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CSR Juggernaut – “Compulsory” Social Responsibility or “Corporate Social Responsibility”

by CS S. Abhinav

CSR has become a Compulsory Social Responsibility instead of its original term Corporate Social Responsibility after the Companies Amendment Act, 2019 got passed in Parliament few days ago. Even though the intention of the Government was to make the Companies fall in line and spend their allocated funds into CSR Activities in true letter & spirit, the overhaul of CSR provisions under the Amendment Act, has resulted in the Companies being forced to spend the amount or face jail term or pay hefty penalties. It has made the India Inc to spend their allocated CSR fund with a knife hanging above their heads. 

Section 135 of the Companies Act, 2013 before amendment had a lot of leeway & it was made use of by the Companies to avoid spending. Earlier if the company fails to spend 2% of the average net profit earned by the Company under CSR, they just had to mention the reasons for not spending in their Boards Report. Now with the amendment, if the Companies fail to spend the allocated amount and if the unspent amount does not relate to any ongoing project, then such unspent amounts has to be transferred to a fund (namely Prime Ministers Relief Fund or Clean Ganga Fund) under Schedule VII of the Act within a period of 6 months of the expiry of the Financial Year. If the unspent amount relates to any ongoing project, then it has to be transferred by the Company to a Special account in a scheduled bank called Unspent Corporate Social Responsibility Accountwithin a period of 30 days from the end of Financial Year. Such amounts has to be spent by the Company for their pre decided (ongoing) projects within a period of 3 Financial Years from the date of transfer, failing which, it has to be transferred to the Fund mentioned under Schedule VII of the Act. 

A bigger jolt to the corporate sector after the Amendment is the penal clauses for violations that is, if the Company contravenes the provisions of this section then it shall be punishable with a fine which shall not be less than Rs.50,000 but which may extend to Rs. 25 Lakh and every officer of the Company who is in default shall be punishable with imprisonment for a term which may extend to 3 Years or with fine which shall not be less than Rs.50,000 but which may extend to Rs. 5 Lakh or with both

The Ministry of Corporate Affairs is also mulling to make geotagging of CSR Projects mandatory which means the Companies may soon have to geotag and make available pictures of projects undertaken under their CSR Programmes to the Government in line with geotagging of Registered offices under Active Form. It is now to be seen how far it will be practicable and how the India Inc. responds to that in the coming days. 

The Finance Minister Smt. Nirmala Sitharaman on Friday assured the corporate sector in India that the Ministry would review the criminal penal provision for not complying with CSR norms under the Act. 

If the ministry rolls back the criminal provisions it will be a huge sigh of relief, as the Corporates can spend the allocated budget under CSR with more enthusiasm and vigor without fearing criminal backlash & prosecutions. It is truly interesting times ahead of the India Inc. 

About the author :

CS S.Abhinav

CS S.Abhinav is a graduate of Commerce from Kerala University and an Associate Member of the Institute of Company Secretaries of India (ICSI) and has flair towards writing and has contributed numerous articles in various professional blogs and websites. He works as the Company Secretary of a Reputed Private Company in Trivandrum, Kerala. He can be contacted at abhinavcst@gmail.com or at +91 9400939427. 

Disclaimer: The entire contents of this Article have been prepared on the basis of relevant research and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and regulations. I further agree that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. In no event shall I be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

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