The Ministry of Corporate Affairs has been making constant endeavors to inculcate a sense of social responsibility amongst the corporates across the nation. There still is a long way to go as the report of FY 2021 shows that approximately 34% of the eligible companies either failed to meet their CSR obligation in full, or in part. The CSR provisions contained in the Companies Act, 2013 have been based on the principle of “comply or clarify” until recently, when non- compliance of CSR provisions have been notified as a civil wrong w.e.f. 22nd January, 2021. There has been a paradigm shift in the CSR laws since its introduction, with an aim to improve accountability, reporting patterns and not to forget a self-instilled sense of social responsibility. The latest “Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 have also been notified on same lines w.e.f. 20th September, 2022. I am attempting to explain the amended provisions of the above mentioned Rules, its implication and opinion thereof:
1. Modified Exception w.r.t. constitution of CSR committee
The requirement for constituting CSR committee was relaxed for companies whose CSR obligation did not exceed INR 50,00,000/-. However, there has been an exception made vide the recent amendment which states that incase, if the company has any amount lying in the ‘Unspent Corporate Social Responsibility Account’ w.r.t. any ongoing CSR project, then it is required to have a CSR committee.
Eg: Company A’s CSR obligation for FY 2022-23 is INR 49,00,000/-. It has been decided to undertake a project that would be completed in a span of 2.5 years. The outlay of each FY has been planned to commensurate with the CSR obligation of each FY. In this case, if the company fails to spend INR 49,00,000/- till 31st March, 2022 then in spite of its obligation being less than INR 50,00,000/- it will not be able to dissolve its CSR committee.
In my opinion this revised exception was necessary so as to ensure proper implementation and execution, in case of ongoing CSR projects. A separate committee would result in better full time attention and control over the same as compared to Board, which already has various other duties.
2. REVISED EXEMPTION CRITERIA FOR S.135
Sub Rule 2 of Rule 3 is:
Every company which ceases to be a company covered under subsection (1) of section 135 of the Act for three consecutive financial years shall not be required to —
(a) constitute a CSR Committee; and
(b) comply with the provisions contained in sub-section (2) to (6) of the said section,
till such time it meets the criteria specified in sub-section (1) of section 135.
This sub rule has been omitted.
This implies, that the only eligibility criteria that prevails as to whether the company falls u/s 135 is the one that is stated in S. 135(1) which is “Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year” shall comply with S. 135. The eligibility would thus be determined on a year to year basis.
This has been one of the significant amendments as it will provide a cushion for the companies, that eventually ran into losses or subsequently had eligible profit of less than INR 500 lacs due to various industrial factors. The vicious circle of 3 consecutive years, so as to claim exemption from the clutches of S. 135 has now been omitted and eligibility would be tested based on numbers of the immediately preceding FY only.
3. INCLUSION OF IMPLEMENTING AGENCIES
A company established under section 8 of the Act, or a registered public trust or a registered society, exempted under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10 of the Income Tax Act, 1961 (apart from 12A and 80G registered organizations) are also eligible implementing agencies provided they have registered themselves with the Ministry vide e-form CSR-1.
Needless to mention, the options for spending in local areas through implementing agencies would be expanded with this amendment. Thereby the spending companies will get more local options as well.
4. CAPPING IMPACT ASSESSMENT EXPENDITURE
The amended provisions state that a company may book expenditure to higher of the following:
· 2% of total CSR expenditure OR
· INR 50,00,000/-
Although the percentage has been reduced from 5% to 2%, the overall cap has increased as higher of the two is now allowed.
5. DISCLORUE REQUIREMENTS
The disclosure parameters for Annual Report on CSR activities that is required to be included in the Board's Report has been made more comprehensive. In case of Board’s Report drawn up for the financial year 2021-22, the new annexure format is to be appended only in cases where the Board is adopting its Report any time after 20/09/2022.
6. CHANGES IN CSR-1 FORM
The changes in CSR-1 form have been notified so as to include the categories of new implementing agencies as explained above. The said changes have been integrated and the updated form is available on the MCA portal.
Ravina Shah | Partner | RBKRS & Associates LLP
