CSR Amendments- A Journey from Recommendatory to Mandatory By Mehul Solanki, Ayush Maheshwari and Menakshi Bajaj



An Overview:

Corporate social responsibility (CSR) as the name indicates ‘Responsibility of Corporates towards Society’. This concept came into force with The Companies Act, 2013. This is governed by the section 135 of The Companies Act, 2013 and Companies (CSR Policy) Rule, 2014. The main purpose for introduction of this concept was to give back to society, what a corporate received from it, and to give contribution towards growth of the nation.
 
Applicability of CSR-

A company in any financial year, if crosses any one of the following limits, will come under the ambit of Corporate social responsibility,


 
An Overview of Companies (CSR Policy) Amendment Rules, 2021

Ministry of Corporate Affairs vide its notification dated January 22, 2021 introduced Companies (CSR Policy) Amendment Rules, 2021 according to which a company is required to spend CSR amount mandatorily, earlier it was voluntary.

Major amendment in the Companies (CSR Policy) Amendment Rules, 2021

The concept of Corporate Social Responsibility was earlier introduced under Companies Act, 1956 on a voluntary basis. Further, to make corporates more concerned towards nature and society it was introduced as a mandatory provision under The Companies Act, 2013. But due to bloopers in the rules and lesser restriction on compliances with the rules, the main reason behind introducing the rules could not be fulfilled. Thus, to make CSR provision more effective and specific The Ministry of Corporate Affairs introduced Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 on January 22, 2021.

Following are some major amendments and insertion of new section under the Companies (CSR Policy) Amendment Rules, 2021:

  1. CSR Committee: Earlier CSR committee was constituted by every company which was covered under the CSR. Now MCA vide its amendment rules, have provided relaxation to these companies. According to amendment rule, CSR Committee would be constituted by a company, where the amount to be spent exceeded Rs. Fifty lakhs.
  1. Concept on ongoing project: As per Rule 2(1)(i) of the rules 2021, ongoing projects means a multi-year project undertaken by a Company in fulfilment of its CSR obligation having timelines not exceeding three years excluding the financial year in which it was commenced and shall include such project that was initially not approved as a multi-year project but whose duration has been extended beyond one year by the board based on reasonable justification.
  1. Addition of new section 6: Any amount remaining unspent pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
  1. If the company fails to spend the amount, the Board shall, in its report made under section 134, specify the reasons for not spending the amount and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.
  1. If a company spends an amount more than the requirements provided under the act, such company may set off such excess amount against the requirement to spend under the act for such number of succeeding financial years and in such manner, as may be prescribed.
ACTION PLAN:

The Company shall Constitute a CSR Committee which shall consist of at least three directors out of which one shall be an independent director. The CSR committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following, namely:-

  1. the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act

  2. the manner of execution of such projects or programmes as specified in sub-rule (1) of rule 4;

  3. the modalities of utilisation of funds and implementation schedules for the projects or programmes;

  4. monitoring and reporting mechanism for the projects or programmes; and

  5. details of need and impact assessment, if any, for the projects undertaken by the company:

The CSR committee in its first meeting shall consider the above pointers and determine the activities to be undertaken to fulfil the CSR obligations or whether the same has to be transferred to funds specified in schedule VII. Also whether the company is undertaking the CSR obligation by itself or delegating it to an implementing agency who shall undertake CSR obligation on behalf of the company and accordingly recommend a plan of action to the board of directors of the company

CSR FORM 1

The Ministry of Corporate Affairs has introduced changes in the roles and responsibilities of Companies as well as Professionals to ensure good Corporate Governance practices, Corporate excellence, and better compliance with Provisions of the Companies Act, 2013 and rules made there under from time to time. Among the changes introduced, E-form CSR-1 is the major change applicable from April 01, 2021. This e-form is mandatorily required to filed by the Registered Societies, Registered Trusts and Registered Section 8 Companies and other entities engaged in CSR (Corporate Social Responsibility) activities in India who wants to undertake CSR activities on behalf of Companies.

The very most purpose of filing e-form CSR is to ensure transparency and to keep a track on the CSR activities undertaken by the trusts, societies and section 8 companies all over the India and to bring under one umbrella to all the entities undertaking the CSR activities. Secondly this e-form serve purpose of creating a databank for all the corporate houses which comes under the ambit of CSR.

Here the following table mention the entities covered for registration in form CSR-1
                     
 
 
It can be said that if any above entity wants to register in form CSR-1 than it is mandatory for such entity to be registered under its respective Act. Such CSR form must be certified by A Practising Professional like Chartered Accountant in Practice or a Cost Accountant in Practice or Company Secretary in Practice.    
                                                                                                 
FAQs on Corporate Social Responsibility:
 
Can a Company spend the CSR obligation on the activities undertaken in the normal course of business?

Definition of CSR under Rule 2(1) (d) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 has specifically excluded activities undertaken in pursuance of normal course of business of the company Except any Company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19.
 
Can the Board delegate the CSR obligation?

The Board shall ensure that the CSR activities are undertaken by the company itself or through - a company established under section 8 of the Act, or
 
  • a registered public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961 (43 of 1961), established by the company, either singly or along with any other company, or
  • a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government; or
  • any entity established under an Act of Parliament or a State legislature; or
  • a company established under Section 8 of the Act, or a Registered public trust or a   Registered Public Society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities
Does the Company have to file form CSR-1?

If the Board spends the CSR obligation by itself without delegating the same to any trust, society or a section 8 company then there is no requirement to file form CSR-1.
 
