XYZ Ltd. attracted by the provisions of Section 135 of the Companies Act, 2013 does not want to spend 2% of its average net profit on CSR activities in pursuance of its CSR policy. You are the Secretarial Auditor of XYZ

The second proviso of Section 135(5) of the Companies Act, 2013 (Act), says that "Provided further that if the company fails to spend such amount, the Board shall, in its report made under Section 134(3) (o), specify the reasons for not spending the amount." The provisions of Section 135(5) of the Companies Act, 2013 (Act) is based on the principle of 'comply or explain'. Section 135 of the Act does not lay down any penal provisions in case XYZ Ltd. fails to spend 2% of its average net profits on CSR activities. However, it shall in its Board's Report specify the reasons for not spending on CSR activities, because- Section 134(3) (o) of the Act, says that the Board's Report shall include" the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year"; Section 134(8) of the Act, says that if a company contravenes the provisions of this Section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extent to twenty five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both". Hence, the advice to XYZ Ltd would be, to include the reasons for not spending on CSR activities in its Board's Report for not attracting any penalty.