The Ministry of Corporate Affairs, Government of India, vide its notification dated January 22, 2021, amended the Companies (Corporate Social Responsibility Policy) Rules, 2014, with the introduction of Companies (Corporate Social Responsibility Policy) Amendment Rule, 2021.
The provision for Corporate Social Responsibility (“CSR”) was introduced for companies by Section 135 in the Companies Act, 2013. According to this provision, a company having a net worth of INR 500 crores / INR 5 billion or more, or turnover of INR 1,000 crores / INR 10 billion. or more or a net profit of INR 5 crores / INR 50 million or more are required to spend at least 2% of their three-year annual net profit towards CSR activities in a Financial year. The provision is to be read with Schedule VII of the Companies Act, 2013 which details out the activities that can be undertaken under the purview of the CSR Policy.
Changes in the definition clauses by virtue of Rule 2 of the (Corporate Social Responsibility Policy) Amendment Rule, 2021
- The term “Administrative overheads[1]” has been redefined to include “general management and administration expenditure excludes direct expenses towards particular CSR Project or Programme” as well.
- Further, the definition of the term “CSR Policy” has been amended to widen the scope of the committee to recommend formulation of annual action plan.
- Certain additions have been made in the definition of “ongoing project” to include projects that have already commenced and multi-year projects whose duration is not less than one year but not exceeding 3 years.
Changes in the CSR implementation procedure by virtue of Rule 4 of the (Corporate Social Responsibility Policy) Amendment Rule, 2021
- The manner of execution of the societal responsibilities of the corporates has been provided under Rule 4 of the amendment rules, 2021. As per the aforesaid rules, the companies have the option to undertake the CSR activities either through itself or through other eligible entries which include section 8 companies, registered public trust and registered society.
- The intermediary shouldered with the responsibility to carry out CSR activities are required to register themselves filing e-form CSR-1 the start of the next financial year.
- Further, as per the amendment rules 2021, the responsibility to monitor the implementation of ongoing projects and allocation of funds has been provided to the Board. Moreover, the purpose for which the funds are to be allocated has to be certified by the Chief Financial Officer (CFO) or Person in charge of finance.
- The novel rules also provide the scope for the companies to make modifications in the projects in order to ensure smooth functioning of the project.
Changes in the functions/powers of the CSR Committee by virtue of Rule 5 of the (Corporate Social Responsibility Policy) Amendment Rule, 2021
- The CSR Committee holds the most essential responsibilities in relation to the concept of CSR. The amendment rules, 2021 have further brought about certain changes in the functions/powers of the CSR Committee in order to ensure that the corporates perform their societal responsibilities in the most efficient manner possible and a positive social impact is felt as a resultant.
- Rule 5 provides that the CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy which shall include the list of projects to be undertaken and manner of execution of such projects. Such annual plan formulated by the board can also undergo a change upon the recommendations of the CSR Committee.
Changes in the functions/powers of the CSR Committee by virtue of Rule 7 of the (Corporate Social Responsibility Policy) Amendment Rule, 2021
- Rule 7 of the amendment rules, 2021 has reiterated on the aspect that CSR activities are not meant for generation for profit. In furtherance of the same, Rule 7 provides that any surplus arising out of CSR activities shall be put back into the same project or shall be transferred to the unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the company, within a time frame of 6 months of the expiry of the financial year.
- Moreover, in case any excess amount has been spent by the corporate it shall be set off within three financial years.
- Rule 7 also provides that the surplus CSR amount can also be spent for creation/acquisition of capital assets in the manner as provided under the relevant legislation.
- While it may be well intentioned, but the limitation of the administrative overheads not exceeding 5% of the total CSR expenditure for the financial year, on the company may cause them some difficulties.
Changes in the functions/powers of the CSR Committee by virtue of rule 8 of the (Corporate Social Responsibility Policy) Amendment Rule, 2021
- Rule 8 of the amendment rules deals with the issue of CSR Reporting wherein it has been provided that a body corporate holding a CSR obligation of INR 10 Crores / 100 million or more in the three preceding financial years would have to undergo an impact assessment by an independent agency. The impact assessment has to be carried out on projects of INR 1 crore /10 million or more which have been completed not less than 1 year. Further, the report obtained herein shall be presented before the board in the annual report.
Changes in the functions/powers of the CSR Committee by virtue of rule 9 of the (Corporate Social Responsibility Policy) Amendment Rule, 2021
- Rule 9 of the amendment rules, 2021 mandates the company made disclosures on its website in relation to the details of the CSR Committee, CSR Policy and list of approved projects.
Changes in the functions/powers of the CSR Committee by virtue of rule 10 of the (Corporate Social Responsibility Policy) Amendment Rule, 2021
- The transfer of the unspent CSR amount shall be in consonance of the fact that the transfer must be made to a fund specified under schedule VII of the companies act, 2013.
- Moreover, rule 10 provides for a novel format for disclosure of ‘Annual Report on CSR activities. This disclosure document shall be a part of the Board’s Report.
The Companies (Corporate Social Responsibility Policy) Amendment Rule, 2021 has brought about several changes to the CSR Regime, and introduced further checks and balances with the respect to the expenditure to be undertaken such as impact assessment of CSR contributions, making mandatory disclosures, etc, as applicable, introduction of Form CSR 1, thereby resulting in the sharing of information and additional compliances that the companies will need to take care off. Evidently, by virtue of these rules, it has been aimed to bring about an accountability on part of the corporate bodies who are obligated to perform their duties in relation to CSR.
– Naman Dubey & Anupam Prasad
Naman is a fourth-year student of law at the Institute of Law, Nirma University, Ahmedabad and is currently interning at the Firm. The Firm acknowledges and expresses gratitude for the efforts put in by Naman towards this AP Law Series write up.
[1] “Administrative overheads” means the expenses incurred by the company for ‘general management and administration’ of Corporate Social Responsibility functions in the company but shall not include the expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular Corporate Social Responsibility project or programme.
