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CSEET · Economic and Business Environment · Elements of Corporate Governance

A company required to constitute a CSR Committee is bound to spend, in every financial year, at least a prescribed percentage of a particular profit base. Which option states this correctly?

The Board must ensure that the company spends at least 2% of the average net profits of the three immediately preceding financial years on CSR in pursuance of its CSR Policy. A single year's profit, 5%, or net worth is not the statutory base.

  1. A2% of the net profit of the immediately preceding year
  2. B2% of the average net profits of the three immediately preceding financial yearsCorrect
  3. C5% of the average net profits of the three immediately preceding financial years
  4. D2% of the net worth at the end of the preceding year

Explanation

Section 135(5) requires the Board to ensure spending of at least two per cent of the average net profits made during the three immediately preceding financial years. Using only the last year's profit is a wrong base. The percentage is two, not five, and net worth is not the base.

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