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The Companies Amendment Bill 2020 was introduced in Lok Sabha on March 17, 2020. Continuing its endeavors in increasing the Ease of Doing Business in India, the Government has proposed to decriminalize those minor offenses which do not harm the public at large and are only becoming a burden on the legal framework. Govt. has also proposed to bring down the amount of the penalties that can be imposed on the defaulting Companies and its officers in default.

For example in Section 92 (5) of the Companies Act, 2013, If any company fails to file its annual return, before the expiry of the period specified by the Companies Act, 2013; such company and its every officer who is in default shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of five lakh rupees. It has been proposed to be revised the said penalties to: 'If any company fails to file its annual return under sub-section (4), before the expiry of the period specified, such company and its every officer who is in default shall be liable to a penalty of TEN thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of TWO lakh rupees.'

The Govt. has also introduced provisions which allow a certain class of companies to list their shares on Foreign Exchanges while giving them exemption under the provisions of Section 89, 90 and 127.

One of the major amendments is proposed in Section 135 of the Companies Act, 2013. Section 135 relates to the Corporate Social Responsibility ('CSR') of the Companies. At present the Section provides for the following:

1. Applicability of CSR:

Every company having a net worth of rupees 500 crores or more, or turnover of rupees 1000 crore or more or a net profit of rupees 5 crores or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors.

2. Disclosure of CSR in Board's Report:

The Board's report of the Company shall disclose the composition of the Corporate Social Responsibility Committee.

3. Duties of the CSR Committee:

The Corporate Social Responsibility Committee shall,-

Companies Amendment Bill 2020: Proposed changes in Corporate Social Responsibility

(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in  Schedule VII;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

(c) monitor the Corporate Social Responsibility Policy of the company from time to time;

 

4. Roles and Responsibilities of the Board of Directors

The Board of every company shall-

(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and

(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

5. Amount of CSR to be spent:

(a) The Board of every company shall ensure that the company spends, in every financial year, at least two percent of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

(b) The company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.

(c) If the company fails to spend such amount, the Board shall, in its Boards report specify the reasons for not spending the amount and, unless the unspent amount relates to any ongoing project, transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.

6. Provision for the un-spent amount:

Any amount remaining unspent, pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of 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 the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.

7. Liability in case of contravention of the CSR Provisions:

If a company contravenes the provisions of sub-section (5) or sub-section (6) of Section 135, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.

8. Powers of the Central Govt.

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.

 

Changes proposed in Companies Amendment Bill 2020:

1. Setting-off excess amount spent on CSR:

Companies Amendment Bill 2020 proposes to pass on the advantage of excess amount spent by the Companies in the form of set-off. The said Bill proposes to insert the following third proviso to Sub-section 5:

'Provided also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for a such a number of succeeding financial years and in such manner, as may be prescribed."

2. Decriminalization of the offense:

Further the Govt. intends to de-criminalize the offense of not spending the CSR amount and has proposed to remove the provision of imprisonment to every officer of the Company who is in default. The Govt. has also proposed the stricter provisions regarding pecuniary liabilities on the defaulting companies. It is proposed to substitute the existing sub-section 7 of Section 135 with the following:

(7) If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.

3. Relaxation in constitution of CSR Committee:

With an intention to help companies where the amount to be spent on CSR is not more than Rupees 50 Lakhs, the bill proposes to withdraw the requirement of constitution of the CSR Committee. In such cases the power will be vested with the Board of Directors of the Company. It is proposed to insert below mentioned sub section 9 in the existing Section 135:

(9) Where the amount to be spent by a company under sub-section (5) does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company.

Disclaimer: This material and the information contained herein is prepared by the author for the purpose of general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). None of Author or website and the Firm, its associate firms, or its members/employees is, by means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. JMJA & Associates LLP or the author shall not be responsible for any loss whatsoever sustained by any person who relies on this material.

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Category Corporate Law, Other Articles by - CS Anupriya Saxena 



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