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Section 135 of Companies Act 2013 CSR

Section 135 of Companies Act 2013 CSR

Section 135 of Companies Act 2013 : Corporate Social Responsibility Under The Companies Act – 2013: Section 135

Section 135 of Companies Act 2013 – Applicability:

Every company having:-

– Net worth of ` 500 crore or more, or

– Turnover of ` 1000 crore of more, or 

– Net profit of ` 5 crore or more,

– During any financial year shall constitute a CSR Committee of the Board.

Committee Members:

Three or more directors, out of which at least one director shall be an independent director. So, Minimum Directors should be three and at least one director should be Independent Director.

Disclosure in BOD Report:

Composition of the CSR committee.

Functions of CSR Committee

– Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company.

– Recommend the amount of expenditure to be incurred on the activities and

– Monitor the Corporate Social Responsibility Policy of the company from time to time.

BOD responsibility:

1. The Board of the company after taking into account the recommendations made by the CSR Committee, approve the CSR Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed and Ensure that the activities as are included in CSR Policy of the company are undertaken by the company.

2. The Board of the company shall ensure that the company spends in every financial year, at least 2 % of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR Policy”.

Activities may be included by the company in their CSR Policy:

I. Eradicating extreme hunger and poverty;

II. Promotion of education;

III. Promoting gender equality and empowering women;

IV. Reducing child mortality and improving maternal health;

V. Combating HIV, AIDS, malaria and other diseases;

VI. Ensuring environmental sustainability;

VII. Employment enhancing vocational skills;

VIII. Social business projects;

IX. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;

X. Such other matters as may be prescribed.

In exercise of the powers conferred under the Companies Act, 2013 the Ministry of Corporate Affairs has now proposed the draft CSR Rules.

Analysis:

At present, There is no mandatory requirement on companies to spend any part of their profit on CSR activities the MCA has issued “Guidelines on Social, Environmental & Economic Responsibilities of Business,” for voluntary adoption by companies. In addition, the SEBI has mandated top-100 listed entities, based on market capitalization at BSE and NSE, to include business responsibility report in their Annual Report.

There is no penal provision regarding non-compliance of the said provisions in means of spending or in reporting part.

The Companies Act – 2013, has set threshold of ` 5 crore net profit for applicability of CSR requirements. In comparative terms, this seems to be on lower side vis-à-vis net-worth and turnover thresholds of ` 500 crore and ` 1,000 crore, respectively. This may result in companies getting covered under the CSR requirements, even when they don’t meet net-worth/ turnover criteria.

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