The parliament has, in this ongoing session, passed Companies (Amendment) Bill, 2019 (“Amendment Bill”). A major focus on the bill was on Corporate Social Responsibility (CSR) resulting in amended to section 135 of the Companies Act 2013. The amendment now makes it obligatory on part of any CSR compliant company to spend CSR money failing upon which penalty shall be imposed.
Section 135 earlier did not provide for any penalty for nonspending such money during a financial year. A disclosure for failure for nonspending by the company in the board’s report was suffice. Now, with the amendment, if a company fails to spend the CSR money in a given year, it shall have to transfer such unspent money to a bank account i.e Unspent Corporate Social Responsibility Account in any scheduled bank within 30 days from the end of the financial year. Such amount shall be spent towards CSR activities in a span of three years failing which the unspent amount in that account shall be transferred to a Fund specified in Schedule VII of the companies Act 2013 within a period of thirty days at the end of third financial year.
Prior to the amendment, it was imperative on the CSR compliant company to spend 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. Now with the amendment, companies which has not completed 3 years since its incorporation but fulfill the CSR conditions (i.e. companies having net worth of Rupees 500 crore or revenue of Rupees 1,000 crore or net profit of Rupees 5 crore during the immediately preceding financial year) will attract this spending compliance.
The company shall attract penalty starting from Rs. 50 thousand up to Rs. 25 lacs. Every officer in default shall be punishable with fine which shall be minimum Rs. 50 thousand up to Rs. 25 lacs or with imprisonment for a term up to 3 years or with both imprisonment and fine.
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