Whether CSR Applicable on Section 8 Companies (Not for Profit Companies)?
As per Section 135 “(1) Every company having a net worth of rupees five hundred crores or more, or turnover of rupees one thousand crores or more or a net profit of rupees five crores or more during 200[the immediately preceding financial year] shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.”
And Section 135 (5) states “The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two percent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy”
So the Section 135 clearly states and start with EVERY COMPANY and Every company includes Private Limited Companies/ Public Limited Companies/ Foreign Companies/ Section 8 Company and every company incorporated under the Companies Act 2013 or any other previous law, as may be applied thereon.
View of Directors/ Promoters of Section 8 Companies
Since the promoters/ and Directors of many Section 8 companies are of the view that the Section 8 companies had been formed with the object of carrying out the Charitable activities or for the benefit of the society. And in view of this, many section 8 companies had raised this issue and sent the requests and representations to the Ministry for providing such Section 8 companies, the exemption from being applicability of Section 135 over them.
Views of HIGH-LEVEL Committee formed for reviewing the existing framework of CSR
In view of this, the High-Level Committee which was formed to review the existing framework and for recommending the roadmap for the future CSR had published its report on 07.08.2019 and expressed its views on page No. 57, para 3.1 regarding Section 8 Companies:
“The Committee perused the requests that had been received a seeking exemption for such companies as they are not-for-profit and carry out charitable activities for the benefit of society. A Section 8 company is one which “has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, and protection of environment or any such other object”. The Committee has been apprised that all Section 8 companies are not necessarily formed with charitable objects. The aspect of them being not-for-profit does not mean that they do not generate profits, rather, the surplus of income over expenditure is plough back to promote its objects and not distributed to its shareholders. Aside from this, a Section 58 8 company is like any other company defined under the Act. In view thereof, there seems to be no justification to exclude them from the CSR mandate.”
Conclusion: So fro above it is clear that the High Level Committee had not any intension to exempt the Section 8 companies from the preview of Section 135. Thereby all section 8 Companies, though those are formed for Charitable purpose or for promotion of arts, sports, etc are supposed to come under the preview of Section 135.
Disclaimer: The author is based at Jalandhar and is a practicing company Secretary and a Certified CSR Professional who deals in matters pertaining to Corporate Social Responsibility. The information contained in this write up, as provided by the author, is to provide a general guide to the intended user. The information should not be used as a substitute for specific consultations. Authors recommend that professional advice is sought before taking any action on specific issues. The author can be however contacted for further clarification at 99145-58709 or via mail at firstname.lastname@example.org