Registration of Entities for Undertaking CSR Activities [Form CSR-1]

Introduction:

Corporate Social Responsibility refers to the responsibility of the corporate entities towards society. CSR activities are voluntarily undertaken by the companies to contribute to a cleaner environment and a better society. The benefits of these activities are two-fold. It provides the entities with an enhanced image in the society in comparison to their competitors, and at the same time creates a healthy society for the people to live in.

The Central Government utilized powers conferred by Section 135, Section 469(1), and Section 469(2) of the Companies Act, 2013, and issued rules for amendment of the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2014. This led to the enactment of the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021.

Corporate Social Responsibility Activities

There is a wide range of activities that can be voluntarily undertaken by entities, to merge concerns in the business activities and societal concerns, for improvement of the company and the society in general.

What all activities are considered as CSR activities is stated under Schedule 7 of the Act^[1]. However, this list is not exhaustive. Some of the activities mentioned under Schedule 7 are^[2]:

1. Poverty alleviation, eradication of hunger and malnourishment,
2. Encouraging education and developing employment boosting skills,
3. Advocating gender equality, and encouraging women,
4. Promotion of a sustainable environment,
5. Preservation of National Heritage including buildings, art, and craft,
6. Steps for armed forces and their families,
7. Donation to Prime Minister’s National Relief Fund,
8. Training for spreading awareness of certain sports activities,
9. Providing funding to Publicly funded Universities. (Recently amended in 2020^[3]).

Applicability of Corporate Social Responsibility Provisions

The provisions related to Corporate Social Responsibility apply to the following:

• Each Company, together with
• Its holding company,
• It’s a subsidiary company,
• And its foreign company as per Section 2 (42) of the Companies Act.

Laws Governing Form CSR-1

Section 135 of the Companies Act, 2013

According to Section 135 of the Companies Act and the Companies (Corporate Social Responsibility Policy) Rules, 2014, Form CSR-1 is required to be filed electronically by the companies undertaking CSR activities.

(1). All companies with a Net Worth of more than or equal to five hundred Crore Rupees, or a turnover of one thousand Crore Rupees or more, or a net profit of five Crore Rupees or more, in the preceding financial year, must form a CSR Committee.

The CSR Committee must consist of 3 or more directors. One out of the three directors must be an independent director.

(2). The report of the Board of Directors must state particulars about the constitution of the CSR Committee.

(3). The CSR Committee must perform the following functions:

• It must recommend and frame Corporate Social Responsibility Policy Rules.
• Advise the company about the expenses to be incurred on CSR activities.
• It is the responsibility of the CSR Committee to observe the CSR activities of the company from time to time.

(4). The Board after taking the advice of the CSR Committee, approves the Policy and discloses the same in its official Report. This Report is made available to the public on the company’s website. It is the duty of the board to ensure that the company is performing its activities.

(5). It must be ensured by the Board that the Company, in every financial year, spends at least 2% of average Net Profits it has made in the preceding 3 financial years^[4].

In the case of a new company where 3 years since incorporation have not passed, the period for the same is taken to be the immediately preceding years.

(6). For this section Avg. Net Profit is to be calculated in accordance with Section 198.

(7). If the Company fails to comply with the provisions mentioned under Section 135 (5) and Section 135 (6), it will be liable to transfer an amount equal to twice the amount that was to be transferred to the Fund (Mentioned under Schedule 7), or the unspent CSR Account, or an amount equal to Rupees One Crore, whichever is less.

Every defaulting official will also be held liable and be required to pay a penalty of One-Tenth of the amount to be transferred or Two Lakh Rupees, whichever is less.

(8). The Central Government may issue guidelines to the companies for compliance with the above provisions as under Section 135.

(9). If the amount in Section 135(5) is less than 50 Lakh Rupees, it is not required for the company to form a CSR Committee under Section 135(1). The Board will have all powers in this case.

