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CS Professional · CSR and Social Governance · Corporate Social Responsibility

Before 2013, CSR in India was largely voluntary and philanthropic. Sanjay, a CS student, is asked which statement correctly describes the position under the Companies Act, 2013 as it applies to a company that meets a threshold in section 135(1).

Under section 135(5), the Board of a qualifying company must ensure spending of at least two per cent of average net profits of the three immediately preceding financial years. Non-spending needs reasons and, unless the amount relates to an ongoing project, a transfer to a Schedule VII Fund. CSR is therefore mandatory in nature.

  1. ACSR spending remains purely voluntary, with only a disclosure of reasons required
  2. BThe Board must ensure the company spends at least two per cent of average net profits of the three immediately preceding financial years, or give reasons for not spendingCorrect
  3. CThe company must spend five per cent of the current year's net profit on CSR
  4. DOnly the CSR Committee, not the Board, is responsible for ensuring spending

Explanation

Section 135(5) requires the Board to ensure that the company spends at least two per cent of the average net profits made during the three immediately preceding financial years. If it fails, the Board must give reasons and, subject to ongoing projects, transfer the unspent amount to a Schedule VII Fund. The option of purely voluntary spending ignores this mandate and the transfer requirement.

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