THE INSTITUTE OF
Company Secretaries of India

IN PURSUIT OF PROFESSIONAL EXCELLENCE

 Statutory body under an Act of Parliament

MCA/2019

9th May, 2019

MCA/2019
Shri Injeti Srinivas, I.A.S.
Secretary
Ministry of Corporate Affairs
Government of India
5th Floor, Shastri Bhawan
Dr. Rajendra Prasad Road
New Delhi – 110 001

Sir,

Subject : Requirement of Monitoring Mechanism in CSR-Reg.

The Corporate Social Responsibility has proven to be one of the most dynamic segments introduced under the Companies Act, 2013. This provision is not only soliciting corporate attention, but also regulatory focus as well.

We, at the Institute of Company Secretaries of India. would like to extend our heartfelt gratitude towards the Ministry for soliciting our presence on the High Level Committee on CSR (HLC-2018) and suggestions in strengthening the existing CSR scenario. Needless to say, the deliberations being taken up at the HLC 2018 are turning out to be quite useful and we are sure that they shall be key role players in the Indian corporate diaspora.

Also Read-

ICSI requests introduction of CSR Audit / CSR Review mechanism

Consider introduction of CSR Compliance Certificate by CS in Practice: ICSI

It is during these deliberations the ICSI had been assigned the task to suggest and opine on inculcating CSR Audit under the existing mechanism of Secretarial Audit (as is being performed b the Company Secretaries in Practice and reported in Form No. MR. 3); or developing and propagating a separate format under the aegis of CSR Compliance certificate.

While analysing the present and future impact of undertaking CSR compliance under both the mechanisms, We firmly believe that a comprehensive Audit in a separate format be introduced for reporting. The justification for having a separate format the same is submitted hereinbeloe for your kind consideration. please:

  • Secretarial Audit under Form MR-3 while covering almost all the aspects of corporate laws, especially Companies Act, 2013 and the Rules framed thereunder, is a general Audit which is more in the form of opinion, whereas the proposed CSR Audit is a single point focus audit requiring audit and reporting of compliances in a qualitative manner.
  • The recently inserted Regulation 24A under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 has also mandated a separate Annual Secretarial Compliance Report focusing entirely on the compliance of SEBI Laws, despite their general coverage under Form MR-3 setting an illustrious example to mandate a dedicated monitoring mechanism in the form of compliance certificate on areas demanding significant focus and attention

Including the provisions of CSR Audit under CARO-2016 may not be a workable option taking into consideration the following aspects:

  • The Order specifically exempts banking companies, insurance companies and companies which have been licensed to operate under section 8 of the Companies Act. The Order also exempts One Person Company and a Small Company from its application whereas no such exemption has been provided under section 135.
  • Such reporting takes care of the accounting aspects and does not take into account detailed qualitative aspects and reporting of the matters covered therein.

NEED FOR CSR AUDIT AND REPORTING IN CSR COMPLIANCE CERTIFICATE

The purpose of CSR is to benefit the society at large. Thus, CSR Compliance mechanism becomes the need of hour. Keeping in view, the importance of implementation of CSR provisions in letter & spirit, it is proposed that a mechanism for CSR Compliance Certification / monitoring, by an Independent professional may be introduced. This will surely provide the existing CSR framework much needed support and will meet the basic objectives/intent of CSR.

i. Implementing Agencies: CSR projects/ activities may not be undertaken directly but through implementing agencies. While the corporates may have on board host of professionals to guide and sail through varied corporate operations, the implementing agencies seldom have access to such professional support thereby necessitating an independent audit of the projects and activities.

ii. Need Assessment and Impact Assessment:Need assessment prior to undertaking a project and Impact assessment of the projects undertaken to analyse the impact are activities, both of which are unbiased require specialized knowledge and skill and more so presence of an Independent Professional.

iii. Monitoring of CSR compliance: is required throughout the year on a periodical basis. Even further it needs field visits of the projects and activities undertaken and ongoing.

iv. Structural framework:Qualitative aspects of the likes of Review of Constitution of CSR Committee, its functioning, Implementation of CSR Policy, relevance and authenticity of need assessment report, comparison of actual spent with the allocated amount and reasons for variation thereof, Reporting of End use of CSR funds for the designate CSR Project, Utilisation of the surplus arising out of the CSR projects, Review of Internal control systems, are inevitably impossible without a dedicated audit mechanism in place.

