TaxTMI 
TaxTMI 
2019 (9) TMI 1161
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....o query No. 4 of Circular No. 1/2016 or issue directions for suitable amendment thereto; (e) Quash show cause notice dated 24.11.2016 issued to the petitioners under section 134(3) of the Corhpanies Act, 2013? (f) dispense with the service of advance notices on the respondents; (g) exempt the filing of the certified copies of the Annexures as also grant permission to file photocopies of the Annexures; (h) issue any other appropriate writ, order or direction which this Hon'ble Court may deem fit and proper in the peculiar facts and circumstances of the case;" 2. Learned counsel for the petitioners submitted that the provisions of Section 135 of the Companies Act, 2013 is unconstitutional as it is violative of Entries 43 and 44 of List-1 List under the 7th Schedule of the Constitution. Learned counsel for the petitioner has taken this Court to the said entries and has submitted that the provisions contained under Section 135 of the Companies Act, is regulatory in nature and not mandatory. 3. It is also submitted by the counsel for the petitioner that unless a specific authorization under the Constitution is with the respondents, no such law can be enacted. It is also su....
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....pearing for the respondent submitted that under Section 135 of the Companies Act read with the CSR Rules, corporate social responsibility has been imposed on companies and as stated in the memo of petition, mainly for the reason that the respondents are vested with the power, jurisdiction and authority to enact a law as per Clause 43 and 44 of List-I to the 7th Schedule to the Constitution of India, the same being violative of Article 14, much less, the Article 19 to the Constitution of India. It is also submitted by the counsel for the respondent that looking to the amendment carried out in Section 135 of the Companies Act which is made effective from 2018 onwards, the same is to be read with Circular No.21/2014 and in fact no retrospectivity has been given to the said circular. Only for the purpose of calculation of average net profit, the earlier years are to be looked into, otherwise, the liability starts with effect from 1st April, 2014 onwards. 7. It is also submitted by counsel for the respondents that the provisions of law cannot be quashed merely because the provisions may be misused by the concerned officer. Even if a wrong show cause notice has been issued, it does not ....
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....sibility Policy of the company are undertaken by the company. (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount. Explanation.-For the purposes of this section "average net profit" shall be calculated in accordance with the provisions of section 198." (emphasis supplied) 10. Under the Companies Act, 2013, Companies (Corporate Social Responsibilities Policy) Rules, 2014 have been enacted. For ready reference, Rules 2 and 3 thereof are also extracted hereunder:- "2. Definitions. - (1) In these rules, unless the context otherwise requir....
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....section (1) of section 135 of the Act shall comply with the provisions of section 135 of the Act and these rules: Provided that net worth, turnover or net profit of a foreign company of the Act shall be computed in accordance with balance sheet and profit and loss account of such company prepared In accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of the Act. (2) Every company which ceases to be a company covered under sub section (1) of section 135 of the Act for three consecutive financial years shall not be required to - (a) constitute a CSR Committee; and (b) comply with the provisions contained In sub-section (2) to (5) of the said section, till such time it meets the criteria specified In sub-section (1) of section 135." 11. It appears from the provisions of the Companies Act, especially Section 135 thereof and also looking to Entries No.43 and 44 of List-I to the 7th Schedule to the Constitution of India, the respondents are vested with power, jurisdiction and authority to enact Section 135 of the Companies Act. 12. The applicability of the provisions of Section 135 of the Companies Act is mentioned under sub-Section (1....
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....r of rupees one thousand crore or more, this criteria has been laid down. The companies are class by themselves. The classification is reasonable and intelligent classification. There is vast difference between a Sole Proprietorship and a company. There is vast difference between a Trust and a Company. Trusts, Sole Proprietorship, Partnership Firms etc. cannot be compared to a Company. There is a difference in the liability also. For instance, in Sole Proprietorship, the person who is a sole proprietor, is not a separate legal entity, whereas, in case of companies, they are separate legal entity which can be sued and can sue. 16. Moreover, looking to the totality of the circumstances, as pointed out under Section 135 of the Companies Act and looking to their profit and total turnover, the objects sought to be achieved by these provisions has direct nexus with the classification. Hence, both the tests of equality have been satisfied and hence there is no distinction at all. Hence, the provision of Section 135 of the Companies Act is not violative of Article 14 of the Constitution of India. 17. Further, looking to the counter affidavit filed by the respondents, particularly para-9,....