MCA to amend the Section 135 of the Companies Act, 2013, separate account for Unspent CSR, empowers the Union to issue CSR directives

MCA to amend the Section 135 of the Companies Act, 2013, vouches for separate account for Unspent CSR, empowers the Union to issue company specific CSR directives

13 November 2018: It has been over 4 years and 6 months since the Companies Act, 2013 came into force and CSR became a compliance in India. Several discussions have taken place and a few committees have been formed in past 1 year to suggest changes in the Companies Act, along with the Section 135 of the Act. On the basis of the recommendations made by ‘Committee to review offences under the Companies Act, 2013’ the Companies (Amendment) Ordinance, 2018 has been promulgated on 2nd November, 2018. 

The Ministry of Corporate Affairs has put a notice on its website to invite suggestions/comments on the amendments, in various Sections of the Act, from the public. The Section 135 that entails mandatory Corporate Social Responsibility for certain set of companies in India, has a few amendments giving extra-ordinary power to the Central Government to issue specific directions to a specific company or a class of companies.

Here are the major amendments enumerated in the notice:

(Original text of the Act)(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, in pursuance of its Corporate Social Responsibility Policy. …. 

(Amendment) in sub-section (5), after the words “three immediately preceding financial years,”, the words “or where the company has not completed the period of three financial years since its incorporation, during such period,” shall be inserted;

after sub-section (5), the following sub-sections shall be inserted, namely:

“(6) Any amount remaining unspent under subsection (5) shall be transferred by the company within thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called Unspent Corporate social Responsibility Account and such amount shall be spent by the company in pursuance of its Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer. 

(7) The Central Government may give such general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section and such company or class of companies shall comply with such directions.”.

Going by these amendments, companies that have not completed three years but fall under the purview of the provision of sub-section (1) 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 any financial year…’ shall have to spend 2% of average net profit of previous three years or years after the incorporation (if less than three) on CSR. 

Companies that are left with unspent CSR amount, will have to open and maintain a new bank account for the Unspent CSR fund and will have to ensure that the unspent amount is spent on CSR projects in next three financial years. 

The amendment empowers the Central Government to issue directions to a specific company or a class of companies regarding CSR ( ‘interpretation’ which may include funding for specific project, supporting government initiatives etc), and companies are bound to comply with such directions. This means if any department or a ministry from the Central Government issues directions to a company or companies, to implement projects in a particular geography or theme, or support a particular program, companies will have to follow those directions. 

In case you wish to send comment or suggestion, you may download the Notice here  

It is worth mentioning that the Ministry has already formed a separate high Level Committee under the Chairmanship of Secretary-MCA, in September this year, to review the existing CSR framework as per Act, Rules and Circulars issued from time to time and recommend guidelines for better enforcement of CSR provisions. The Committee is expected to submit its recommendation by December 2018.