Thursday, 7 July 2022

Is CSR against the Article 14?

 Is CSR against the Article 14?

Article 14 of the Indian Constitution guarantees equality before the law and equal protection under the law to all citizens of India. Furthermore, Article 14 allows for the classification of legislation in a logical manner. In Re: Special Courts Bill, the Supreme Court has repeatedly held that classification is appropriate only if:

It's based on a comprehensible differential, and the differentia has a plausible relationship to the statute's stated goal.

Only business-type organisations can afford to invest money on CSR. Even if their net worth, earnings, or turnover exceed the statutory limitation, CSR does not apply to partnership firms, limited liability partnerships, or any other sort of organisation.

If a business hits one of the net worth, turnover, or net profit levels, it falls under the purview of Section 135(1) of the Companies Act[31]. As a result, even if a company does not surpass the standards in the future, it must nevertheless invest in CSR projects.

'Average net profits' shall be computed under Section 198 of the Companies Act rules, according to Section 135 of the Companies Act, 2013. Section 198 (4) (l) of the Companies Act[32] permits the set-off of cumulative losses accrued after the effective date of the said Section (but not for periods prior to such effective date) against net profits in determining the 'average net profits' required by Section 135.

As a result, a company that has made profits for the past three fiscal years but has not yet recovered its carried forward losses from the period before to Section 198's effective date will be required to spend on CSR.

As long as the 'average net earnings' standard is met, a loss-making business is required to contribute to CSR in the same way as a profit-making business is.

Finally, corporations registered under Section 8 of the Act are covered by Section 135 of the Act. The section requires businesses to spend their profits solely to further their goals. However, the calculation of net profit for a foreign firm with a subsidiary in India is vague and ambiguous under the Section. In some cases, Article 14 is broken since the classification criteria is not met, and Section 135 treats unequals as equals.

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