Every company having a net worth of INR 500 crore or more, or turnover of INR 1000 crore or more or a net profit of INR 5 crore or more during the immediately preceding financial year is subject to the provisions related to Corporate Social Responsibility (“CSR”) under the Companies Act, 2013 (the “Act“). The CSR related provisions of the Act are applicable to not just companies incorporated in India, but also to a foreign company that has its branch or project office in India. For a deep dive on the general conditions attached to CSR, and how to structure your CSR activities please refer to our previous post here. In this post, we will focus on the various ways CSR can be taken by incubators.
CSR in Technology Business Incubators located within Academic Institutions:
The most straight forward way is through grants given to government recognised Technology Incubators. Under entry (ix) of Schedule VII of the Companies Act, 2013, a company is allowed to undertake activity under their CSR Policy for “contributions or funds provided to technology incubators located within academic institutions which are approved by the central govt”.
The process for obtaining approval of the Central Government as Technology Business Incubators (TBI) is captured in brief below:
- A Host Institute (HI) which is generally an Academic/Technical/R&D Institution or other institutions with proven track record in promotion of technology-based entrepreneurship, is required to submit a proposal to National Science and Technology Entrepreneurship Development Board of the Department of Science and Technology (DST).
- If the HI is not an academic institution, then it should be a legal entity registered in India with clear purpose of promoting research, innovation and entrepreneurial ecosystem. It is desirable to have partnership with at least one academic institute of repute.
- Financial support for establishing a TBI is also extended to a not-for-profit legal entity registered as a trust/society/section 8 company. For-profit incubators are not given financial support by the DST.
A snapshot of the formal requirements and stages involved in constituting a TBI is provided here for ready reference[i]:
|Stage I - Proposal||Two hard copies + soft version in MS word document in prescribed format; necessary enclosures, and consent for Terms and Conditions; must be forwarded by the Head of HI (with necessary endorsements). Necessary enclosures that must be included: Registration Certificate of the HI; Memorandum of Association/Bye Laws of HI; Audited Statement of Accounts for the last three years; and, Annual Reports for the last three years.|
|Stage II – Evaluation by NEAC and in-principal approval||Evaluation of proposal is done by National Expert Advisory Committee (NEAC) on the standards innovation, incubation, and technology entrepreneurship which meets at least twice in a year. Proposal must be submitted up to one month before the meeting of NEAC. If TBI is not-for-profit entity then, after in-principle approval they are eligible to funding from Govt. subject to these conditions: · Registration of TBI as not for profit society/trust or a section 8 company · separate bank account in TBI’s name · minimum 1000 sq. ft. of furnished space for hosting the TBI · minimum lease for land must be 15 years provided by HI|
|Stage III – Post Approval Conditions||After the approval the following conditions must be met by the TBIs: · The TBI must be administered by the apex body called Governing Body. · The Governing Body needs to be chaired by the Head of the Host Institution. · The Governing Body of the TBI should meet every six months to review progress of TBI and provide policy guidelines for the operations of TBI. · Each TBI would have a dedicated CEO & a compact team who works full time for TBI. · Host institution would constitute a selection committee with a DST nominee as a member for the selection of the CEO. · A suitable incentive mechanism (share of surplus, earning of TBI, equity stake, etc) should be evolved by the host institution for the CEO and his team. HI is free to decide on the remuneration of CEO. · TBI should execute appropriate agreement with incubatees. The residency period and the exit policy may also be defined clearly in the agreement.|
|Stage IV - Monitoring||The TBI is expected to attain self-sustenance within five years of its being. However, after the approval, the Department of Science and Technology may constitute teams to monitor the progress of TBIs.|
CSR in non-TBI Incubators
As per the Companies (Corporate Social Responsibility) Amendment Rules, 2018 dated 19 September, 2018[ii], provisions of the CSR Rules have been amended to widen the definition of CSR. It clarifies that the CSR Policy of the Company must include activities that are related to the ‘area or subjects specified’ in Schedule VII of the Act. Earlier, the provision only mandated activities mentioned in the CSR Policy to be related to the specific activities listed under Schedule VII of the Act. Through this amendment, the MCA has provided more freedom to companies in choosing their preferred CSR engagements under the CSR Policy.
Pursuant to the amendment, funding of activities by incubators not being TBIs approved by Central Govt. is now possible. However, the same should be within the scope of the CSR Rules.
Other important considerations for CSR by foreign companies:
Compliance with Foreign Contribution Regulation Act, 2010 (FCRA):
Under the FCRA, approval and license from the Ministry of Home Affairs (MHA) is required for accepting and utilizing grants under CSR from foreign companies (which qualifies as foreign contribution) to non-profit entities. Thus, foreign companies undertaking CSR will have to ensure that any third-party entities that it seeks to engage for its CSR activities have an FCRA license (For our post explaining the issue, read here).
Earlier Indian companies with majority foreign stake holding were also considered as a ‘foreign source’. However, after amendments made by the Finance Act, 2016, contributions made by companies whose foreign shareholding are within the limits specified under the FDI regulations are not be considered as ‘foreign source’. Thus, Indian subsidiaries of foreign companies do not fall within the ambit of FCRA compliances for their CSR activities.
[i] Detailed procedure may be referred to, available at: http://www.nstedb.com/institutional/Approved%20Revised_guidelines_of_TBI.pdf
[ii] Available at:
Author: Avaneesh Satyang