Section 135 of CA 2013 : Section 135: Corporate Social Responsibility

Explanation using Example

Imagine XYZ Pvt. Ltd. is a manufacturing company with a turnover of ₹1200 crore in the last financial year. According to Section 135 of The Companies Act, 2013, XYZ Pvt. Ltd. is required to establish a Corporate Social Responsibility (CSR) Committee because its turnover exceeds the threshold of ₹1000 crore.

The CSR Committee at XYZ Pvt. Ltd. consists of four directors, including one independent director, as mandated by the Act. This committee identifies potential CSR activities, such as setting up a skill development center in the local community. They recommend to the Board that ₹10 crore, which is 2% of their average net profits over the past three years, be allocated to this initiative.

The Board approves the CSR Policy, including the skill development center project, and discloses the policy in its annual report and on the company's website. XYZ Pvt. Ltd. prioritizes the local community for its CSR spending, in line with the provisions of the Act.

At the end of the financial year, if XYZ Pvt. Ltd. is unable to spend the entire ₹10 crore, the unspent amount must be explained in the Board's report. If the unspent amount is not tied to an ongoing project, it must be transferred to a Fund specified in Schedule VII of the Act within six months.

If XYZ Pvt. Ltd. fails to comply with these requirements, it may face penalties as prescribed in the Act, which could be a substantial financial burden on the company.