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

Detailed Legal Analysis

To comply with the provisions of Section 135 of the Companies Act, 2013 regarding Corporate Social Responsibility (CSR) obligations, a company must undertake several key steps.

• Determine Eligibility: Identify if the company meets the criteria for mandatory CSR applicability. According to Section 135(1), a company is required to comply if it meets any of the following thresholds during the preceding financial year:
  • Net worth of ₹500 crores or more.
  • Turnover of ₹1000 crores or more.
  • Net profit of ₹5 crores or more.
• Formulate a CSR Policy: Develop a CSR policy that outlines the company’s approach to CSR activities, specifying the areas of focus and the modalities of implementation. This policy must be approved by the Board of Directors as mandated by Section 135(4).
• Allocate CSR Expenditure: Set aside at least 2% of the average net profits made during the three immediately preceding financial years for CSR activities, as per Section 135(5).
• Engage in CSR Activities: Implement CSR projects and programs in accordance with the CSR policy. The company can engage in activities specified in Schedule VII of the Companies Act, 2013, which includes:
  • Eradicating extreme hunger and poverty.
  • Promoting education.
  • Promoting gender equality and empowering women.
  • Ensuring environmental sustainability.
  • Contributing to the Prime Minister's National Relief Fund.
• Monitoring and Reporting: Establish a mechanism to monitor the implementation of the CSR policy and the impact of CSR activities. The company must disclose its CSR activities in the Board’s report as required under Section 134(3)(o).
• Board Oversight: Ensure that the CSR Committee, consisting of at least three directors, oversees the CSR policy and activities as stipulated under Section 135(1) and (3).
• Annual Disclosure: Provide an annual report on CSR activities in the prescribed format, including details of the amount spent on CSR, activities undertaken, and the impact of these activities.

Compliance with these steps ensures that a company adheres to its CSR obligations under the Companies Act, 2013, thus promoting responsible business practices and contributing to social welfare.