Furthermore, going by the deliberations of the HLC- 2015 and that of the Committee on Public Undertakings, we at ICSI would like to reiterate their recommendation of having an Independent review mechanism of CSR activities in the form of CSR Compliance certificate and the reporting of the same in a dedicated format as placed at Annexure to this representation. Not only will such a format provide adequate and ample focus on the varied aspects of CSR implementation in an entity but shall also prove to be a fruitful in emphasizing on the qualitative aspects which shall go far and beyond mere compliance of the law pertaining to constitution of CSR Committee, framing of policy and spending of money and also cover efficacy and impact of project, implementation agency, etc.

Keeping in sight all the above enlisted factors the need for an independent review mechanism of CSR activities seems relevant and more so the need of the hour. An independent overview by the professional in the form of CSR compliance certificate shall not only give the existing CSR Report much needed support but also give necessary comfort to the stakeholders, regulators and the society at large that the company is complying with the legal requirements and CSR spent has its impact society.

In light of the above, we request you to kindly consider the introduction of CSR Compliance certificate by an Company Secretary in Practice, independent professional and the reporting thereof in a dedicated format in the form of CSR Compliance Certificate which shall be attached with the e-form for CSR. Also, we would like to suggest that initially obtaining the said CSR Compliance Certificate be mandated for companies with more than Rs. 25 lakh of prescribed CSR expenditure.

The same shall go a long way in strengthening the positioning of CSR in the Indian corporate scenario.

We shall be pleased to provide any further information or clarification on hearing from your good office. Thanking you,

Yours faithfully, Y
(CS Ranjeet Pandey)
President

Encl.: CSR Compliance Certificate

ANNEXURE I

Draft CSR Compliance Certificate

(For the Financial Year ended ______)

[Pursuant to Section 135 of the Companies Act, 2013 and Companies (Corporate Responsibility Policy) Rules, 2014

To,

The Board of Directors

I/We have examined and verified the books, papers, minutes book and other records maintained by

…… Limited (the company) for the period ended on………………… (hereinafter referred to as the “relevant period”) for the purpose of compliance with the statutory provisions related to Corporate Social Responsibility. Based on our verification and the information provided by the Company, its officers, agents, authorized representatives and officials of implementation agency (ies), if any. I/We hereby certify that the Company has complied with the statutory provisions of Section 135 and rules made thereunder read with Schedule VII of the Companies Act, 2013 with respect to the following matters:

a) Corporate Social Responsibility(CSR) Committee was duly constituted and the Committee met ……. times on ……….. (dates) during the relevant period;

b) Board’s Report issued during the relevant period duly contains the requisite disclosures on Corporate Social Responsibility for the previous financial year;

c) Corporate Social Responsibility Policy of the Company as recommended by the CSR Committee and duly approved by the Board, is in accordance with applicable provisions and hosted on the company’s website, if any;

d) The CSR committee has duly recommended the amount of expenditure to be incurred by the Company on the activities in pursuance of CSR policy during the relevant period and it do have in place adequate monitoring system within the company;

e) As against Rs. ……….. being two per cent. of the average net profits of the company made during the three immediately preceding financial years, the company has spent Rs. ……….. during the relevant period and the unspent amount amounting Rs. ……….. was decided to be carry forward/ not to be carried forward.;

f) Further, during the relevant period the company has spent Rs as against the amount of Rs. ……….. , carried forward from the previous financial year (s);

g) the Company has spent its CSR amount on the specified activities in (geographical area);

h) the company has undertaken its CSR activities directly or through an eligible implementing agency;

i) the company has collaborated with ………..  for undertaking projects or programs or CSR activities and have reported on such projects or programs separately;

j) the employees of the company and their families are not the exclusive beneficiaries from the CSR projects or programs or activities;

k) the company has incurred administrative cost on implementation of CSR activities not more than 5% of the total CSR expenditure.

l) On the basis of field survey, the qualitative and quantitative impact of the projects undertaken during the year are as under —

a.

b.

c.

I further report that there are adequate systems and processes in the company commensurate with the size and operations of the Company to monitor and ensure compliance with applicable laws, rules. regulations and guidelines.

Place:
Date:

Signatures
Name of the Practicing Company Secretary
ACS/ FCS No.:
C P No.:

Note: Please report specific observations/ qualifications, reservations or adverse remarks in respect of the aforesaid matters relating to the relevant period.

Rule 8 of Companies (CSR Policy) Rules, 2014

CSR Reporting

(1) a company covered under these rules pertaining to a financial year commencing on or after the 1st day of April. 2014 shall file an an annual report on CSR in E-form CSR within six month of end of financial year.

(2) Such companies with more than Rs. 25 lakh prescribed CSR expenditure in a financial year shall submit CSR Compliance certificate, given by a company secretary in practice, in specific format.

Download ICSI Representation in PDF Format on Need for introduction of CSR Compliance Certificate

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