Recent and Proposed amendments to CSR

Section 135 of Companies Act(2013) and Schedule VII of the same Act mandates that companies having a net worth of Rs 500 crores or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more in the previous financial year have a CSR committee and spend at least 2% of the average net profits earned during three immediately preceding financial years to CSR activities(provided in Schedule VII).
Saksham
March 16, 2021

Section 135 of Companies Act(2013) and Schedule VII of the same Act mandates that companies having a net worth of Rs 500 crores or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more in the previous financial year have a CSR committee and spend at least 2% of the average net profits earned during three immediately preceding financial years to CSR activities(provided in Schedule VII).

The concept of CSR in India has only been around for about 6 years now but it has been one of the most modified of provisions. This is the third year in a row that we see changes to Section 135 read with Schedule VII of the Companies Act which of course deals with the thing that is Corporate Social Responsibility.

Some changes are inserted via Notifications while there are some provisions which probably will see the light of day via an Act of the Parliament itself vide Companies (Amendment) Bill, 2020 [Bill №88 of 2020]

CSR and COVID-19 Research

For starters, an amendment via a notification in the Companies (Corporate Social Responsibility Policy) Rules, 2014 inserted a proviso in context of CSR policy which says that if any company is engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business, then that company may undertake such research related to COVID-19. It is significant to note that companies may undertake this only till the End of Financial Year 2022 (i.e. Until April 2023). There are two conditions to it:

  • First, that such research has to be conducted in collaborations with Government Organisations like ICMR, IIT, DST, ICAR, National laboratories and other such bodies
  • The second condition is that details of such activity shall be disclosed separately in the Annual Report on CSR included in the Board’s Report.

CSR Activities undertaken in the normal course of business

Earlier, activities which involved companies investing money in the company’s own ventures which constituted “normal course of business” did not count towards CSR. However, vide the Notification released by the Ministry of Corporate Affairs on 24th August 2020, the same has been struck down which provides relief to companies whose business involved works involving CSR. Therefore, now a company can perform its business works and simultaneously fulfil its CSR obligations.

Amendments proposed in The Companies Bill, 2020(Bill No.88 of 2020)

The Bill provides that Companies that have CSR spending obligation up to ₹50 lakh would not be required to constitute a CSR committee.

Also mentioned is that eligible companies under CSR will be allowed to set off any amount spent in excess of their CSR spending obligation in a particular financial year towards such obligation in successive financial years. Therefore if a company exceeds payments with respect to CSR, then that excess amount would automatically count for the subsequent years

There are also some lesser important changes with respect to liabilities and penalties

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