Corporate Social Responsibility- Section 135

As per section 135(1) of Companies Act, 2013, following Companies having,
- Net worth of Rs. 500 crore or more
- Turnover of Rs. 1000 crore or more
- Net profit of Rs. 5 crore or more
Shall constitute Corporate Social Responsibility committee of the board consisting of 3 or more directors, out of which 1 director shall be independent director.
Role of CSR Committee:-
- Formulate and recommend to the Board, a Corporate Social Responsibility Policy
- Indicate the activities to be undertaken by the company as specified in Schedule VII. Such activities may include eradication of extreme hunger & poverty, promotion of education, promoting gender equality and empowering women, ensuring environmental sustainability and etc;
- Recommend the amount of expenditure to be incurred on the activities specified above
- Monitor the Corporate Social Responsibility Policy of the company from time to time.
Amount to be Spent on CSR Activities:-
As per Companies Act, 2013 board of every Company as referred in Section 135(1) shall ensure company spends atleast 2% of average net profits of the company made during the 3 immediately preceding Financial Years.
Amendments’ in Section 135 of Companies Act, 2013:-
The Companies (Amendment) Act, 2019 amended section 135 dealing with Corporate Social Responsibility. The Companies (Amendment) Act, 2019 received President’s assent and was published in Official Gazette on 31 July, 2019.
A. To calculate CSR expenditure, average net profit of 3 immediately preceding financial year had to be considered. But, there used to be concerns on how to calculate CSR expenditure for a company which is newly incorporated or which has not completed 3 years of its operations and satisfies any one of the condition as specified u/s 135(1).
With the recent amendment, there is clarity with respect to the above. As per amendment act, Company who has not completed a period of three financial years since its incorporation shall consider the average net profits earned by it during financial years after incorporation.
B. Prior to amendment act, if a company has not spent the earmarked CSR expenditure, it had to disclose the reasons in its board report at the annual general meeting of the company.
In this regard, Amendment Act provides that:-
Unspent amount at the end of Financial Year which is not related to ongoing project: – the Company has to transfer such unspent amount to a Fund specified in Schedule VII, within a period of 6 (six) months of the expiry of that financial year.
Fund specified under schedule VII are:-
1. Contribution to the Prime Minister’s national relief fund.
2. Any other fund set up by the central govt. for socio – economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;
Unspent amount on ongoing CSR projects:-
1. The company within a period of 30 (thirty) days from the end of the financial year has to transfer the unspent contribution amount to a special account to be opened in any scheduled bank, to be called ‘the Unspent Corporate Social Responsibility Account’.
2. The amount so transferred to the designated account, is to be utilized in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of next 3 (three) financial years from the date of such transfer.
3. If the Company fails to utilize the said amount, it is required to transfer the same to a Fund specified in Schedule VII, within a period of 30 (thirty) days from the date of completion of the third financial year.
C. The Amendment Act has introduced penal provisions for non-compliance in reporting, utilization and transfer of the unspent CSR amount;
(i) The company shall be punishable with fine which shall not be less than INR 50,000 but which may extend to INR 25 lacs.
(ii) Every officer of the Company who is in default shall be punishable with imprisonment for a term which may extend to 3 (three) years or with fine which shall not be less than INR 50,000 but which may extend to INR 5 lacs, or with both.
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