Section 135 of Companies Act 2013 & CSR Rules 2014 deals with corporate social responsibility Generally CSR means giving something back to the society. When company contribute towards society. In the arthashtra corporate social responsibility referred as YOGAKSHEMA means ( well being and in present day context it can be equated to corporate social responsibility ). The King Committee’s 3rd report focuses on how a company has enhanced its positive aspects on the life of society. INDIA was the first country to mandate corporate social responsibility from 1 April 2014.
Section 135(1):-
Every company having Net worth ≥500cr OR
Turnover ≥1000cr OR Net Profit ≥5cr. During preceding financial year.
The company that falls under the criteria of Section 135(1) will have to perform the following two tasks :-
1. Such company shall constitute CSR committee
2. Sec 135(5) Such company shall ensure that it spends in every financial year at least 2% of average net profit made during 3 immediately preceding financial years or where company has not completed a period of 3 years since it’s incorporation during such immediately preceding financial year.
135(5):- 1st Proviso:-
The company shall give preference to local area during csr activity.
135(5):-2nd Proviso:-
If a company fails to spend then BOD Shall specify the reason for same and if Unspent amt not relates to ongoing project then transfer the unspent amount to fund specified in SCH7 within 6months from end of F.Y.
135(5) :- 3rd Proviso:-
If company spend CSR in excess of requirement then company may set off such excess amt for next 3 years.
Q . Xltd
22-23 Net Profit = 10cr
23-24 Net Profit = 12 cr
24-25 Net loss. = 2cr
How much xltd will spend on csr ?
10cr +12cr -2cr = 20cr ÷3 = 6.67cr
6.67cr × 2% = 13,55,555
Q. Xltd
22-23 Net Profit= 20cr
23-24 Net Profit= 30cr
How much xltd will spend on CSR ?
20cr+30cr = 50cr÷2= 25cr
25cr×2%= 50,00,000
Q. Will OPC also have to spend on CSR ?
Since OPCs are usually small businesses, they rarely meet these criteria. But if they do, CSR provisions become applicable.
Q. Can a company spend its CSR amount in kind ?
Yes, purchase in kind and distribute it.
Section 135(1)Proviso :- Composition of CSR committee
If company having Independent director then
Min 3 director & out of 31 shall be independent director
If company don’t have independent director then
Min 2 director
In case of private company
Min 2 director
Exception for OPC: As OPC has only 1 director, there’s no need to form a CSR Committee. The board of the OPC will handle CSR responsibilities directly.
Note :- section 135(2) The BOD of CSR committee Shall disclose the composition in board report 134(3).
Section 135(3) :- functions of csr committee
1. Shall frame the csr policy
2. Recommend the policy to BOD of company
3. Recommend the list of csr activities
4. monitor CSR policy from time to time
Section 135(4) :- function of BOD
1. BOD Shall consider the recommendation of CSR committee
2. BOD approve the CSR policy by passing resolution
3. Upload CSR policy on website of company
4. BOD Shall ensure that all activities mentioned in csr policy are undertaken
135(6) :- Any amount relating unspent CSR pursuant to ongoing project shall be transfer with in 30 days from end of F.Y in unspent csr account and Such amount shall be spent by company with in next 3 years failing which the company shall transfer to SCH7.
135(7) :-
If a company contravenes Section 135(5) and 135(6), a penalty will be imposed as follows:
On the company: Twice the amount required to be transferred or ₹1 crore, whichever is less.
On the officer in default: 10% of the total amount required to be transferred or ₹2 lakhs, whichever is less.
If a company contravenes Section 135(1), 135(2), 135(3), or 135(4), a penalty will be imposed as per Section 450 of the Companies Act, 2013, which states:
- On the company and every officer in default: A fine of ₹10,000.
- If the contravention continues, an additional fine of ₹1,000 for each day the default continues.
Section 135(8):-
The Central Government has the power to issue orders or directions to any company regarding the compliance of Section 135 of the Companies Act, 2013.
This power is exercised to ensure that companies properly fulfill their Corporate Social Responsibility (CSR) obligations as prescribed under the Act.
Section 135(9):-
If the amount required to be spent as CSR expenditure does not exceed ₹50 lakhs, the company is not required to constitute a CSR Committee.
However, the company is still obligated to spend the required amount on CSR activities. In such cases, the responsibility to monitor the CSR expenditure will lie with the Board of Directors (BOD) of the company.
Source:- companies act 2013
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