Section 135: Corporate Social Responsibility
This section requires certain companies to form a Corporate Social Responsibility Committee, spend a minimum amount on Corporate Social Responsibility activities, and disclose their policy and spending in their annual report.
Penalty
(7) If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.]
The section, clause by clause
What the section says
In plain terms
(1)Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during 2[the immediately preceding financial year] shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director:
Companies with a net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more, or a net profit of rupees five crore or more, must form a Corporate Social Responsibility Committee with at least three directors, including one independent director.
proviso3[Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.]
(2)The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
The company's annual report must disclose the composition of the Corporate Social Responsibility Committee.
(3)The Corporate Social Responsibility Committee shall,—
The Corporate Social Responsibility Committee must formulate and recommend a Corporate Social Responsibility Policy, recommend expenditure, and monitor the policy.
(3)(a)formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company 4[in areas or subject, specified in Schedule VII];
(3)(b)recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
(3)(c)monitor the Corporate Social Responsibility Policy of the company from time to time.
(4)The Board of every company referred to in sub-section (1) shall,—
The company's Board must approve the Corporate Social Responsibility Policy, disclose it in their report, and ensure the company undertakes the activities outlined in the policy.
(4)(a)after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and
(4)(b)ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
(5)The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, 5[or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years,] in pursuance of its Corporate Social Responsibility Policy:
Companies must spend at least 2% of their average net profits over the last three years on Corporate Social Responsibility activities, giving preference to local areas, and explain any shortfalls in their report.
provisoProvided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:
provisoProvided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount 1[and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial years].
proviso2[Provided also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed.]
explanation3[Explanation.—For the purposes of this section “net profit” shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of section 198.]
(6)Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
(7)If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.]
(8)The Central Government may give such general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section and such company or class of companies shall comply with such directions.]
The Central Government can give directions to companies to ensure compliance with Corporate Social Responsibility provisions, and companies must comply with these directions.
(9)Where the amount to be spent by a company under sub-section (5) does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company.]
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. Subs. by Act 29 of 2020, s. 26, for sub-section (8) (w.e.f. 21-12-2020).
- 2. Subs. by Act 1 of 2018, s. 37, for “any financial year” (w.e.f. 19-9-2018).
- 3. The proviso ins. by s. 37, ibid., (w.e.f. 19-9-2018).
- 4. Subs. by s. 37, ibid., for “as specified in Schedule VII” (w.e.f. 19-9-2018).
- 5. Ins. by Act 22 of 2019, s. 21 (w.e.f. 22-1-2021).
- 1. Ins. by Act 22 of 2019, s. 21 (w.e.f. 22-1-2021).
- 2. The Proviso ins. by s. 27, ibid. (w.e.f. 22-1-2021).
- 3. Subs. by Act 1 of 2018, s. 37, for the Explanation (w.e.f. 19-9-2018).
- 4. Ins. by Act 22 of 2019, s. 21 (w.e.f. 22-1-2021).
- 5. Subs. by Act 29 of 2020, s. 27, for sub-section (7) (w.e.f. 22-1-2021).
- 6. Ins. by s. 27, ibid. (w.e.f. 22-1-2021).
- 7. The words and figures “Without prejudice to the provisions of section 101” omitted by Act 1 of 2018, s. 38, (w.e.f. 9-2-2018).
- 8. Subs. by s. 38, ibid., for “Provided that” (w.e.f. 9-2-2018).
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.