Companies act, 2013

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bommana jaganmohan (Querist)
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08 August 2017 Is there any restriction under the Company Act of 2013 that CSR expenditures (2% of the average net profit of the last three financial years) be incurred within one financial year?

Satish Narayan ACMA

Satish Narayan ACMA (Expert)
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09 August 2017 As per Section 135 CSR of CA2013 sub-section 5 says:

(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, in pursuance of its Corporate Social Responsibility Policy:
Provided 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:
Provided 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.

Conclusion: There is compulsion to spent in FY, failing should be reported with reason.

Source: https://www.mca.gov.in/SearchableActs/Section135.htm

Regards,
CMA Satish Narayan

bommana jaganmohan

bommana jaganmohan (Querist)
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09 August 2017 Thank you,
Is there any liability arises to the extent of excess amount which is not spend during the previous year is require to spend in current year in excess of Current years liability(2% of previous years profit). and at the same time up to unspent portion, it is not form part of profit during the previous year. so, whether it will effect the previous period financials and current year financials or no

Satish Narayan ACMA

Satish Narayan ACMA (Expert)
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09 August 2017 As far as CA2013 is concerned there is no specific provision is provided for non-compliance for spending on CSR. However, Section 450 says “Punishment where no specific penalty or punishment is provided.— If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made there under, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

Conclusion :

Generally, if the company doesn’t provide the satisfactory explanation about not spending on CSR activities completely in the same FY, Ministry can question the roles & responsibilities of the company directors, but can’t act beyond that. Since, the amount will be reserved for the CSR purpose, I believe the companies will accumulate such unspent amount for next year. Having said this, such unspent amount might not be considered as a profit.

However, considering the benefits of CSR, companies usually have separate team/department to ensure they specially work towards implementation of CSR activities undertaken by the company and ensure that the company is compliant with the CA2013 provisions.

Regards,
CMA Satish Narayan

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