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Companies act 2013, section 135- csr

arushi (a) (47 Points)

16 December 2014

Is there any penal provision for “not spending” 2% of net profit on CSR activities?

As per section 134 (3) (o) followed by 134 (8), we do have penal provision for not stating the reason in the director report in case we do not spend. But It is still not clear to me whether failure to spend on CSR is a legal offence of any sort..Require expert opinion please. Consider it urgent.

Regards

Arushi

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4 Replies

CA ANKUSH AGGARWAL (CHARTERED ACCOUNTANT) (2782 Points)
Replied 16 December 2014

There are clear penal consequences if you fail to even set up the CSR committee, fail to create a policy etc. However if you fail to spend the money, you only have to report this along with reasons. Failure to so report has a clear penal consequence with fine etc. However once you report, there is no penalty for actually not spending the money. This seems at first glance acceptable as the new law is meant more to push companies to do more for social good and hence not something to be treated as demanding a harsh non-compliance provision. However it seems that the law would have been better served if certain penal consequence for non-compliance with spending for a continuous or prolonged period of time had been provided. The good part is that if the report does not really give good and bona fide reasons, the directors can be hauled up for failing in their duty to take reasonable care, skill and diligence under Section 166 of the Companies Act. Proper use of Section 166 can then compel genuine compliance with this Section