Companies Act 2013 Section 135

Companies Act Section 135 mandates corporate social responsibility (CSR) obligations for certain companies in India. It requires qualifying companies to form a CSR committee and spend a minimum percentage of their profits on social welfare activities. This section plays a vital role in promoting ethical business practices and sustainable development.

Understanding Section 135 is crucial for directors, shareholders, and professionals to ensure compliance and foster responsible corporate governance. It helps companies align their business goals with social welfare, enhancing their reputation and stakeholder trust.

Companies Act Section 135 – Exact Provision

This section establishes the framework for CSR in India. It sets financial thresholds for applicability, mandates the formation of a CSR committee, and requires companies to spend a minimum amount on social initiatives. The prescribed activities are listed in Schedule VII, ensuring focused and impactful CSR efforts.

• Applies to companies meeting specified financial criteria.

• Mandates CSR committee with independent director.

• Requires CSR policy aligned with Schedule VII activities.

• Minimum 2% profit spending on CSR annually.

• Ensures transparency and accountability in CSR.

Explanation of Companies Act Section 135

Section 135 outlines CSR obligations for qualifying companies, emphasizing structured governance and spending.

• States mandatory CSR for companies with net worth ≥ ₹500 crore, turnover ≥ ₹1000 crore, or net profit ≥ ₹5 crore.

• Applies to company boards, directors, and CSR committees.

• Requires formation of CSR committee with at least one independent director.

• Mandates formulation and approval of CSR policy.

• Obligates minimum 2% average net profit spending on CSR activities.

• Permits spending on activities listed in Schedule VII only.

• Prohibits diversion of CSR funds for other purposes.

Purpose and Rationale of Companies Act Section 135

The section aims to integrate social responsibility into corporate frameworks, ensuring companies contribute to societal welfare and sustainable development.

• Strengthens corporate governance by formalizing CSR roles.

• Protects stakeholders by promoting ethical business conduct.

• Ensures transparency and accountability in CSR spending.

• Prevents misuse of corporate resources for non-CSR purposes.

When Companies Act Section 135 Applies

Section 135 applies when companies meet specified financial thresholds during a financial year, triggering CSR obligations.

• Applicable to companies with net worth ≥ ₹500 crore, turnover ≥ ₹1000 crore, or net profit ≥ ₹5 crore.

• Includes private and public companies meeting criteria.

• Compliance required annually based on preceding three years’ profits.

• Exemptions exist for companies not meeting thresholds.

Legal Effect of Companies Act Section 135

This section creates mandatory duties for qualifying companies to establish CSR governance and spend prescribed amounts on social activities. Non-compliance can attract penalties and reputational damage. It aligns with MCA rules and notifications enhancing CSR transparency.

• Creates binding duties for CSR committee formation and spending.

• Impacts board decisions and financial planning.

• Non-compliance may lead to penalties under the Act.

Nature of Compliance or Obligation under Companies Act Section 135

Compliance is mandatory and ongoing, requiring annual CSR policy formulation, committee oversight, and spending. Directors are responsible for ensuring adherence, impacting internal governance and reporting.

• Mandatory and continuous CSR obligations.

• Annual policy review and spending assessment.

• Responsibility lies with board and CSR committee.

• Internal governance strengthened through CSR oversight.

Stage of Corporate Action Where Section Applies

Section 135 applies primarily during board decision-making and financial reporting stages, with ongoing compliance throughout the financial year.

• Board establishes CSR committee post financial assessment.

• CSR policy formulated and approved by board.

• Annual CSR spending planned and executed.

• Disclosure in annual reports and MCA filings.

Penalties and Consequences under Companies Act Section 135

Failure to comply with Section 135 can result in monetary fines for the company and officers, and potential reputational harm. The Act emphasizes corrective measures and compliance enforcement.

• Monetary penalties for company and officers.

• No imprisonment prescribed under this section.

• Possible additional fees or directions by regulatory authorities.

• Reputational risks for non-compliance.

Example of Companies Act Section 135 in Practical Use

Company X, with a turnover of ₹1500 crore, formed a CSR committee including an independent director. It approved a CSR policy focusing on education and health. The company spent 2% of its average net profits on these activities and disclosed details in its annual report, demonstrating compliance with Section 135.

• Shows importance of structured CSR governance.

• Highlights transparency through disclosure.

Historical Background of Companies Act Section 135

Section 135 was introduced in the 2013 Act to replace the voluntary CSR approach under the 1956 Act. It formalized CSR as a legal obligation, reflecting global trends and India’s commitment to sustainable development.

• Shifted CSR from voluntary to mandatory.

• Aligned with international corporate responsibility standards.

• Major reforms to enhance accountability and transparency.

Modern Relevance of Companies Act Section 135

In 2026, Section 135 remains vital amid digital compliance and ESG trends. MCA’s e-governance facilitates CSR reporting. Companies integrate CSR with sustainability and stakeholder engagement strategies.

• Digital filings via MCA portal streamline compliance.

• Governance reforms emphasize CSR transparency.

• CSR aligns with ESG and sustainable business practices.

Related Sections

• Companies Act Section 2 – Definitions relevant to corporate entities.

• Companies Act Section 166 – Duties of directors.

• Companies Act Section 173 – Board meetings.

• Companies Act Section 179 – Powers of the Board.

• IPC Section 447 – Punishment for fraud.

• SEBI Act Section 11 – Regulatory oversight for listed companies.

Case References under Companies Act Section 135

No landmark case directly interprets this section as of 2026.

Key Facts Summary for Companies Act Section 135

• Section: 135

• Title: Corporate Social Responsibility

• Category: Governance, Compliance

• Applies To: Companies meeting financial thresholds

• Compliance Nature: Mandatory, ongoing

• Penalties: Monetary fines

• Related Filings: Annual report disclosures, MCA filings

Conclusion on Companies Act Section 135

Section 135 of the Companies Act 2013 establishes a robust framework for corporate social responsibility in India. It mandates qualifying companies to actively participate in social welfare through structured governance and prescribed spending. This legal obligation enhances corporate accountability and aligns business operations with societal needs.

Understanding and complying with Section 135 is essential for directors and companies to avoid penalties and build sustainable reputations. The section’s integration with modern governance and digital compliance tools ensures its continued relevance and impact on India’s corporate sector.

FAQs on Companies Act Section 135

What companies are required to comply with Section 135?

Companies with net worth of ₹500 crore or more, turnover of ₹1000 crore or more, or net profit of ₹5 crore or more during any financial year must comply with Section 135.

What is the minimum CSR spending mandated by Section 135?

Qualifying companies must spend at least 2% of the average net profits of the preceding three financial years on CSR activities.

Who must be part of the CSR committee?

The CSR committee must consist of at least three directors, including at least one independent director.

Can companies spend CSR funds on any activity?

No, CSR funds must be spent on activities listed in Schedule VII of the Companies Act 2013.

What are the consequences of not complying with Section 135?

Non-compliance can lead to monetary penalties for the company and its officers, along with reputational damage.