17-Day Delay in CSR Fund Transfer Results in ₹1.06 Crore Penalty for Care Detergents

The Ministry of Corporate Affairs (MCA) has imposed a penalty of ₹1.06 crore on Care Detergents Private Limited for a 17-day delay in transferring unspent Corporate Social Responsibility (CSR) funds to the designated PM CARES Fund. The penalty was issued by the Registrar of Companies (RoC), Uttar Pradesh, under Section 135(6) of the Companies Act, 2013.

Care Detergents Private Limited, a Kanpur-based company, registered under the Companies Act, 2003, had been under scrutiny for its CSR compliance. As per Section 135 of the Companies Act, companies meeting specific financial thresholds are required to allocate 2% of their average net profits from the preceding three financial years toward CSR activities.

For the financial year 2021-22, Care Detergents had an unspent CSR amount of ₹68.48 lakh. This amount was to be transferred to a designated Unspent CSR Account or an approved fund within six months of the fiscal year-end. However, the funds were transferred to the PM CARES Fund on October 17, 2022—17 days beyond the September 30, 2022, deadline.

Violation and Penalty

Under Section 135(7) of the Companies Act, non-compliance with CSR fund transfer requirements results in penalties on both the company and its officers. The following penalties were imposed:

The adjudicating officer noted that the penalty was calculated in line with statutory provisions, considering the unspent amount and the duration of the delay.

Adjudication Process

The company filed an application under Section 441 of the Companies Act, seeking a waiver of the penalty. However, the National Company Law Tribunal (NCLT) identified procedural defects, prompting the Registrar of Companies to take up adjudication under Section 454 of the Act.

Following multiple hearings, the adjudicating officer concluded that the company and its directors were in breach of CSR compliance obligations. The penalty order specified that Care Detergents does not qualify as a “small company” under Section 2(85) of the Act, and hence, no reduced penalties could be applied.

CSR Compliance Details

The financial details provided during the adjudication revealed the following CSR performance:

The unspent amount for 2021-22 was eventually transferred to the PM CARES Fund but beyond the statutory deadline.

Key Takeaways for Corporates

This case highlights the critical importance of adhering to CSR compliance deadlines. Companies must ensure timely allocation and transfer of unspent CSR funds to avoid penalties. Under the Companies Act, stringent provisions exist to enforce CSR obligations, reinforcing the government’s commitment to corporate accountability.

Appeal Provisions

The penalty order allows Care Detergents and its directors to file an appeal with the Regional Director (Northern Region), Ministry of Corporate Affairs, New Delhi, within 60 days of the order date. However, failure to comply with the penalty order may result in further legal consequences under Section 454(8) of the Companies Act, 2013.

Conclusion

The ₹1.06 crore penalty imposed on Care Detergents underscores the MCA’s stringent stance on CSR compliance. Businesses are urged to prioritize CSR obligations, ensuring timely fund transfers and adherence to statutory requirements to avoid similar repercussions.

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GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF
COMPANIES,
UTTAR PRADESH,
37/17, Westcott Building, The Mall,
Kanpur — 208001 (U.P.)
Phone : 0512 — 2310323/2310443

NO.07/01/ADJ-135/ CARE DETERGENTS/2877 to 2880 DATED: 29/07/2024

ORDER FOR VIOLATION OF RULE 135 OF THE COMPANIES ACT, 2013 READ WITH COMPANIES (ADJUDICATION OF PENALTIES) RULES 2014 & COMPANIES (AMENDMENT) ACT, 2020

IN THE MATTER OF CARE DETERGENTS PRIVATE LIMITED

Appointment of Adjudicating Officer:

1. The Ministry of Corporate Affairs vide its gazette notification no A-42011/112/2014-AD 11 dated 24.03.2015, has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred by section 454 of Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules,2014 under the provisions of this Act.

Company: –

2. Whereas the Company “Care Detergents Private Limited “has been registered under the provisions of Companies Act on 01/04/2003 with Roc, Kanpur, and Having Registered Office at 113/174, A, Swaroop Nagar, Kanpur UP 208002. The authorized capital of the company is Rs. 5,00,000/-.

