COMPANY LAW

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(Time allowed: ) (100 Marks)

Question 1
Write notes on corporate social responsibility. (4 marks)
Answer:
Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules 2014, Corporate
social responsibility refer to the sustained economic growth in the current decades. We
still continue to face major challenges on the human side in India - The problems such
as:
(a) Poverty
(b) illiteracy
(c) Malnutrition etc.
Have resulted in a large section of the population remaining as un-included from the
main stream.
The CSR policy should invariably cover
(a) Care for all stake holders,
(b) Ethical functioning
(c) Respects for human rights
(d) Respect for environment and
(e) activities for social and inclusive development
At present the MCA is looking forward to more and more business communities coming
forward and adopting the CSR voluntary guidelines issued by it.

Question 2
The Companies Act, 2013 has introduced several provisions which would change the
way Indian corporates do business and one such provision is spending on corporate
social responsibility (CSR) activities which has assumed considerable importance.
Discuss the provisions governing CSR as provided in the Companies Act, 2013 and rules
made thereunder.
(4 marks)
Answer:
The provisions of Corporate Social Responsibility are dealt under Section 135 read with
the Companies (Corporate Social Responsibility Policy) Rules, 2014 and clarifications
issued by the Ministry from time to time. Some of the important provisions are as
under:
 As per Section 135 of the Companies Act, 2013, every company having net worth
of 500 crores or more, or turnover of 1,000 crores or more or a net profit of 5
crores or more during 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. There need not be any independent director on the CSR Committee if
the Company is unlisted Public Company or a Private Company.
 In case of Private Company CSR Committee can be formed with two members.
 CSR Committee shall formulate and recommend Corporate Social Responsibility
Policy which shall indicate the activity or activities to be undertaken by the
company as specified in Schedule VII and also recommend the amount of
expenditure to be incurred on CSR activities.
 The Board of every company shall ensure that the company spends in every
financial year at least 2% of the average not profit of the company made during
the three immediately preceding financial years in pursuance of its CSR policy.
 Net Profit of a company for the purposes of Section 135 of the Companies Act,
2013 does not include the profit arising from any overseas branch of the
company and the dividends received from other companies in India which are
complying with Section 135 of the Companies Act, 2013.
 The company shall give preference to local areas where it operates, for spending
amount earmarked for CSR activities.
 The CSR activities shall be undertaken by the company, as per its stated CSR
Policy, as projects or programs or activities (either new or ongoing), excluding
activities undertaken in pursuance of its normal course of business.
 The Board of a company may decide to undertake its CSR activities approved by
the CSR committee, through a registered trust or a registered society or a
company established by the company or its holding or subsidiary or associate
company under section 8 of the Act or otherwise.
 The CSR projects or programs or activities undertaken in India only shall amount
to CSR expenditure.
 The CSR projects or programs or activities that benefit only the employees of the
company and their families shall not be considered as CSR activities in
accordance with Section 135 of the Act.
 Contribution of any amount directly or indirectly to any political party under
section 182 of the Act, shall not be considered as CSR activity. The CSR Policy of
the company is required to be displayed on Company's website.
 The term CSR is not defined under the Act but Schedule VII of the Companies Act,
2013 requires that the CSR policy created by the CSR Committee must involve
atleast one of the focus areas as mentioned in that schedule.
 The CSR activities should be according to the stated CSR policy, as projects or
programs or activities (either new or ongoing).
 The CSR activities may be decided by the Board to be undertaken through a
registered trust or a registered society or a company established by the company
or its holding or subsidiary or associate company, provided that:
 if such trust, society or company is not established by the company or its holding
or subsidiary or associate company, it shall have an established track record of
three years in undertaking similar programs or projects;
 the company has specified the project or programs to be undertaken through
these entities, the modalities of utilization of funds on such projects and
programs and the monitoring and reporting mechanism.
 A company may also collaborate with other company but the reports of such
projects shall be separately made as per the rules.
 CSR projects or programs or activities undertaken in India shall amount to CSR
expenditure.
 CSR projects that benefits only the families of the employees shall not be
considered as CSR activities.
 Companies can either conduct CSR activities by mobilizing their own personnel or
through institutions having a track record of at least three years but such
expenditure must exceed 5% of total CSR expenditure in one financial year.
 Contribution made to the any political party shall not be considered as CSR
activity.

Question 3
Logical Solutions Ltd., a listed company, is having a Corporate Social
Responsibility (CSR) committee constituted with the following members:
Rohan - Whole-time director and Chairman of CSR committee and Board
Sohan - Non-executive director
Mohan - Independent director
Can company constitute a Nomination and Remuneration committee consisting
of same three members of CSR committee with same composition? Discuss.
(5 marks)
Answer:
Under section 178 of Companies Act, 2013, the Board of Directors of every listed
public company shall constitute the Nomination and Remuneration Committee
consisting of three or more non-executive directors out of which not less than
one-half shall be independent director.
The Chairperson of the company (whether executive or non-executive) may be
appointed as a member of the Nomination and Remuneration Committee but
shall not chair such Committee.
In the above case the CSR Committee cannot serve as Nomination and
Remuneration committee as the composition is different.

Question 4
RS Ltd. has incurred 5 lakhs for the fulfillment of Labour Law, Land Acquisition
Act and Food Safety and Standards Act in the month of May, 2018. The company
has accounted for these 5 lakhs as Corporate Social Responsibility (CSR)
expenditure. Explaining the provisions of the Companies Act, 2013 discuss
whether the company has rightly accounted for the amount in CSR.
(4 marks)
Answer:
According to the Provisions of Section 135 of the Companies Act, 2013 and rules
and clarifications thereunder, expenses incurred by companies for the fulfillment
of any Act/Statute of regulations (such as Labour Laws, Land Acquisition Act etc.)
would not count as CSR expenditure under the Companies Act, 2013.
In accordance with the aforementioned clarification, expenditure of ₹ 5 lacs
relating to fulfillment of requirement under Labour Law, Land Acquisition Act and
Food Safety and Standard Act by RS Ltd., will not be treated as CSR expenditure.