CSR: “To SPEND, or not to SPEND?: that is the question”
ADVOCATE & CS, REX LAW CHAMBERS, BENGALURU
The Companies Act 2013 has manoeuvred the mandatory implementation of Corporate Social Responsibility for every company that exceeds the requisite thresholds of either Net-worth, Turnover or Net-worth, as provided under Section 135 of the Act.
Where the Company falls under the said threshold, it is mandated to spend at least Two Percent of the Average Net Profits of the immediately preceding three financial years(Hereinafter, minimum expenditure). It is adequately provided that if the minimum expenditure is not satisfied, the same is required to be reported accordingly.
“However, what is to be done, where the Company wants to spend MORE THAN minimum expenditure; or where a company not mandated due to the reason of not exceeding the thresholds wants to expend towards CSR?”
The answer to the above may be as simple as answering yet another question “What is CSR Expenditure to a Company?”. I herein attempt and provide that, by nature, Corporate Social Responsibility Expenditure, is more or less, a non-business expenditure. The Board of Directors, may thus not be able to go ahead with CSR Expenditure of beyond two percent, where mandated, or any amount of CSR Expenditure, where not mandated, unless the Shareholders approve the same by way of a resolution, for the powers of the Board, does not extend to non-business expenditure, in accordance with Section 179 unless authorised by the Articles of the Company and such other power as may be authorised by the members of the company.
Solution 1: Board Resolution To Expend + Ratification by Shareholders later
This is a solution to expend above minimum expenditure, or any expenditure, as the case may be. However, it carries with it the question “WHAT IF THE SHAREHOLDERS DON’T RATIFY” And where the money is expended towards CSR, above thresholds or any amount, where not mandated, there is a considerable risk that the company may be taking towards Investor Confidence in the Company, where the shareholders are of opinion that the CSR Expenditure, although meets the legal requirements, is not exactly that they wanted their profits to be expended unto.
Solution 2: Prior Approval of Shareholders + Board Decision to Expend
In this situation, it is safe, yet however, is a time consuming solution. Through this answer the Company retains the investor confidence, however, lost its opportunity to be of help where the need arises, due to the delay caused in receiving approvals. “AIN’T IT A HELLOVA TASK TO CALL FOR AN EGM OR AGM?”. Kindly note that unless expressly required under the Act, there is no need to receive the prior consent of the Shareholders.
Solution 3: NOT SPEND AT ALL OR STICK TO MINIMUM EXPENDITURE
This is by far the easiest way out Stick to your Limits, however, does it serve the purposes of CSR???? The Companies Act 2013 has brought out a mandate towards CSR Expenditure, however, has brought about a cap limit to the CSR Activities.
SUGGESTED GOOD-GOVERNANCE: “In the Articles of Association of the Company, under Powers of the Board of Directors, provide explicitly the power to expend such sum of money towards CSR.”
Lastly, to boggle our minds, when NOT MANDATED, is the company allowed to give preference towards any area of its choice and expend towards CSR without giving preference to local areas around its opreation??? (COMING SOON)