India's NCLAT exempts 50 IL&FS red and amber companies from CSR obligations
Boards of red/amber IL&FS companies must not allocate the statutory 2% CSR spend
Change
India's NCLAT has dispensed with the Section 135(5) corporate social responsibility spending obligation for about 50 IL&FS Group companies classified as 'red' and 'amber', invoking its discretionary powers under Sections 241(2) and 242(2) of the Companies Act.
Why it matters
Notional profits arising from non-accrual of interest on outstanding debt will not trigger the Section 135 CSR spending obligation for these red and amber entities. The waiver covers around 50 IL&FS Group companies under the tribunal moratorium and was granted using NCLAT's discretionary authority under Sections 241(2) and 242(2).
Implications
- — Boards of directors and audit committees of the exempted red and amber IL&FS companies must immediately cease allocating the statutory 2% average-net-profit CSR appropriation under Section 135(5) — continuing to allocate would contravene the NCLAT dispensation.
- — Company secretaries and compliance teams at the exempted red and amber IL&FS entities must immediately record the tribunal waiver in board resolutions and statutory records — failing to document the dispensation leaves corporate records inconsistent with the NCLAT order.
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Source
View on Economic Times