Some more provisions stated under this Section are:

• The company must prioritize spending the CSR Funding majorly on the local areas and surrounding areas to the location where it operates.
• The Companies (Amendment) Act, 2019 introduced a new clause that came into effect from 22nd January 2021. The clause stated that if a company fails to spend the amount, it is necessary that the same is disclosed by the Board in the Report made under Section 134(3)(o) of the Companies Act. It must also disclose the reasons for such inactivity.
• If the unspent money is not retained for an existing project, the company must transfer the money into a fund, within a specified time limit. This fund has been specified under Schedule 7. This clause has been inserted by the Companies (Amendment) Act, 2020, Notification dated 28th September 2020. (Effective from 22nd January 2021)

Companies (Corporate Social Responsibility Policy) Rules, 2014

Rule 4 (1)

(1). The Board of Directors must ensure that a company undertakes Corporate Social Responsibility activities by itself, or with the help of:

(a). Entities formed under Section 8^[5] related to Charitable activities for the sake of the society, or

A society that is registered under Section 12A and Section 80G of the Income Tax Act, 1961, or

(b). A company formed under Section 8 of the Companies Act, 2013, or A trust or society which is registered and established by the Central Government or State Government, or

(c) A company formed due to an Act of State Legislature or the Parliament, or

(d). A company formed under Section 8 of the Companies Act, 2013 or a registered society or trust under Section 12 A and 80 G of the Income Tax Act, 1961 and having proved interest in related kinds of activities for three previous years.

Rule 4(2)

(a). Rule 4(2)(a)of the Companies (Corporate Social Responsibility Policy) Rules, 2014 mandates for every company listed above, who undertakes CSR activities, to register with the Central Government. Such an entity must comply with the requirements of filing Form CSR-1 with the registrar of companies. If a company wishes to be funded for its CSR projects, it must be registered. This provision has come into effect from 1st April 2021. It states that this provision will not affect any initiative taken in this matter before 01.04.21.

(b). Rule 4(2)(b) states that the form CSR-1 must be signed and authorized electronically by a qualified CA, CS, or Cost Accountant.

(c). On submission of the CSR-1 form, a unique CSR number will be generated.

Is filing CSR-1 Mandatory?

Filing e-form CSR-1 is mandatory from 1st April 2021 onwards. But, this will not have any effect on CSR projects which were approved before 1st April 2021.

Contents of Form CSR-1

The form is divided into two parts. Part one of the form deals with the information of the company which undertakes the CSR activity and part two of the form deals with certification of the same by a professional^[6].

1. Nature of Entity: There are five types of companies mentioned under Rule 4(1) of Companies (Corporate Social Responsibility Policy) Rules, 2014, such as the ones formed under Section 8 of the Companies Act, 2013 or registered public trusts or societies under Sections 12A and 80G of the Income Tax Act, 1961, etc. While filling the form, the nature of the entity out of the given options must be selected.

2. An Entity formed by a company or a group of companies: The second clause is concerned with the formation of the entity. According to Rule 4(1) of the Companies (CSR Policy) Rules, 2014 a company can carry out CSR activities with other companies or by itself.

This clause is related to whether the entity is formed by a company or a group of companies. If it is formed by a company or a group of companies, the details of these companies have to be provided.

If the entity is not formed by a company or a group of companies then details related to interests of the entity in activities related to CSR in the past three years are required to be furnished.

3. Type of existing entity & 4. CIN or Registration Number: These are more factual and require information like date of formation, name, email, address, PAN details, details of Directors, and other authorities. Section 139 1(vi) of the Income Tax Act, 1961 makes it mandatory to furnish PAN details of all important people involved^[7].

Once all the above details are filled in, a declaration needs to be given by the company stating that all information presented by the entity is true and in conformity with the documents of the entity. This must be electronically signed by the entity.

The second part of the e-form which is concerned with the verification by a practitioner must be certified by a practicing CA, CS, or Cost Accountant. The certificate mentions that the member should procure an engagement letter from the entity for certification of e-form CSR-1. He should check all documents before certifying and generating UDIN.

On submission of the CSR-1 form, a unique CSR number will be generated.

