The Board of Directors of a publiccompany

The Board of Directors of a publiccompany in the private sector having made
an average profitof Rs. 1 crore during the last three financialyears propose to donate
during the current year the followingamounts:
(i) Rs. 1,00,000 to a school run exclusivelyforthe benefit of employees,
(ii) Rs.40,000to a generalcharitablefund,and
(iii) Rs.4,00,000to a politicalparty.
Advise the Board of Directors about their powers in respect of the above explaining
the relevant provisions of the Companies Act. fC.A. (Final) May, 1995J
There are some restrictions on the powers of the Board in the matter of
donations. The Board of Directors of a public company, shall not, except with the
consent of the company in general meeting contribute to charitable and other funds
not directly relating to the business of the company or the welfare of its employees,
any amounts the aggregate of which will, in any financial year, exceed Rs. 50,000,or
5 per cent of its average net profits as determined in accordance with the provisions
of Sections 349 and 350 during the three financial years immediately preceding,
whichever is greater [Section293(1) (e)].
. The contribution referjQj.D..the bove clause relates to charitable and other
IV’ funds which do not directly relate to the business of the company or the
welfare of the employees. The power of the Board as regards contribution to
funds which directly relate to the business of the company or the welfare of
its employees is unrestricted. Hence, the Board of Directors of the company.
in the given case is competent to donate Rs. 1,00,000 to a school run exclusively
the benefit of employe amount of donation being less than Rs. 50,000, the same shall be in order
and not require the approval of the shareholders
(iv)According to Section 293A of the Companies Act, 1956, only a company which
is not a government company and which has been in existence for not less
than three financial years can contribute to a political party or for a political
purpose. The aggregate of the amounts in any financial year should, however,
not exceed five per cent of its average net profits for the last three financial
years. Accordingly, the company15emgTn the private sector and having been
in existence for more than three years, the Board of Directors can contribute
Rs. 4 lakhs (being less than 5% of Rs. 1 crore). However, the name of the
political party and the amount contributed must be disclosed in the profit and
loss account of the company.
Also, please note that the resolution for the purpose must be passed at a meetingof the Board and not by circulation