MCA Notification

Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021

The Ministry of Corporate Affairs recently announced the new Corporate Social Responsibility Rules, which will be called Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. The amendments have introduced some significant changes that will be discussed in this article.

Key highlights which a company undertaking Corporate Social Responsibility Policy should note

Some of the significant changes are as follows:

• Compulsory registration with MCA

According to the new provisions, an entity that seeks to undertake any CSR activity is now required to register itself with the Central government by filing Form CSR-1 electronically with the Registrar of Companies. It involves one time registration in a simple form. In this form, the details of the members, PAN etc. is to be provided that can help in identifying the implementing agencies on the MCA portal^[1].

This form, CSR-1, should be signed and submitted electronically and will be digitally verified. A unique CSR registration number will be auto generated by the system upon submission of this form.

• Information sharing from entities undertaking CSR activity

Every entity that undertakes CSR activity is required to share the details about impact assessment for big CSR projects, an annual action plan for CSR by the board every year in addition to the Corporate Social Responsibility policy, carry forward and set off of CSR expenditure, Mandatory disclosure of CSR projects and activities on the company’s website, tweaks in reporting formats of the Board report, capital asset acquisition and its holding and Transfer of unspent amount to government notified fund.

• Specifying reasons for failure to spend net profit towards CSR

As you would be aware of the law that all companies with a net worth of 500 crore rupees or more, a turnover of 1000 crore rupees or more, or net profit of 5 crore rupees or more should spend 2% of the average profits of the last three years on CSR activities every year.

According to the new rules notified in case where a company fails to spend the earmarked 2% of the net profit towards CSR, it would then be required to specify reasons for not spending such amount and unless unspent amount relates to any ongoing project then transfer the same to a government notified fund.

Companies can also get involved with international organizations for designing, monitoring, and evaluating the CSR projects or programmes as per its CSR policy and for capacity building of their own personnel for CSR.

• Hiring Independent agency

As per the amended rules, any corporation with a CSR obligation of 10 crore rupees or more for three preceding financial years shall be required to hire an independent agency to conduct an impact assessment of all their projects with outlays of 1 crore rupees or more. Companies would be permitted to count 5% of the CSR expenditure for the year up to 50 lakh rupees on impact assessment towards CSR expenditure.

• Activities included in CSR

The activities undertaken by entities in pursuance of its statutory obligation provided in Section 135 of the Act as per the provision contained in the Companies (CSR Policy) Amendment Rules, 2021.

Activities undertaken in the pursuance of the normal course of business of the company engaged in R&D activity of new vaccine, drug, and medical devices in their normal course of business may undertake R&D activity of the new vaccine, drugs, and medical devices relating to Covid-19 for the financial year 2020-21, 22, 23 subject to conditions.

• Activities excluded from CSR

The activities not included in the CSR activities include the following-

1. Activities undertaken in pursuance of the normal course of business of the company;
2. Any activity undertaken by the company outside India;
3. Activities benefitting employees of the company as provided in clause (k) of section 2 of the Code on Wages, 2019;
4. Activities supported by companies in the basis of sponsorship for deriving marketing benefits for its products or services; and
5.  Activities carried out for the fulfilment of any other statutory obligations under the law in India.

• CSR expenditure

The board has to make sure that the administrative overheads does not exceed 5% of the total CSR expenditure of the company for the financial year. In case of any surplus arising out of CSR activities, shall not form part of the business profit, and it will be sent back into the same project or gets transferred to the unspent CSR account and spent in Corporate Social Responsibility Policy pursuance and annual action plan of the company within 6 months of the expiry of the financial year.

Comparison of Corporate Social Responsibility Policy Amendment Rules, 2021

In this segment, we shall compare the particulars of the amendments prior to notification of rules with after notification of rules under Corporate Social Responsibility Policy.

Particular		Before notification of rules	After notification of rules
Project Definition		Not defined earlier	Multiyear project that is undertaken by the company in fulfilment of CSR obligation not exceeding three years
Registration of implementing agency		No mandatory registration required	CSR-1 to be filed by entities carrying out CSR activities to generate unique registration number
Carry forward and set off (CSR expenditure)		Not allowed	Amended rules allow Carry forward and set off
Transfer of unspent amount		Unspent amount was not required to be transferred earlier	Mandatory requirement for transfer of the unspent amount to funds mentioned in schedule VII
Boards responsibility and CFO/person responsible for financial management		Responsibility was not specifically provided earlier	Board shall satisfy itself that the funds disbursed have been used for purposes and in the way approved by it.
Action plan by CSR committee		CSR committee would institute a transparent mechanism for projects implementation or programs or activities undertaken by the company	The CSR committee would formulate and recommend the board an annual action plan that would include a list of CSR projects approved, execution manner, monitoring and reporting mechanism
Penalty Clause		There was no specific penalty clause earlier for non-compliance	Penalty clause in case the company fails to- A. disclose unspent amount in annual CSR report; B. transfer of unspent amount to other than ongoing projects in funds mentioned in schedule VII within the prescribed time limit; C. Transfer amount remaining in unspent CSR account after 3 years into fund mentioned in schedule VII within the prescribed time limit.   The penalty amount shall be for: Company in default- 2 times the amount to be transferred to fund mentioned in schedule VII or 1 crore rupees, whichever is less. Every officer in default- 1/10th of the amount to be transferred to fund mentioned in schedule VII or 2lakh rupees, whichever is less.
Website Disclosure	Earlier it was required to disclose contents of Corporate Social Responsibility policy on the company’s website.		New disclosure on the website- CSR committee composition; Approved CSR projects; CSR policy.

Conclusion

The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 has overhauled the CSR regime of India. With respect to the earlier concepts provided in the 2014 rules like the meaning of CSR, CSR policy, its implementation, the new provisions looks to be more detailed in nature. For any additional information, you may review the PDF attached.

CSRAmendmentRules_22012021

Read our article:Corporate Social Responsibility under Companies Act 2013