secretary (CS).
The secretarial audit focuses on compliance with the Companies Act, SEBI regulations, and other laws.

Compliance Steps:

Engage a certified company secretary to carry out the secretarial audit.
Ensure that the secretarial auditor's report is submitted to the board of directors and the RoC (Registrar of Companies).

Example:

Hindustan Unilever (HUL) complies with this provision by engaging a qualified Company Secretary for secretarial audits, which ensures adherence to corporate governance norms and statutory compliance.

Section 135 – Corporate Social Responsibility (CSR)

Key Points:

Companies meeting certain thresholds (e.g., net worth ₹500 crore, turnover ₹1000 crore) are required to spend 2% of their average net profit on CSR activities.
The company must establish a CSR Committee to oversee and implement CSR initiatives.

Compliance Steps:

Form a CSR Committee comprising at least 3 directors, with at least one independent director.
Ensure the CSR policy is aligned with the objectives set out by the committee and submit a report to the board.

Example:

Larsen & Toubro (L&T) has consistently met its CSR obligations by investing in education, healthcare, and sustainable development. It prepares an annual CSR report, detailing its contributions and their impact.