Analysis of Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021
“Legitimate profit earning can not be devoid of social responsibility, and that companies can not get away without meeting corporate social responsibility requirements.”
With the Corporate Social Responsibility (CSR), Companies are able to develop their own social investment strategies and decide where to invest and implement programs, but the government has recommended particular areas of need, including eradicating hunger and poverty, maternal and child health, promoting gender equality and environmental sustainability etc. Companies should give preference to the local areas where they operate. If a company does not conduct its own Corporate Social Responsibility (CSR), it can give the required amount to the government’s socio-economic welfare programs such as the Prime Minister’s National Relief Fund etc.
When the provision for Corporate Social Responsibility (CSR) was introduced by Companies Act 2013, It was being said by the Government that the provision for Corporate Social Responsibility (CSR) will follow what is globally known as “Comply or Explain (COREX)”, Which means the Companies will not be mandated to spend on Corporate Social Responsibility (CSR) and the Board Report will only give reasons for not spending.
The Ministry of Corporate Affairs (MCA) has amended the Companies (Corporate Social Responsibility Policy) Rules, 2014 through notification dated January 22, 2021. It shall be noted that the MCA has brought major changes in the Companies (Corporate Social Responsibility) Rules, 2014 (‘the Rules’) through the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021.
The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 has amended the Rules majorly with respect to following facets;
Rule 2: Definitions
√ “Administrative overheads” means the expenses incurred by the company for ‘general management and administration’ of Corporate Social Responsibility functions in the company but shall not include the expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular Corporate Social Responsibility project or programme.
In the above definition general management and administration expenditure excludes direct expenses towards particular CSR Project or Programme.
√ “CSR Policy” means a statement containing the approach and direction given by the board of a company, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as formulation of the annual action plan.
In the above definition, a statement shall contain the approach and direction with relation to selection, implementation and monitoring of CSR Project or Programme.
√ “International Organization” means an organization notified by the Central Government as an international organization under section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act apply.
The Government has allowed the International Organization for designing, monitoring and evaluation of the CSR Project or Programme.
√ “Ongoing Project” 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.
As per definition, Ongoing project = Project already commenced + multi-year project whose duration is not less than one year but not exceeding 3 years
√ “Public Authority” means ‘Public Authority’ as defined in clause (h) of section 2 of the Right to Information Act, 2005.
Rule 4: CSR Implementation
√ Section 8 Company;
√ Registered Public Trust;
√ Registered Society registered u/s 12A & 80G of Income Tax Act, 1961; or
√ Company with established track record of atleast 3 years.
Rule 5: CSR Committees
√ the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;
√ the manner of execution of such projects or programmes as specified in sub-rule (1) of Rule 4;
√ the modalities of utilization of funds and implementation schedules for the projects or programmes;
√ monitoring and reporting mechanism for the projects or programmes; and
√ details of need and impact assessment, if any, for the projects undertaken by the company
√ Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee.
Rule 7: CSR Expenditure
√ the excess amount available for set off shall not include the surplus arising out of the CSR activities, if any, in pursuance of sub-rule (2) of this rule;
√ the Board of the company shall pass a resolution to that effect.
Amendment to Rule 8: CSR Reporting
Amendment to Rule 9: Website Disclosure
Amendment to Rule 10: Transfer of unspent CSR
Disclaimer: This note has been prepared for general guidance on matters of interest only and does not constitute a professional advice. In no Event the author/Firm shall be liable for any direct, indirect, special or Incidental damage resulting from or arising out of or in connection with the use of this information.