The Companies Amendment Bill 2019 seeks to tighten the Corporate Social Responsibility provisions as enumerated under the Section 135 of the Companies Act, 2013 which presently requires certain classes of Companies to shell out 2% of the average net profits of the Company for the three immediate preceding years towards CSR spending.
The provision also requires the company to specify the reasons for not spending the amount in the Board’s report but there are no penal provisions for not spending the amount. This has resulted into non-compliance of the CSR provisions on a large scale basis and most companies have excused themselves from spending the amount and get away by simply stating vague and fake reasons in their Board’s report. These Companies have compiled huge surplus of the unspent corporate social responsibility amount.
After Companies (Amendment) Bill, 2019
The Amendment Bill 2019 seeks to bring the following changes in section 135 of Companies act 2013:-
(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 [1], during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:
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 ongoing project referred to in subsection (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.[2]
The Bill inserts a new sub-section (6), which provides that any amount remaining unspent under sub section (5) pursuant to any ongoing project, undertaken by a company in pursuance of its CSR Policy, shall be transferred by the company within a period of 30 days from the end of the financial year to a special account, named as “Unspent Corporate Social Responsibility Account“. Further, the said amount shall be spent within next 3 years from the date of such transfer, failing which, the company shall transfer the same to the Funds specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
Lastly, the Amendment Bill seeks to insert a new sub-section (7), i.e. penal provisions relating to non-compliance of the aforesaid provisions. Accordingly, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
It is understood that after the enactment of the amendment bill the unspent amount relating to “ongoing projects” shall be transferred to escrow account within 30 days from the end of the financial year for a period of three years from the date of transfer during which it has to be spent for CSR activities and thereafter if there is unspent amount it shall be transferred within thirty days from the date of completion of the third financial year.
In other cases the unspent amount has to transfer to fund specified in Schedule VII, within a period of six months of the expiry of the financial year.
Does this imply that companies have to transfer the unspent amount that has compiled since the enactment of Section 135 of the Companies Act, 2013?
The Government should consider allowing opening of interest earning special account instead of escrow account, for deposit of unspent account by corporate. This will increase the amount to be spent on CSR activities.
It is also necessary that amendment should be made in Board’s Report /Annual forms as well so as to include the details of the special account including the details of amount utilized and balance at the end of financial year to monitor the compliance of the rules.
It is a good move but it is also true that genuine corporate face hardship to find a genuine project and at times the tenure of project extends the financial year.
Note:
[1] To be inserted
[2] To be inserted
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