3. As per section 135(1) of the Act, Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

4. As per section 135(5) of the Act, the Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, or where the company has not completed the period of three financial years since its incorporation during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

5. As per section 135(6) of the Act, any amount remaining unspent under sub-section (5), 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 with a period of 30 days from the end of 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 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 (30) days from the date of completion of the third financial year.

6. As per section 135(7) of the Act, 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.

7. The company has filed an application with the Hon’ble National Law Tribunal, Allahabad under section 441 of the Companies Act, 2013 for waiver of penalty due to non-expenditure of CSR expenditure for financial year 2020-21 & 2021-22. The Hon’ble NCLT has raised scrutiny defects for Diary NO. 0902109007532023 as “As per section 441(3) of the Companies Act, 2013, 441 applications should be forwarded through ROC. The company being bonafide served the copy of petition to this office on 31.07.2023. On perusal of the documents submitted it is found that compounding of offences as contemplated under section 135 of the Companies Act, 2013 falls under the adjudication of penalty under section 454 of the Companies Act, 2013 read with rule 3 of the Companies (Adjudication of Penalties) Rules, 2014.

8. From the petition following Details of CSR Expenditure in the given table has been observed:

In reference to the above table total amount spent for the financial year 2022-23 as under:

In reference to the above table unspent amount pertaining to financial year 2021-22 has to be deposited in the specified and with a period of six months i.e. up to 30¹¹¹ September 2022 or the same be spent within that period. The unspent amount has with the company was deposited in PMCARE Fund on 17.10.2022 vide Receipt No. PMCARE/WEB/202210172210166320. Hence there is a delay of 17 days in depositing the unspent fund violating the provision of section 135(6).

9. Pursuant to the adjudication petition filed by the company, Notice of hearing was sent on 08.12.2023 for informing date of hearing on 07.12.2023. On the date of hearing shri Mritunjay Jaiswal, Advocate authorized by the company presented himself for hearing with in-adequate documents. The company vide letter dated 14.12.2023 requested for adjournment of the date of hearing seeking extension of time for further 20 days. Accordingly, the next date of the hearing was fixed on 10.01.2024. The company vide letter dated 08.01.2024 received in this office on 10.01.2024 submitted the documents desired and given the reason for absence.

10. As seen from the financial statements of the company and the criteria prescribed, the company does not fall under the definition of a small company as per the provisions of section 2(85) of the Companies Act, 2013. Therefore, the provisions of imposing lesser penalty as per section 466B of the Act shall not be applicable in this case.

11. Order:

Having considered the facts and circumstances of the case and after taking into account the factors above, I hereby impose penalty as prescribed under section 135(7) of the Act. The default of the penalty imposed on the company and officers in default are shown in the table below:

I am of this opinion that penalty is commensurate with the aforesaid failure committed by the notice(s).

12. The Noticee shall pay the amount of penalty so imposed through MCA21 portal only as per rule 3(14) of Companies (Adjudication of Penalties) 2014. within 90 days receipt of this order. The company needs to file InC-28 as per the provisions of the act, attaching the copy of adjudication order alongwith payment challans.

13. Appeal against this order may be filed in writing with the Regional Director (Northern Region), Ministry of Corporate Affairs, COO Complex, Lodi Road, New Delhi, within a period of sixty days from the date of receipt of this order, in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of this order. [Section 454(5) & 454(6) of the Act, read with Companies (Adjudication of Penalties) Rules, 2014].

14. Attention is also invited to section 454(8) of the Companies Act, 2013, in the event of non­compliance of this order. In Case appeal is made 0/o Registrar of Companies, U.P. maybe informed alongwith the penalty imposed & the payments made.

(Seema Rath)
Registrar of Companies & Adjudicating Officer
Uttar Pradesh, Kanpur

NO. 07/01/ADJ-135 / CARE DETERGENTS /2877 to 2880

Dated: 29/07/2024