Section 293(1)(e)
This query is : Resolved
26 July 2013
Whether the company can make donation to charitable purpose,not directly related to the business or for the welfare of its employees, when the company is running under losses? whether any resolution has to be passed in this respect i.e approval from shareholders for making donation even though the company has made losses in the current year?
26 July 2013
1. If the entity is a private limited company, the referred section doesn't apply.
2. If it is a public limited company or a private limited company which is a subsidiary of a public limited company, referred section attracts meaning thereby, share holders approval is required if the donation > Rs.50,000/- in a financial year presuming that the company is running in loss in the preceding 3 financial year as well.
2. If it is a public limited company or a private limited company which is a subsidiary of a public limited company, referred section attracts meaning thereby, share holders approval is required if the donation > Rs.50,000/- in a financial year presuming that the company is running in loss in the preceding 3 financial year as well.
26 July 2013
hi
I want to know that if the company has incurred losses in current year then can it make such contribution?
I want to know that if the company has incurred losses in current year then can it make such contribution?
23 July 2025
Here’s how **Section 293(1)(e) of the Companies Act, 1956** works in your situation.
---
## 1. When does Section 293(1)(e) apply?
It applies to:
* **Public companies**, and
* **Private companies that are subsidiaries of public companies**.
**Pure private limited companies** (not public-subsidiaries) are **outside** its scope.
---
## 2. What does the section restrict?
The **Board of Directors** cannot, **in any financial year**, contribute to **charitable and other funds not directly relating to the company’s business or the welfare of its employees** **beyond a prescribed limit** **without prior approval of shareholders in general meeting**.
---
## 3. What is the limit?
The Board may contribute **up to the higher of**:
* **₹50,000**, **OR**
* **5% of the average net profits** of the **three immediately preceding financial years** (net profits computed as per Sections 349/350 of the 1956 Act).
> If the 5% figure is **lower than ₹50,000** (including where prior 3-year average profit is **nil or negative**), the **₹50,000 floor applies**. So the Board can always authorize up to ₹50,000 without member approval.
---
## 4. What if the company is **currently in loss**?
Being in **loss in the current year** does **not bar making a donation**. The section doesn’t prohibit contributions by loss-making companies. The **limit test** is based on **average net profits of the three *preceding* financial years**, not the current year’s profit/loss.
### Cases:
| Avg net profit of 3 prior FYs | 5% of avg | Board can give **without** member nod | If wants to exceed… |
| ----------------------------- | --------- | ------------------------------------- | ------------------------- |
| Positive & large | 5% > ₹50k | Up to that 5% | Need shareholder approval |
| Low/zero/negative | 5% ≤ ₹50k | Up to **₹50k** | Need shareholder approval |
---
## 5. Do you need a resolution from shareholders?
**Yes, if the proposed contribution exceeds the above Board limit.**
* **Ordinary resolution** in general meeting (Section 293(1) required *consent*—ordinary was sufficient unless AoA required more).
* Board first resolves to recommend; notice to members must disclose amount and purpose.
---
## 6. Practical guidance when in losses
Even though legally permissible:
* Directors must consider **fiduciary duty** and **true & fair view**.
* Large donations while in financial stress may attract **shareholder or regulatory scrutiny**.
* Disclose in **Board’s Report** and financial statements.
---
## 7. Quick decision flow
**Is the company a public company (or its public-subsidiary)?**
→ **No**: Section 293(1)(e) doesn’t apply (check AoA; voluntary approval may still be prudent).
→ **Yes**: Compute 5% of average of last 3 FY net profits. Compare with ₹50k.
* If **donation ≤ higher of (₹50k, 5%)** → Board alone may approve.
* If **> that limit** → Get **shareholder approval (ordinary resolution)** *before* contribution.
---
## 8. Note on Companies Act, 2013 (for context)
Section 293(1)(e) is broadly carried forward as **Section 181** of the Companies Act, 2013 (without the ₹50,000 floor; approval needed if contribution exceeds **5% of average net profits of 3 preceding FYs**). Where **no or inadequate profits**, best practice is to obtain member approval before donating.