It needs to be signed and then submitted on the Ministry of Corporate Affairs Online portal (https://www.mca.gov.in/MinistryV2/companyformsdownload.html)

Important Points About Filing of CSR-1 Form

• Email ID of the company must be cross-checked using OTP. It can be sent ten times and would be active for thirty minutes.
• The provision of sending OTP for this is activated only after successful scrutiny of form CSR-1.
• CSR-1 can be filed online on the Ministry of Corporate Affairs Portal from 1st April 2021 onwards.
• Some Compulsory attachments along with form CSR-1 include:
  • Registration Certificate (copy)
  • PAN of entity (copy)
• Information regarding signatures:
  For Section 8 Company: The CSR-1 Form can be signed by any director who is not disqualified under the Act.
  For Registered Public Trust: A trustee or a CEO may sign.
  For a Registered Society: A CEO, or a secretary, or a Chairman may sign.
  For an entity established by an act of state legislature or the Parliament: An authorized person.
• The format of the CSR Registration Number is CSRXXXXXXXX.
• A company is not allowed to spend CSR funds through an NGO which is not registered.
• Companies which are registered under Section 10 (23c) of the Income-tax Act, 1961^[8] are not qualified to file CSR-1 form.
• A Pre-Fill button is situated beside those fields that can be automatically filled in, by using the Ministry Of Corporate Affairs database.
• All documents that are to be attached, need to be in pdf format.
• A person can see the attached documents by clicking on the “List of attachment” option. He/She can also remove or attach any document.
• A “Check form” option is available, which displays errors so that they can be corrected. It validates the information put in the form. It performs a pre scrutiny of the data.
• An option to “Modify” the data is available after the “check form” option is utilized.
• The pre-Scrutiny button is available separately to locate the errors and rectify them.

Successful Submission of Form CSR-1

After filling up the information the form will be further processed in the STP model. Once the CSR form is submitted, SRN is provided to the consumer for future reference. The consumer is informed about the successful submission of the form CSR-1 through an acknowledgment sent across by email.

Also, an approval letter which is signed digitally, containing the CSR registration Number is sent to the email id of the company and to the FO user.

Conclusion

Since entities take a lot from society, be it in the form of human resources, raw materials, etc. it is the duty of the entity to give it back to the society. This is done by undertaking CSR activities, wherein the companies undertake activities for the benefit of the environment and society. If a company wishes to get funding for CSR projects, it must be registered with the Ministry of Corporate Affairs by filing e-form CSR-1. Form CSR-1 is mandatory to be filed by companies mentioned in the Act, after 1st April 2021. However, this will not affect the CSR initiatives taken up by companies before this date. The filing of CSR-1 is an easy process. Everything has been made available online at the Ministry of Corporate Affairs Portal. The form, instructions, certification details, and every important piece of information are available online. The act has specified companies who undertake CSR activities by themselves or through other companies and also the activities which are generally considered as CSR activities. Therefore, it is very easy to comply with the provisions and file the necessary documents. If a company wishes to get the funding it must comply with the legal provisions.

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References:

^[1]Companies Act, 2013

^[2]Ministry of Corporate Affairs, Schedule 7 – Companies Act, 2013 http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=17923 (Last Visited: 28th July 2021)

^[3] Ministry of Corporate Affairs, GSR Notification 525(E), 24th August 2020.

^[4] Section 135 (5) Companies Act, 2013.

^[5] Section 8 Formation of Companies with Charitable Objects, etc Companies Act, 2013, 1st April 2014.

^[6] Handbook on certification of form-CSR-1, Institute of Chartered Accountants of India, 2021, at 3 https://csr.icai.org/wp-content/uploads/2021/02/Handbook-on-Certification-of-Form-CSR-1-05-02-2021.pdf  (Last Visited: 29th July 2021)

^[7] Supra note 6 at 8.

^[8] Section 10 (23c) Income Tax Act, 1961 Exemption to Government and Non Governmental Universities and public Institutions.