Chicago Bricks Inc. is a company incorporated in Chicago, USA in the year 1985 engaged in the manufacture of cement and related products. On…

As per the facts given in the question, we have to answer whether Chicago Bricks Inc. (advised through its Director Mr. Ramesh) is correct as to applicability of formation of the CSR Committee or as to non-applicability of formation of the CSR Committee (by the Indian branch) is correct. The question can be answered by analysing the provisions of section 135 (1) , 135 (5) and 135 (9) of the Companies Act, 2013 read with Rule 3 (1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014. According to section 135 (1) 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 a 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 sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors. As per Rule 3 (1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, every company including its holding or subsidiary, and a foreign company defined under clause (42) of section 2 of the Act having its branch office or project office in India, which fulfills the criteria specified in sub-section (1) of section 135 of the Act shall comply with the provisions of section 135 of the Act and these rules. According to section 135 (5) , the Board of every company referred to in sub-section (1) , shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. According to section 135 (9) , where the amount to be spent by a company under sub-section (5) does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company. In terms of the above provisions of section 135 (1) of the Companies Act, 2013 read with Rule 3 (1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, the provisions of section 135 will be applicable to the Indian Branch of Chicago Bricks Inc. since the branch has earned a net profit of 17crore [20% of 85crore] in the immediately preceding financial year (2024-2025), although its turnover was less than the stipulated - 1,000 crore during the same period. In terms of the above provisions of section 135 (5) , we can calculate the amount to be spent by the branch, which will be at least two per cent. of the average net profits of the company made during the three immediately preceding financial years. 2% of [(20% of ((75+65 + 85)/3)] = 15 crore] i.e.30 lakh. In terms of the above provisions of section 135 (9) , since the amount to be spent by the Indian Branch of Chicago Bricks Inc. under sub-section (5) does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of the Indian Branch (company). Therefore, the view of Chicago Bricks Inc. is not correct as to applicability of formation of the CSR Committee in this case and the functions of such Committee be discharged by the Board of Directors of the Indian Branch (company).