COMMENTS ON COMPANIES (CORPORATE SOCIAL RESPONSIBILITY POLICY) AMENDMENT RULES, 2021
Effecting date of Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021
Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 came into effect on 22 January 2021. Therefore, these amended rules are applicable for the Financial Year 2020-21
Before understanding the latest amendments under Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. We need to understand the amendments under Section 135(5) & (6) of the Companies Act, 2013
SECTION 135 (5)
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:
Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:
Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount and, unless the unspent amount relates to any on-going project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.
Provided also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed.
SECTION 135 (6)
Any amount remaining unspent under sub-section (5), pursuant to any on-going project, fulfilling such conditions as may be prescribed, undertaken by a company in persuance 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 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 obligation 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.
Section 135(5) clearly says if a Company which is remaining unspent amount as on March 31 and it does not have on-going project then the Company is required to transfer such unspent amount to a Fund as specified in Schedule VII, within six months of the expiry of the financial year
If a Company having on-going project then the Company is required to transfer such unspent amount
If a Company failing to do so, then the company is required to transfer the same to a Fund specified in Schedule VII,
ONGOING PROJECT (RULE 2 (1) (I))
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;
Some more clarification is required from the Regulators, how continues project will be covered under On-going Project
CSR IMPLEMENTATION (RULE 4)
The Board shall ensure that the CSR activities are undertaken by the company itself or through –
Here the Company has two options, either the Company may itself undertake the CSR activities or the same can be done through agencies as mentioned above which shall be registered with ROC by filing Form CSR-1 electronically.
Every entity (implementing agency), covered under these rules, who intends to undertake any CSR activity, shall register itself with the Central Government by filing the Form CSR-1 electronically with the Registrar, with effect from the 01st day of April 2021. On the submission of the Form CSR-1 on MCA Portal, a unique CSR Registration Number shall be generated by the system automatically.
PROCESSING TYPE OF FORM CSR-1
The e-Form CSR-1 will be auto approved through Straight through processing (STP)
CERTIFICATE FROM CHIEF FINANCIAL OFFICER
The Board of a Company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect.
Here Chief Financial Officer or the person responsible for financial management is required to certify by his/her certificate that the funds so disbursed have been utilised for the purposes and in the manner as approved by the Board of Directors of the Company and the said certificate is required to annexed with Annual Report.
If the Company having ongoing project, the Board of a Company shall monitor the implementation of the project with reference to the approved timelines and year-wise allocation and shall be competent to make modifications, if any, for smooth implementation of the project within the overall permissible period
Every company having net worth of rupees 500 Crore or more, or turnover of rupees 1000 Crore or more or a net profit of rupees 5 Crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee as under.-
EXEMPTION FROM CONSTITUTION OF THE CSR COMMITTEE
Where the amount to be spent by a company does not exceed fifty lakh rupees, the requirement for constitution of the CSR Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company.
ANNUAL ACTION PLAN
The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following, namely:-
Provided that Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect.
LIMIT OF ADMINISTRATIVE OVERHEADS
The board shall ensure that the administrative overheads shall not exceed five percent of total CSR expenditure of the company for the financial year.
SURPLUS ARISING OUT OF THE CSR ACTIVITIES
Any surplus arising out of the CSR activities shall not form part of the business profit of a company and shall be ploughed back into the same project or shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the company or transfer such surplus amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.
CARRY FORWARD & SET-OFF OF EXCESS SPEND AMOUNT
Where a company spends an amount in excess of requirement provided under sub-section (5) of section 135 , such excess amount may be set off against the requirement to spend under sub-section (5) of section 135 up to immediate succeeding three financial years.
|CSR Obligation||Rs 5 Crores|
|Amount spent during the year||Rs 8 Crores|
|Excess spent amount can be adjusted in immediate succeeding 3 FYs||Rs 3 Crores|
CSR AMOUNT FOR CREATION OR ACQUISITION OF A CAPITAL ASSET
The CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by –
(a) a company established under section 8 of the Act, or a Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number under sub-rule (2) of rule 4; or
(b) beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or
(c) a public authority:
The Board’s Report of a company covered under these rules pertaining to any financial year shall include an annual report on CSR containing particulars specified in Annexure I (F.Y. up to 2019-20) and Annexure-II (F.Y. 2020-21 onward), as applicable.
In case of a foreign company, the balance sheet filed under clause (b) of sub-section (1) of section 381 of the Act, shall contain an annual report on CSR containing particulars specified in Annexure I or Annexure II, as applicable.
IMPACT ASSESSMENT OF CSR PROJECTS THROUGH INDEPENDENT AGENCY
Every company having average CSR obligation of ten crore rupees or more in pursuance of subsection (5) of section 135 of the Act, in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study.
The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR.
A Company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed five percent of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is less.
DISPLAY OF CSR ACTIVITIES ON ITS WEBSITE (RULE 9)
The Board of Directors of the Company shall mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website, if any, for public access.
TRANSFER OF UNSPENT CSR AMOUNT (RULE 10)
Until a fund is specified in Schedule VII for the purposes of subsection (5) and(6) of section 135 of the Act, the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VII of the Act.
UNSPEND AMOUNT RELATED TO FY 2018-19 IS REQUIRED TO TRANSFER TO FUND INCLUDED IN SCHEDULE VII OF THE ACT
No, since these rules came into effect on January 22, 2021 and these rules do not have retrospective effect, hence any amount which was due before this date is not required to transfer.
SPECIFIED FUND UNDER SCHEDULE VII
Once CSR amount transferred to any prescribed & registered Trust or Section 8 Company or Socity, it will be considered as compliance of CSR provisions
ACTIVITIES WHICH ARE NOT CONSIDERED AS CSR ACTIVITIES
Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions
Disclaimer:- (Author Name- CS Prashant Kumar Jain & CS Rahul Jain) The entire contents of this Article have been prepared on the basis of relevant provisions of the Companies Act, 2013 and Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. However, you may simultaneously refer Companies act and rules made thereunder and notifications issued by the Government from time to time for better understanding of this write up. The observations of the writer are personal view and the writer do not take any responsibility of the same and this cannot be quoted before any authority without the written consent of the writer.