Corporate Social Responsibility: Section 135 of the Companies Act 2013


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Section 135(1): Applicability & CSR Committee of the Board:

(a) Applicability:

The CSR provision is applicable on every company, which meets the below mentioned criteria during the immediately preceding financial year:

● Net worth of Rs.500 crore or more,

Or

● Turnover of Rs.100 crore or more

Or

● Net profit of Rs.5 crore or more

(b) CSR Committee of the BOD:

● Every company on which CSR provision is applicable, shall constitute a Corporate Social Responsibility Committee of the Board consisting of 3 or more directors, out of which at least one director shall be an independent director.

● If the company is not required to appoint an independent director under section 149(4), then corporate Social responsibility committee can have 2 or more directors

Section 135(2): Disclosure in Board Report:

(a) Disclose the composition of the CSR Committee in the Board’s report u/s 134(3).

Section 135(3): Duties of Corporate Social Responsibility Committee:

The Corporate Social Responsibility Committee shall: –

(a) Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company (in areas or subject, specified in Schedule VII)

(b) Recommend the amount of expenditure to be incurred on the activities referred to in clause (a).

(c) Monitor the CSR Policy of the company from time to time.

Section 135(4): Responsibility of Board of Directors:

The Board of every company on which CSR provision is applicable shall:

(a) Disclose the composition of the CSR Committee in the Board’s report u/s 134(3).

(b) Approve the CSR Policy for the company after into account the recommendations made by the CSR Committee.

(c) Disclose the policy in the Board’s Report. Also if Company has its website, then publish it on the company website in the manner prescribed.

(d) Ensure that the activities which are included in CSR Policy of the company are undertaken by the company.

Section 135(5): Application of the Fund reserved for CSR Activities:

(a) As per Section 135(5), BOD shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the 3 immediately preceding financial years.

(b) If the company has not completed the period of 3 financial years since its incorporation, during such immediately preceding financial years.

(c) Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities.

(d) If the company fails to spend such amount, then specify the reasons for not spending the amount in the Board’s Report and if unspent amount does not relates to any ongoing project referred to in 135(6), then transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year

Section 135(6): Unspent amount relates to ongoing projects:

If unspent amount relates to ongoing projects, then

● such unspent amount transferred by the company within a period of 30 days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account and

● such amount shall be spent by the company in pursuance of its obligation towards the CSR Policy within a period of 3 financial years from the date of such transfer

● If company fails, then shall transfer the same to a Fund specified in Schedule VII, within a period of 30 days from the date of completion of the third financial year.

Section 135(7) i.e. Penalty for Contravention:

If a company contravenes the provisions of 135(5) and 135(6) then:

(a) In case of Company:

● The Company shall be punishable with fine which shall not be less than Rs. 50,000/- but which may extend to Rs.25,00,000/- .

And

(b) In case of Officer in default:

● Every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to 3 years Or

● Fine which shall not be less than Rs. 50,000/- but which may extend to Rs.5,00,000/- Or

● Both (Imprisonment along with fine)

Section 135(8): Role of Central Government:

The Central Government may give such general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section and such company or class of companies shall comply with such directions.


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