---
### Bottom line for your specific follow-up:
> **Yes, the company *can* make a charitable contribution even if it has a loss in the current year.**
> If it’s a **public company (or public-subsidiary)** and the amount **exceeds the higher of ₹50,000 or 5% of the 3-year average net profits**, you **must get shareholders’ approval** (ordinary resolution). If the 3-year avg profit is nil/negative, the **₹50,000 cap governs**—above that, go to shareholders.
---
If you tell me:
* Type of company (public / private / subsidiary)
* Avg net profits for last 3 FYs
* Proposed donation amount
…I can draft the required **Board resolution**, **notice for shareholders**, and **ordinary resolution text** for you. Let me know!
---
## 1. When does Section 293(1)(e) apply?
It applies to:
* **Public companies**, and
* **Private companies that are subsidiaries of public companies**.
**Pure private limited companies** (not public-subsidiaries) are **outside** its scope.
---
## 2. What does the section restrict?
The **Board of Directors** cannot, **in any financial year**, contribute to **charitable and other funds not directly relating to the company’s business or the welfare of its employees** **beyond a prescribed limit** **without prior approval of shareholders in general meeting**.
---
## 3. What is the limit?
The Board may contribute **up to the higher of**:
* **₹50,000**, **OR**
* **5% of the average net profits** of the **three immediately preceding financial years** (net profits computed as per Sections 349/350 of the 1956 Act).
> If the 5% figure is **lower than ₹50,000** (including where prior 3-year average profit is **nil or negative**), the **₹50,000 floor applies**. So the Board can always authorize up to ₹50,000 without member approval.
---
## 4. What if the company is **currently in loss**?
Being in **loss in the current year** does **not bar making a donation**. The section doesn’t prohibit contributions by loss-making companies. The **limit test** is based on **average net profits of the three *preceding* financial years**, not the current year’s profit/loss.
### Cases:
| Avg net profit of 3 prior FYs | 5% of avg | Board can give **without** member nod | If wants to exceed… |
| ----------------------------- | --------- | ------------------------------------- | ------------------------- |
| Positive & large | 5% > ₹50k | Up to that 5% | Need shareholder approval |
| Low/zero/negative | 5% ≤ ₹50k | Up to **₹50k** | Need shareholder approval |
---
## 5. Do you need a resolution from shareholders?
**Yes, if the proposed contribution exceeds the above Board limit.**
* **Ordinary resolution** in general meeting (Section 293(1) required *consent*—ordinary was sufficient unless AoA required more).
* Board first resolves to recommend; notice to members must disclose amount and purpose.
---
## 6. Practical guidance when in losses
Even though legally permissible:
* Directors must consider **fiduciary duty** and **true & fair view**.
* Large donations while in financial stress may attract **shareholder or regulatory scrutiny**.
* Disclose in **Board’s Report** and financial statements.
---
## 7. Quick decision flow
**Is the company a public company (or its public-subsidiary)?**
→ **No**: Section 293(1)(e) doesn’t apply (check AoA; voluntary approval may still be prudent).
→ **Yes**: Compute 5% of average of last 3 FY net profits. Compare with ₹50k.
* If **donation ≤ higher of (₹50k, 5%)** → Board alone may approve.
* If **> that limit** → Get **shareholder approval (ordinary resolution)** *before* contribution.
---
## 8. Note on Companies Act, 2013 (for context)
Section 293(1)(e) is broadly carried forward as **Section 181** of the Companies Act, 2013 (without the ₹50,000 floor; approval needed if contribution exceeds **5% of average net profits of 3 preceding FYs**). Where **no or inadequate profits**, best practice is to obtain member approval before donating.
---
### Bottom line for your specific follow-up:
> **Yes, the company *can* make a charitable contribution even if it has a loss in the current year.**
> If it’s a **public company (or public-subsidiary)** and the amount **exceeds the higher of ₹50,000 or 5% of the 3-year average net profits**, you **must get shareholders’ approval** (ordinary resolution). If the 3-year avg profit is nil/negative, the **₹50,000 cap governs**—above that, go to shareholders.
---
If you tell me:
* Type of company (public / private / subsidiary)
* Avg net profits for last 3 FYs
* Proposed donation amount
…I can draft the required **Board resolution**, **notice for shareholders**, and **ordinary resolution text** for you. Let me know!
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