From voluntary spending to forced spending on CSR

Corporate Social Responsibility (CSR) provisions in the Companies Act, 2013 (“the Act”) mandates every companies with a net worth of Rs. 500 crores or more, turnover of Rs. 1,000 crores or more, or net profit of Rs. 5 crores or more to constitute CSR Committee and to spend 2 % of their average profit of the previous three years on CSR activities every year.

In case, if the company fails to spend the prescribed amount, the companies were required to give reasons in the Board Report.  

Pursuant to the Companies (Amendment) Act, 2019 (“the Amendment Act”), the Companies which are not able to spend their full amount for CSR activities in on-going projects within a particular financial year, the money can be transferred to an Unspent CSR account. The amount in the unspent CSR account has to be spent within the next three financial years. Any amount remaining unutilised in unspent CSR account would be transferred to any fund specified in Schedule VII of the Companies Act, 2013, which includes the PM’s Relief Fund, the Clean Ganga Fund and others set up by the government in furtherance of its social development policies.

In case, if the Company is not having any  on-going project in hand to spend for CSR, the unspent amount is required to be transferred to any fund specified in Schedule VII of the Act within a period of 6 months of the expiry of the financial year.

If the company violates the CSR provisions as mentioned above, stringent penal provisions are imposed on company which includes fine in between from Rs. 50,000 to Rs. 25 lakhs and for officers in default fine from Rs. 50,000 which may extend to Rs. 5 lakh or even imprisonment of up to three years for or with both.

The interesting point to be noted here is that although Companies (Amendment) Act, 2019 is passed; the provisions of Section 135 are not yet made effective.