Amendments in CSR provisions of Companies Act, 2013
Considering how the CSR ecosystem hasn’t reached its full potential even after five years of the CSR law, it is no surprise that the mandate pertaining to CSR has been revised time and again. Another change has very recently been announced. Read on to find out what it could mean for you and your organization.
On 11th October, 2019, the Department of Publication, Ministry of Housing and Urban Affairs, published an extraordinary Gazette to substitute item (ix) of Schedule VII of Companies Act, 2013 (to be read with section 135). The Gazette intends to increase the scope of contributions for item (ix) of the Schedule VII list.
Schedule VII of the Companies Act consists of a list of activities that are covered under Corporate Social Responsibility (CSR). The items listed in Schedule VII of the Act are broad-based and are intended to cover a wide range of activities. Also, the Schedule VII items must be interpreted liberally by the companies so as to capture the essence of the enumerated subjects.
Schedule VII was brought into force with effect from the 1st April 2014. Post that, it has been amended six times. The following table briefly describes the past amendments:
|Amendments Dates||Amendments Description|
|27-Feb-2014||Elaborated on the list of ten items in schedule VII|
|31-Mar-2014||For item (i) (of the ten-item list), "promoting preventive health care" was changed to "promoting health care including preventive health care"|
|6-Aug-2014||Added the item 11th in the schedule VII list :- "(xi) slum area development"|
|30-May-2019||1. Added item 12th in schedule VII list :- "(xii) Disaster management, including relief, rehabilitation and reconstruction activities.”|
The following amendment shall come into force from 11th October 2019 (the date of publication of extraordinary Gazette):
1. Item (ix) of schedule VII shall include contributions to:
- Incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government;
- Public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
The amendment has broadened the initial scope of item (ix) of Scheduled VII.
- The exclusion of the word ‘technology’ from the item (ix) shall result in inclusion of different variants of incubators. The aforementioned regulation now does not restrict the support to any specific type of incubator.
- The extension of the scope from ‘incubators within academic institutions which are approved by the Central Government’ to ‘Incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government’ shall result in inclusion of more incubation platforms and shall contribute in promoting a culture of innovation and research.
- The extended scope can only include expenditure on Research & Development (R&D) internal to the company as CSR expenditure if the fund is set up as:
- a registered legal entity and approved by aforementioned regulators; or
- a registered not-for-profit entity (either a Section 8 Company or a registered trust or a registered society) that can act as a Start-up Supporting Entity (SSE) to assist start-ups
- The aforementioned regulations specify that the support shall be given to incubators engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs). However, the contributions made to an SSE, as per the CSR regulations, can support only specific types of start-ups within the thematic areas that are aligned to the Schedule VII.
The new rules shall help direct the CSR funds to support the incubatees/start-ups who often need capital in their pursuit of addressing various social problems. This shall assist incubators in providing required funding, employing experienced mentors, and setting up research and development centres for aiding the incubatees/start-ups. The CSR funds shall consequently lead to create a long-term sustainable impact and scale up the social impact.
- Established under the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO), Department of Science and Technology (DST), Ministry of Research and Development Organisation (DRDO), Department of Science and Technology (DST), Ministry of Electronics and Information Technology
- Different variants of incubators are Technology Business Incubators (TBIs), Innovation Hubs, Centers for Innovation & Entrepreneurship, Virtual Incubators and Seed Accelerators.