How does the Companies Act, 2013 address corporate social responsibility (CSR) obligations for companies falling under its purview, specifically in relation to Section 135?

Detailed Legal Analysis

The Companies Act, 2013, specifically under Section 135, mandates a framework for corporate social responsibility (CSR) for certain companies in India, establishing a legal obligation to contribute towards societal welfare.

Section 135 outlines the requirements and obligations regarding CSR, which are applicable to companies meeting specific criteria. Here are the key points regarding CSR obligations under this section:

• Applicability: Companies with a net worth of Rs. 500 crore or more, or an annual turnover of Rs. 1,000 crore or more, or a net profit of Rs. 5 crore or more during any financial year are required to comply with CSR provisions.
• CSR Policy: These companies must formulate a CSR policy that outlines the activities to be undertaken, the amount to be spent, and the monitoring mechanism. This policy should be approved by the Board of Directors.
• CSR Expenditure: Companies falling under the prescribed criteria are required to spend at least 2% of their average net profits for the three preceding financial years on CSR activities. If a company fails to spend the stipulated amount, it must provide reasons for not doing so in its Board report.
• CSR Activities: The Act specifies the types of activities that qualify as CSR. These include:
  • Eradicating poverty, hunger, and malnutrition.
  • Promoting education, including special education and employment-enhancing vocational skills.
  • Promoting gender equality and empowering women.
  • Ensuring environmental sustainability.
  • Contributing to the Prime Minister's National Relief Fund or any other fund set up by the Government for socio-economic development.
• Disclosure Requirements: Companies must disclose their CSR policy and activities in their annual report. This includes details regarding the CSR amount spent and the impact of the initiatives undertaken.
• Monitoring and Reporting: Companies are encouraged to set up a CSR committee consisting of three or more directors, with at least one being an independent director, to oversee CSR activities and ensure compliance with the policy.

In summary, Section 135 of the Companies Act, 2013, creates a structured approach to CSR by mandating certain companies to contribute to social welfare, thereby enhancing their accountability and promoting sustainable development in India.