Akash Sharma

Akash Sharma♠ Companies Mandated to constitute a CSR Committee

  • Networth of Rs 500 Crore or more
  • Turnover   of Rs 1000 Crore or more
  • Net profit of Rs 5 Crore or more

♠ CSR Committee to have

  • Three or more directors
  • At least one is to be an independent director

♠ Board’s Report shall disclose the constitution of CSR Committee

♠ CSR Committee will

  • Formulate CSR policy and recommend to board indicating the activities to be undertaken as specified in schedule vii
  • Recommend the amount of expenditure to be incurred
  • Monitor CSR Policy from time to time.

SCHEDULE VII ACTIVITIES:-

  • Eradicating extreme hunger & poverty
  • Promotion of education
  • Promoting gender equality and empowering women
  • Reducing child mortality and improving maternal health
  • Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases
  • Ensuring environment sustainability
  • Employment enhancing vocational skills
  • Social business projects
  • Contributions to Prime Minister 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 Caste and Schedule Tribe
  • such other matters as may be prescribed.

CSR SPEND IN FINANCIAL YEAR

  • At least 2% of the average net profits of the company made during the three immediately preceding financial years.
  • The section postulates that “net profit” shall be calculated in accordance with the provisions of section 198.
  • Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities

Where the company fails to spend such amount, the Board shall, in its report, specify the reasons for not spending the amount.

Now after perusing the whole section read with(Corporate Social Responsibility Policy) Rules, 2014 i am of the considered view that section 135 is not at all applicable to pvt. ltd. companies. Sub section 1 of section 135 read as,

♠ Every company having Net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

The intent of the legislature is clear that the provisions are not applicable to pvt. ltd. companies and all those public companies which are not require to appoint independent directors ex facie. As pvt. ltd. company has minimum of 2 directors whereas public ltd. company has minimum of 3 directors.

Now the Rule 5 of the Companies ( Corporate Social Responsibility Policy) Rules, 2014 says about constitution of CSR Committees:-

(I) The companies mentioned in the Rule 3 shall constitute CSR Committee as under.-

(i) an unlisted public company or a private company covered under sub-section (I) of section 135 which is not required to appoint an independent director pursuant to sub-section (4) of section 149 of the Act, shall have its CSR Committee without such director;

(ii) a private company having only two directors on its Board shall constitute its CSR Committee with two such directors;

(iii) with respect to a foreign company covered under these rules, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company.

NOW Comparing Sub section (1) of section 135 with Rule 5 I am of the considered view that Rule 5 is ultra vires the law as Rule can’t override the provisions of the section in the Act.

One may refer Jokhan Singh And Ors. vs Marjad Koeri And Ors. on 12 August,1971.

Equivalent citations: AIR 1972 Pat 208, 1972 CriLJ 788.

(Author can be contacted at akashsharmaw@gmail.com)

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Posted Under

Category : Company Law (3706)
Type : Articles (16240)
Tags : Companies Act (2171) Companies Act 2013 (1944) CSR (78)

0 responses to “Corporate Social Responsibility and Its Applicability”

  1. Virag Jain says:

    Kindly define “any financial year” in Section 135(1).

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