Which companies must comply with CSR obligations under Section 135?

Question

My company crossed a certain net worth this year and I want to know if we now have to spend on corporate social responsibility. I would rather settle this without going to court if the law allows it, but I need to know my rights before I sign anything. Please tell me what to do first and what document to keep.

MyVakeel Legal Desk · Accepted Answer

Under Indian law, Companies Act 2013, Section 135 is the starting point for this corporate law question. What follows is the position in substance, together with the steps that usually make the difference in practice.

Section 135(1) applies to companies with net worth of Rs.500 crore or more, turnover of Rs.1000 crore or more, or net profit of Rs.5 crore or more during the immediately preceding financial year.

Such companies must constitute a CSR committee and spend at least 2 percent of average net profits of the preceding three financial years on CSR activities listed in Schedule VII.

Rule 4 of the CSR Rules permits implementation through the company itself, a Section 8 company, registered trust or society, subject to registration on Form CSR-1 with the Registrar.

Unspent CSR amounts for ongoing projects must be transferred to a separate Unspent CSR Account within 30 days of the financial year end and spent within three years, failing which it is transferred to a specified fund in Schedule VII.

Section 135(7) makes non-compliance a penal offence, imposing monetary penalty on the company and every officer in default, in addition to disclosure requirements in the board's report.

What to do next: 1) Check applicability thresholds against your latest audited financial statements; 2) Constitute a CSR committee and adopt a CSR policy under Section 135(3); 3) Select an implementing agency registered on Form CSR-1; 4) Transfer and spend unspent CSR amounts within the statutory timelines.

If you are unsure whether your facts fall inside Companies Act 2013, Section 135, that is worth checking with an advocate before you commit to a route, because switching later costs time. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in corporate law.