Question

Zenith Finance Ltd, a non-banking financial company, earned a net profit of ₹8 crore in the last financial year. Its net worth is ₹40 crore and its annual turnover is ₹150 crore. Its board asks whether the company is covered by the CSR provisions of the Companies Act 2013. Which statement is correct?

Q: Answer-Zenith Finance Ltd, a non-banking financial company, earned a net profit of ₹8 crore in the last fin...

Zenith Finance Ltd is covered by the CSR obligation under s.135 of the Companies Act 2013 because s.1351 applies to a company with net worth of not less than 100 crore, turnover of not less than 500 crore, or net profit of not less than 5 crore in the immediately preceding financial year. With a net profit of 8 crore, Zenith crosses the profit threshold even though its net worth and turnover are below the other limits. Under s.1355, the board must ensure that at least 2 of the average net profits of the preceding three financial years is spent on CSR activities per Schedule VII. A 5 spend, a 10 crore profit test, and a requirement to transfer the entire net profit are all incorrect.

A The company is outside the CSR net, since s.135 applies only to companies whose securities are listed on a recognised stock exchange.

B The company is not covered, as both its net worth of ₹40 crore and its turnover of ₹150 crore fall short of the thresholds fixed by s.135(1).

C The company is covered, and at least two per cent of the average net profits of the preceding three financial years must be spent on activities in Schedule VII.

D The company is covered, and five per cent of its net profit for the financial year must be set apart and spent on CSR in every financial year.

E The company is covered only if its net profit crosses ₹10 crore in the immediately preceding financial year, the other thresholds being immaterial.

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