What steps must a company take to comply with Section 135 of the Companies Act, 2013, regarding Corporate Social Responsibility (CSR) requirements?

Detailed Legal Analysis

To comply with Section 135 of the Companies Act, 2013, a company must implement a structured approach to Corporate Social Responsibility (CSR) initiatives based on specific criteria outlined in the Act.

The key steps that a company needs to take include:

• Determine Eligibility: Companies meeting any of the following criteria must comply with Section 135:
  • Net worth of Rs. 500 crore or more
  • Annual turnover of Rs. 1,000 crore or more
  • Net profit of Rs. 5 crore or more during any financial year.
• Formulate a CSR Policy: The company must develop a CSR policy that outlines the activities it intends to undertake, which can include:
  • Promoting education
  • Eradicating hunger and poverty
  • Promoting gender equality
  • Environmental sustainability
  • Healthcare initiatives
• Allocate CSR Expenditure: The company is required to spend at least 2% of its average net profits made during the three preceding financial years. This expenditure must be tracked and reported accurately.
• Form a CSR Committee: Companies must establish a CSR Committee consisting of three or more directors, including at least one independent director. This committee will oversee the implementation of the CSR policy.
• Develop a CSR Report: Companies must disclose their CSR activities in their annual reports, detailing the CSR policy, money spent, and the impact of projects undertaken. This ensures transparency and accountability.
• Monitor and Evaluate CSR Activities: Regular monitoring and evaluation of CSR projects should be conducted to assess their effectiveness and impact on society.

Section 135 also mandates that the CSR initiatives should align with the Schedule VII of the Companies Act, which outlines permissible activities for CSR spending. Non-compliance with these provisions can result in penalties for the company and its directors as specified in Section 134(8) of the Act.

Overall, compliance with Section 135 involves a systematic approach to CSR that not only fulfills legal obligations but also contributes positively to society.