Section 183 of the Companies Act, 2013 is an enabling provision for companies to contribute towards national causes, especially for national defense. Section 183 empowers the corporate sector to contribute toward the National Defence Fund or any other fund set up by the Central Government and approved by it.
Purpose of Section 183
Under Section 183, companies have been given the right to contribute financial assistance to the National Defence Fund or any other funds sanctioned by the Central Government for the cause of national defense.
This section indicates corporate resources are aligned in harmony with national welfare, especially when it is needed or for dedication to continued defense operations.
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Key Provisions of Section 183
Sub-section (1): The Power to Make Contributions
Entities Authorized to Contribute: This section gives right to three specific entities within a company to make the said contributions:
The Board of Directors: The Board of Directors are prima facie authority, who might decide on the amount which could be contributed.
Any other Authorized Person or Authority: If any person or any authority has been vested with powers identical to the prima facie authority, they shall also be authorized to approve such contributions.
Company in a General Meeting: The general meeting of shareholders, being the collective voice of shareholders, may also pass a resolution to contribute to such funds.
Contributions Not Subject to Restraint of Any Other Section: Such contribution can be made without restriction by any other section. More specifically,
Section 180: Restraint of exercise of powers of the board, subject to prior authorization of the shareholders in their general meeting on the transfer of major assets and also the investing company funds in any manner whatsoever.
Section 181: Companies cannot make charitable contributions without the approval of the board.
Section 182: Political parties' contributions are not allowed without the approval of the board.
However, Section 183 allows contributions to defense funds without such restrictions, and this shows the importance given to national defense contributions.
Fund Approval Requirement: Contributions can only be made to funds approved by the Central Government for national defense purposes. This is to ensure that the fund is legitimate and in line with the government's objectives.
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Sub-section (2): Disclosure of Contributions
Disclosure Requirement: Every company shall disclose the aggregate contributions made under this provision in its Profit and Loss Account.
Transparency in Financial Reporting: This disclosure, mandated to form part of the annual financial statements, provides transparency to shareholders and stakeholders about the company's contributions to national welfare.
Annual Reporting Requirement: Contributions during the year should be reported for the same year to present an account.
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Additional Insights
Flexibility in Amount: The section allows the Board or authorized persons to decide on the amount to be contributed, meaning there is no cap or fixed contribution amount. Companies can contribute as they see fit based on their financial position.
No Direct Benefit or Return: Contributions to the National Defence Fund or similar approved funds are purely for public good with no expected direct return, setting these apart from typical investments or political contributions.
Practical Example
Suppose XYZ Pvt. Ltd. decides to contribute to the National Defence Fund. The Board of Directors can approve the amount without requiring shareholder approval under Sections 180, 181, or 182. After making the contribution, XYZ Pvt. Ltd. is then required to disclose this amount in the Profit and Loss Account of its annual financial statement for the relevant financial year, making shareholders aware of this expenditure.
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Summing up,
Section 183 gives an empowerment to companies under the Companies Act of 2013 to effectively contribute toward national welfare, thereby encouraging them to give contributions towards defense-related funds. Such a provision, thereby negates the usual hindrances relating to corporate expenses, therefore, it goes hand-in-hand with the nation's interest. Disclosing their practices in matters of governance ensures transparency and accountability from the corporate arena.
FAQs related to Section 183 of the Companies Act 2013
Q1. What is the object of Section 183 of the Companies Act, 2013?
Section 183 empowers companies to make contributions to the National Defence Fund or any fund designated by the Central Government for defense without having their contributions so made under the control of any of the provisions of this Act or its article of incorporation.
Q2. How do recent amendments connect with its exercise?
No direct amendments have been made to Section 183, but the evolving norms in corporate governance and CSR may impact the manner in which a company contributes to national defense under this section.
Q3. What are the implications of non-compliance with Section 183?
The lack of compliance with Section 183, especially failure to report contributions in financial statements, would lead to issues of transparency and may be eroded by shareholders.
Q4. What impact does Section 183 have on corporate governance?
The section promotes companies to commit to national interests and orient the corporate governance to serve welfare as well as advancement of a responsible culture that symbolizes the needs of the defense of the nation.
Q5. Where can one find more detailed guidelines or directives on compliance with Section 183?
Section 183 can further be found in the Companies Act, 2013. However, for specific advice on this section, legal experts or corporate governance advisors must be consulted to seek further clarity and strategies of compliance.
