Corporate Social Responsibility (CSR) Under Section 135 of Companies Act, 2013 By CS Anjul Mehta


 

CHAPTER IX Accounts of

Companies

Section 135 (1)

(Corporate Social Responsibility)

 

The Companies Amendment Act, 2017

Every company having

net worth of rupees five hundred crores or more,

or

turnover of rupees one thousand crores or more

or

a net profit of rupees five crores or more during the immediately preceding 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.

"Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.";**

Applicability to PEEI

*Impact 1: The criteria to constitute a CSR committee is changed. Only immediately preceding financial year shall be considered while checking criteria of the CSR committee constitution. Net Profits of PEEI are more than Rs. 5 Crore. CSR is applicable to the Company.

**Impact 2: The private companies and other companies which do not mandatorily require to appoint independent director u/s 149, shall constitute CSR Committee with only two directors or more.  PEEI can constitute a CSR Committee with two or more directors.

CHAPTER IX Accounts of

Companies

Section 135 (3)

(Corporate Social Responsibility)

The Corporate Social Responsibility Committee shall-

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

SCHEDULE VII

(See section 135)

Activities which may be included by companies in their Corporate Social Responsibility Policies

Activities relating to:—

(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 human immunodeficiency virus, acquired immune deficiency syndrome, 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; and

(x) such other matters as may be prescribed.

Impact

PEEI can establish a trust/ society/ or either in collaboration with other companies who may not necessarily have to be group companies.

Or

Establish Section 8 company- singly/jointly.

Or

Collaboration of Companies.- Group Companies/ related Companies or unrelated Companies can collaborate for such activities.

If CSR Activities are undertaken through some other entities, the company should specify the project/ programmes undertaken through these entities, modalities of utilization of funds, monitoring and reporting mechanism.

CHAPTER IX Accounts of

Companies

Section 135 (5)

(Corporate Social Responsibility)

(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two percent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

Explanation: For the purposes of this section "net profit" shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of section 198

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