Appellant Company Required to Form CSR Committee Under Companies Act

The Tribunal held that the appellant company was covered under Section 135(1) of the Companies Act, 2013, and required to constitute a CSR Committee due to its net profit exceeding the threshold. The calculation of net profit for CSR spending was determined to be based on profit before tax, not after tax as argued by the appellant. The company was directed to comply with CSR provisions and constitute a CSR Committee for the relevant financial year. The Tribunal allowed for the revision of financial statements or Board's report to include CSR information for the specified year. The appeal was disposed of with the appellant being partially liable for CSR obligations.

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Issues Involved:
1. Applicability of Section 135(1) of the Companies Act, 2013 to the appellant company.
2. Calculation of net profit for the purpose of Corporate Social Responsibility (CSR) spending under Section 135(5).
3. Compliance with CSR provisions and constitution of CSR Committee.
4. Revision of financial statements or Board’s report incorporating CSR information.

Issue-wise Detailed Analysis:

1. Applicability of Section 135(1) of the Companies Act, 2013:
The appellant argued that the threshold limit of net profit in Section 135(1) is profit after tax, and thus, the provisions of CSR are not attracted. They contended that since their average net profit for the three preceding financial years was negative, they were not obligated to spend on CSR. The Tribunal, however, held that the net profit before tax for FY 2013-14 was Rs. 5,68,70,023/-, which exceeds the Rs. 5 crore threshold. Therefore, the company was covered under Section 135(1) and was required to constitute a CSR Committee.

2. Calculation of Net Profit for CSR Spending:
The appellant claimed that the calculation of net profit should be as per Rule 2(f) of the Companies (CSR Policy) Rules, 2014, which considers profit after tax. The respondent countered that the net profit should be calculated as per Section 198 of the Companies Act, 2013, which considers profit before tax. The Tribunal agreed with the respondent, stating that the net profit before tax for FY 2013-14 should be considered, and the average net profit for the three preceding financial years should be used to determine CSR spending. The Tribunal clarified that the method of calculation should not involve deducting losses from previous years twice to arrive at a negative figure.

3. Compliance with CSR Provisions and Constitution of CSR Committee:
The appellant admitted that they did not constitute a CSR Committee or disclose the CSR policy in their Board report, arguing that the provisions of Section 135 were not applicable. The Tribunal held that the company was required to constitute a CSR Committee in 2014-15 and ensure compliance with CSR provisions, as their net profit before tax for FY 2013-14 was above the threshold limit.

4. Revision of Financial Statements or Board’s Report Incorporating CSR Information:
The Tribunal permitted the company to file an application for revision of financial statements or Board’s report after incorporating CSR information for FY 2014-15. The appellant did not challenge this direction, and the Tribunal did not express any further opinion on this issue, allowing the direction to stand.

Conclusion:
The Tribunal partially modified the impugned order, holding that the appellant was liable to constitute a CSR Committee in 2014-15 and that the method of calculation for CSR spending should be as indicated in the judgment. The appeal was disposed of accordingly, with no costs awarded.

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