Fortune Ltd. had below financial details during the last three financial years : (In Crores) Year Net Worth Turnover Net Profit 2016-17 100.00 490.00 5.50 2015-16 95.00 500.00 4.50 2014-15 80.00 380.00 2.00 Discuss the c

Section 135(1) of the Companies Act, 2013 provides that every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any 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. Section 135(3) requires that the Committee shall formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII. The Committee shall further recommend the amount of expenditure to be incurred on CSR activities and monitor the Policy from time to time. As per section 135(5) of the Act, the Board shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR Policy. Calculation of Average Net Profit: Net Profit for 2016-17: ₹5.50 Crore Net Profit for 2015-16: ₹4.50 Crore Net Profit for 2014-15: ₹2.00 Crore Total Net Profit for 3 years: ₹5.50 + ₹4.50 + ₹2.00 = ₹12.00 Crore Average Net Profit: ₹12.00 Crore / 3 = ₹4.00 Crore Accordingly, Fortune Ltd. whose net profits during the current year exceeds rupees five crore is required to comply with the requirements of section 135 and form a CSR Committee as explained above and spend an amount of rupees eight lakh (being 2% of the average net profits of rupees four crore). However, the company shall seek to give preference to the local area and areas around it where it operates for spending the aforesaid amount. However, if Fortune Ltd. fails to spend such amount, the Board shall, in its report made u/s 134(3)(o), specify the reasons for not spending the amount.