This change in law on CSR would have an impact on several companies which presently do not spend the recommended amount towards CSR and provide a reason for not spending in the director’s report.
The Companies (Amendment) Bill, 2019 enacted by the Parliament has come up with many amendments to various sections of the Companies Act, 2013. One of the amendments is in respect of CSR (Section 135 of the Companies Act, 2013). CSR was introduced in India under the principle ‘comply or explain’, which implies that a company can either incur cost for a CSR project or explain the reason as why it has not been able to spend towards CSR. This article analyses the recent changes, benefits due the change and the challenges faced by some companies.
As per the Companies (Amendment) Bill, 2019, the unspent amount is classified in two buckets with different provisions for each of them, the provision for each of the two category is elaborated below:
All companies need to spend the prescribed CSR amount and if they are unable to spend it within the stipulated period, then the company along with providing a reason for the same in the directors report shall transfer such unspent amount to a fund specified in Schedule VII (eg. PM’s relief fund) within a period of six months from the expiry of the financial year provided the unspent amount should not relate to any ongoing project.
Any amount remaining unspent and pertaining to any ongoing project undertaken by the 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 on that behalf for that financial year in any scheduled bank to be called as ‘Unspent Corporate Social Responsibility Account’ and such amount shall be spent by the company in pursuance of its obligations 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.
If a company contravenes the provisions stated in the CSR section, the company shall be punishable with fine which shall not be less than Rs 50,000, but it may extend to Rs 25 lakh and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than Rs 50,000, but it may extend to Rs 5 lakh, or both.
Here is my view on some of the key implication and challenges:
Milan Mody is Partner at NA Shah Associates LLP. The views expressed in the article are personal.
First Published: IST