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CS Professional · Compliance Management, Audit and Due Diligence · Compliance Framework

Kaveri Pharma Ltd. has a net profit of Rs 6 crore in the immediately preceding financial year, though its net worth and turnover are below the thresholds. Its company secretary says no CSR compliance applies because net worth and turnover are low. Under the Companies Act, 2013, what is the correct position?

The CSR provisions apply, because the thresholds in section 135(1) are alternatives. A net profit of Rs 5 crore or more in the immediately preceding financial year is enough, even if net worth and turnover are below their limits. Compliance therefore cannot be dismissed on that basis.

  1. ANo CSR obligation arises, since all three thresholds must be met together
  2. BThe CSR obligation applies, since a net profit of Rs 5 crore or more alone triggers section 135(1)Correct
  3. CThe company must only disclose its CSR policy and need not constitute any committee
  4. DThe obligation arises only if the net profit exceeds Rs 500 crore

Explanation

Section 135(1) applies to a company with net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more in the immediately preceding financial year. The conditions are alternatives, so a net profit of Rs 6 crore is enough. Treating them as cumulative is the mistake in the first option.

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