The MCA (Ministry of Corporate Affairs) has amended the Companies (Corporate Social Responsibility Policy) Rules, 2014 via notification on 22nd January, 2021. It should be noted that the MCA has brought vital changes in the Companies (Corporate Social Responsibility) Rules, 2014 (‘the Rules’) by the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021.
Ministry of Corporate Affairs has issued Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, in order to import transparency and increase the accountability of the Companies undertaking CSR Activities. The following major amendments have been made:
“In exercise of the powers conferred by sub-section (3) of section 1 of the Companies (Amendment) Act, 2019 (22 of 2019), the Central Government hereby appoints the 22/01/ 2021 as the date on which the provisions of section 21 of the said Act will come into force,” the MCA said. Companies (Amendment) Act, 2019- Section 21 sought to amend the Section 135 of the Companies Act, 2013 which relates to Corporate Social Responsibility.
The 2019 Amendment Act introduced penal provisions for non-compliance with the provisions of Section 135 of the Act relating to the reporting utilization and transfer of the unspent CSR funding amount Companies found to be non-compliant would be punishable with fine which shall not be less than INR 50,000 but which may extend to INR 25,00,000 and every such officer of the company found as defaulter shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than INR 50,000 but which may extend to INR 5,00,000, or with both.
Earlier, companies could cite their reasons for not complying with the said provisions of Section 135 in their board meetings and other than an adverse reputational Impact, there were no penal consequences. However, with the 2019 Amendment Act, the legislature now ensures stricter compliance as well as accountability for such non-compliance resulting in payment of fine by the company and potential risk of imprisonment of the officers if found as defaulter.
In house activity of R&D related to Covid-19 medicine may be included in the CSR Activities: Companies may undertake R&D activities in relation to the new vaccine, drugs and medical devices in their normal course of business related to COVID – 19 for FY 2020 – 21, 2021 – 22, 2022 – 23 subject to the conditions that such research and development activities shall be carried out in collaboration with any of the institutes or organizations mentioned in item (ix) of Schedule VII to the Act and details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report.
Essential Registration of CSR Entity: Every entity who want to undertake any CSR activity, shall register itself with the Central Government. For this need to fill the form CSR – 1 electronically with the Registrar, w.e.f. 01/04/2021. For the new projects taken with effect from 1st April 2021. From CSR-1 shall be signed and submitted electronically by the entity and shall be verified digitally by a CA in practice or a CS in practice or a Cost Accountant in practice. On the submission of the Form CSR – 1 on the portal, a unique CSR Registration no. shall be generated by the system automatically. This will help the Companies to recognize the entities involved in the CSR activities on behalf of other companies and also increase transparency.
International Organizations Engagement for CSR Designing: A company may engage international organizations for designing, monitoring and evaluation of the CSR projects or programs according to their CSR policy as well as for the capacity building of their own personnel for CSR.
A collaboration of other Companies for CSR Expenditure: A company may also collaborate with other companies for undertaking projects or CSR activities in such a way that the CSR committees of respective companies are in a position to separately report on these kinds of projects in accordance with these rules.
Certification by CFO: The Board of a company will satisfy itself that the funds of CSR have been used for the purposes and in the way as approved by it and the CFO or the person responsible for financial management shall certify to the effect.
CSR Committee will map the Annual Action Plan: The Company’s CSR Committee will formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include following:
- CSR projects lists that are approved to be undertaken in areas mentioned in Schedule VII of the Act;
- The manner of execution of such programs;
- The modalities of funds utilisation and implementation schedules for the projects
- Monitoring and reporting mechanism for the projects or programs;
- Details of need and effect assessment, if any, for the projects undertaken by the company
Set-off of Expenses Expenditure of CSR: Where a company spends an amount in excess of requirement provided under section 135- subsection (5), such excess amount may be set off against the requirement to spend under subsection (5) of section 135 up to immediate succeeding 3 FY subject to the conditions that – the excess amount available for set-off shall not include the surplus arising out of the CSR activities if any, the Board of the company shall pass a resolution to that effect.
CSR Impact Assessment: Every company having average CSR obligation of INR 10 Crores or more in pursuance of subsection (5) of section 135 of the Act, in the three immediately preceding FY shall undertake impact assessment, by an independent agency, of their Corporate Social Responsibility projects having outlays of INR 1 crore or more, and which have been completed not less than 1 year before undertaking the impact study.
Display of CSR activities on its website: The Board of Directors of the Company shall ensure essentially disclosure of the following on the website of the Company if any:
- the composition of the CSR Committee,
- CSR Policy & Projects approved by the Board;
- CSR policy.
Transfer of unspent CSR: In case any company failed to spend the full CSR outlay for any FY or any amount remained to be spent during the year, the CSR amount which has not spent fully, if any, shall be transferred by the company to any fund included in schedule VII of the Act.