A Ltd seeks to make contribution to Charitable funds of 5 lakh in FY 2017 18 The Board approved such...........

Companies Act-Phase (I & II) Board-powersandMeetings

A Ltd seeks to make contribution to Charitable funds of 5 lakh in FY 2017-18. The Board approved such a resolution without consent of Company at GM. In light of the given extract

for the 3 immediately preceding FY, is the treatment correct?

FY Net Profits (in lakhs)

FY 2014-15 50

FY 2015-16 150

FY 2016-17 100

Yes, as for Charitable fund contribution no consent of Company is required

No, as the Companies Act, 2013 prohibits Charitable fund contribution with or without consent

Yes, as the amount does not exceed 5% of the Avg. N.P of 3 IPFY no approval of Co at GM needed

No, as the amount is equal to or exceeds 5 % of the Avg N.P.of 3 IPFY and hence needs approval of Company at GM

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Explanation:

According to the provisions of sec-186(2) of the Companies Act 2013, No company shall directly or indirectly, give any loan, guarantee, provide any security to a person or other body corporate or make any investment in the securities of any other body corporate, exceeding-
√ 60% of its Paid-up Share Capital + Free reserves + Securities Premium Account;
OR
√ 100% of its Free reserves + Securities Premium Account;
Whichever is more.
The Board of directors of the company can give loan, guarantee, or provide security and make investment within the limits specified u/s 186(2), by passing a board resolution at the meeting of Board of Directors of the company.

Contribution(i.e. 5 lakhs)<= 5% of AvgNP of 3 Prev FY (i.e. 5%*{(50+150+100)/3})