Functions of CSR committee in regard to the Annual Action Plan

The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following, namely: -
 

a) the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;

b) the manner of execution of such projects or programmes as specified in sub-rule (1) of rule 4;

c) the modalities of utilisation of funds and implementation schedules for the projects or programmes;

d) monitoring and reporting mechanism for the projects or programmes; and e) details of need and impact assessment, if any, for the projects undertaken by the company

Shall Board’s Report also include CSR Report of the Company?

The board’s report of the company shall also include a report on CSR containing particulars as specified in Annexure I and Annexure II of the Companies (Corporate Social Responsibility Policy) Rules, 2014.
 
Whether Company has to mandatorily undertake Impact Assessment?

Every company having average CSR obligation of ten crore rupees or more in pursuance of subsection (5) of section 135 of the Act, in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study.

Such impact assessment shall be placed before the board and accordingly be annexed with the report of CSR.
 
Within what time does the Company have to spend the CSR amount for FY 2020-21?

The Company has to spend the said CSR amount in Schedule VII within Six months from the end of financial year i.e. September 30, 2021 if it does not pertain to any Ongoing Project.
 
Whether Company that has not spent its CSR obligation in FY 2020-21 can it spend the said amount in FY 2021-22?

The maximum duration for spending the CSR obligation is September 30, 2021 and any amount remaining unspent on September 30, 2021 shall be transferred to the funds specified in schedule VII.
 
What is the time limit to transfer the unspent CSR amount for FY 2020-21?

The amount remaining unspent for the FY 2020-21 shall be transferred to Schedule VII fund latest by September 30, 2021.
 
What should be the course of action for the total CSR unspent amount before this notification?

Any amount unspent in the FY 2019-20 shall be spent up to March 31, 2021 if not spent then the said amount shall be transferred to the funds specified in Schedule VII.
 
Any amount unspent during the FY 2018-19 or prior years, no action is required for the same as there is no retrospective effect for the same.
 
What are the funds specified in Schedule VII?

  • Swach Bharat Kosh.
  • Clean Ganga fund.
  • PM National relief fund.
  • PM Cares fund.
  • Any other fund as set up by Government of Socio- Economic development.
The above mentioned are the funds specified in Schedule VII.
 
Whether Company that has not spent its CSR obligation in FY 2020-21 can it spend the said amount in FY 2021-22?

The maximum duration for spending the CSR obligation is September 30, 2021 and any amount remaining unspent on September 30, 2021 shall be transferred to the funds specified in schedule VII.
 
Whether Company that has spent excess amount in FY 2019-20 can that excess amount be set-off in FY 2020-21?

The said notification does not have a retrospective effect hence the company cannot set-off the excess amount from FY 2019-20, but any excess amount spent in FY 2020-21 can be set-off in three succeeding financial years.
 
Whether a company that had net profit is more than 5 crores for FY ending 19-20, but the profit fell below the threshold limit under section 135 in FY 2020-21 for what period does the Company have to undertake CSR obligation.

The company has to undertake CSR activities in FY 2020-21.
 
If the profits are falling below the threshold limit under Section 135 in FY 2020-21 then no obligation of CSR spending shall arise in FY 2021-22.
 
Can a company undertake CSR activities for a period exceeding one year?

A company can undertake CSR activities as an ongoing project.
The project timeline shall not exceed 3 years excluding the financial year in which it commenced.
 
NOTE:

  1. The unspent amount in case of an ongoing project shall be transferred to Special account within 30 days from the end of the financial Year.

  2. The amount in the said special account shall be spent towards CSR activities within three years from the date of said transfer.

  3. In the event of failure to spend the said amount towards CSR activities it shall be transferred to the funds specified in Schedule VII within 30 days from the end of third financial year.

Whether a Company whose CSR obligation is not exceeding 50 Lakh does it have to constitute a CSR committee?

The Ministry of Corporate Affairs Vide the notification dated January 22, 2021 has specified that companies whose CSR obligation does not exceed Rupees 50 Lakh shall not constitute a CSR committee. However, as a matter of good Corporate compliance the Company may constitute a CSR committee.
 
What shall be the maximum amount which the company can spend on administrative overheads?

The maximum amount to be spent on administrative overheads shall not exceed 5% of the total CSR obligation of the Company.
 
Whether already constituted committee needs to be dissolved where CSR obligation is below 50 Lakhs?

With effect from this notification it is not mandatory for a company to constitute a CSR committee if its CSR obligation is below 50 Lakhs but, as matter of good corporate compliance it is advisable to constitute a CSR Committee.
 
What are Consequences in the event a registered trust, society, NGO, or a section 8 company undertakes CSR activities without filing form CSR-1?

Any amount spent by a registered trust, society, NGO, or a section 8 company on behalf of the company without filing e-form CSR-1 shall not be treated as a valid CSR expenditure.
 
What are the consequences of failure to comply with CSR obligations?
 
If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.
 
CONCLUSION

The Government with an objective to include the responsibility of the Corporate towards the Society at large has introduced the Corporate Social Responsibility and other ancillary provisions. The Government has not only introduced the concept but has also time and again brought it in line with the current requirements. As per the latest amendment, Form CSR-1 has been introduced for the organisation through which various corporates undertake CSR activities. Such an initiative would help the Government to keep a track of the organisation that take up CSR activities on behalf of the company as well as the efficient utilisation of the funds allocated to the same.

OUR REMARKS

It was very nice initiative taken by Government of India to amend Corporate Social Responsibility Rules, the changes shall also promote transparency and accountability on both Company as well as implementing agency that funds are properly utilized as per approved plan, but due to COVID Second wave it might be unfeasible for the entities to comply with the said notification.

BIBLIOGRAPHY:

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