Non-compliance of Sec. 135 (Corporate Social Responsibility) and corresponding penalty: Order of penalty pursuant to Section 135 of the Companies Act, 2013 by Registrar of Companies NCT of Delhi & Haryana.
In the case of AECOM INDIA PRIVATE LIMITED the Adjudicating officer has imposed a penalty of Rs. 12,70,652/- on Company and Rs. 63,533/- each on the two Whole Time Directors for short spending of Rs. Rs.6,35,326/- which the Company came to know upon revised calculation. Which the Company later complied and transferred unspent amount of Rs. 6,35,326 to “PM Care Fund” and filed GNL-1 for adjudication of the matter. Read Order: MCA Imposes Penalty on Company & Directors for Violating Section 135(5) of Companies Act, 2013
Then, a show cause notice was issued by Adjudicating Authority to the Company and after hearing the party levied penalty of Rs. of Rs. 12,70,652/- on Company and Rs. 63,533/- each on the two Whole Time Directors. No Penalty was imposed on Company Secretary, he being didn’t hold Board Position.
IN THE INSTANT CASE ADJUDICATING AUTHORITY MADE IT CLEAR THAT SEC. 135 CASTS CLEAR RESPONSIBILITY ON THE BOARD TO COMPLY WITH THE PROVISIONS IN STRICT MANNER AND ENSURE THAT COMPANY SPEND AT LEAST TWO PER CENT OF THE AVERAGE NET PROFITS OF THE COMPANY MADE DURING THE THREE IMMEDIATELY PRECEDING FINANCIAL YEARS AND ALSO SHALL SATISFY ITSELF REGARDING THE UTILISATION OF THE DISBURSED CSR FUNDS.
Some Take away:
1. Calculate CSR obligation accurately.
2. Shall give preference to the local area and areas around it where it operates, for spending.
3. Report reasons for not spending the amount in Board Report u/S. 134 (3).
4. Transfer unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.
5. Company may take set-off for excess amount spent on CSR in succeeding FYs.
Corresponding Sections:
Sec. 135 (5): SPENDING ON CSR BY ELIGIBLE COMPANIES:
“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:
….
Sec. 137 (7): COMPANY SHALL BE LIABLE TO A PENALTY:
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.
Conclusion: The AECOM India case serves as a cautionary tale, illustrating the repercussions of neglecting CSR obligations outlined in Section 135. Companies must meticulously calculate, report, and fulfill their CSR responsibilities to avoid penalties and uphold their commitment to social responsibility. Understanding the intricacies of the law is imperative for corporate entities to navigate the fine line between compliance and penalty.
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