XYZ Ltd., is a profit making, dividend paying, export oriented, Public Company engaged in manufacturing of food processors. As per the latest Audited Financial Statements for the year ended 31-03-2022, the following is t

CS Professional · Governance, Risk Management, Compliances and Ethics · PYQS · December 2022
XYZ Ltd., is a profit making, dividend paying, export oriented, Public Company engaged in manufacturing of food processors. As per the latest Audited Financial Statements for the year ended 31-03-2022, the following is the summary of financial highlights: (₹ in crore) Paid up Equity Share Capital 410.00 Free Reserves and Surplus 103.00 Current Liabilities 112.75 Tangible Fixed Assets 1,500.00 Turnover 1,250.00 Outstanding Secured Loans 65.00 Net Profit 6.75 On 10-10-2022, the Company constituted a CSR Committee comprising of the following Director: Name and Designation in the Board Status in the CSR Committee Mr. X, Executive Chairman Chairman Mr. Y, Non-Executive, Non-Independent Member Mrs. Z, Non-Executive, Non-Independent Women Director Member At the time of its constitution, the Company had 6 directors on it Board including two Independent Directors. With reference to the above and in the light of the provisions of the Companies Act, 2013, answer the following: Is the CSR Committee validly constituted? If not, state how the CSR Committee should be constituted.

Answer & Explanation:

As per the Section 135 of the Companies Act, 2013 every company having: Net worth of rupees five hundred crore or more, or Turnover of rupees one thousand crore or more or Net profit of rupees five crore 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. Provided that where a company is not required to appoint an independent director under section 149(4), it shall have in its Corporate Social Responsibility Committee two or more directors. In other words, all unlisted public companies on which Independent director is not mandatory, are exempted from having Independent director in their CSR Committee. Further, as per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following classes of companies shall have atleast two directors as Independent Directors. Public Companies with paid up capital of ₹ 10 Crore or more Public Companies with turnover of ₹ 100 crores or more Public companies with aggregate outstanding loans, debentures and deposits exceeding ₹ 50 crore. As per the information given, the Company satisfies the requirement of Rule 4 and is thus required to appoint Independent Directors and have so appointed the Independent Directors. Further, in the present case, for the year ended 31.03.2022, the Net Worth of the Company (i.e. Paid Up Capital + Free Reserves and Surplus) is ₹ 513 Crore (i.e. ₹ 410 Cr+ ₹ 103 Cr) and the Turnover of the Company is ₹ 1,250 Crore and the Net Profit is ₹ 6.75 Crore, the provisions of Section 135 of the Companies Act 2013 applies and accordingly, the Company needs to constitute a separate CSR Committee comprising of at least three directors out of which at least one director shall be an Independent Director. Whereas, the present constitution of the CSR Committee is without an Independent Director. Therefore, the present constitution of the CSR Committee is not validly constituted and the Company needs to re-constitute the CSR Committee by including at least one Independent Director in the Committee.

Topics: Companies Act, 2013

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