Union Cabinet approves National CSR Fund for unused CSR budget

New Delhi, 30 July 2019: The Lok Sabha has passed the Companies (Amendment) Bill, 2019 which seeks to make companies more accountable for their CSR obligations. The bill also allows for the transfer of certain responsibilities to the National Company Law Tribunal and re-categorisation of certain offences as civil offences.

According to the new amendments to the Companies Act 2013, companies will have to deposit their unspent CSR amount to a fund set by the government, the National CSR Fund.

The new provision states that if the CSR fund due for the current financial year is not used within three years, it will get transferred to the new fund which would be utilised by the government of India towards public welfare.

The provisions related to CSR mandate firms to create a ring-fenced escrow account with a bank and deposit funds for corporate social responsibility expenditure of a fiscal year into it for up to three years in case the amount is part of an ongoing project that needs to be funded in stages.

Companies (Amendment) Bill 2013: Key Highlights

  • It will become mandatory for companies to create a ring-fenced escrow account for corporate social responsibility expenditure and transfer unused funds to the National CSR Fund.
  • Companies will be required to deposit funds for mandatory corporate social responsibility expenditure for a given fiscal in the escrow account for up to three years if the amount is part of an ongoing project that requires funding in stages.
  • If a company does not have an ongoing project that requires funding in stages, then it will be required to transfer unused CSR funds to the National CSR Fund at the end of the fiscal year.

As per the Companies Act 2013, Clause 135, firms with a net worth of at least INR 500 Crore or revenue of INR 1,000 Crore or net profit of INR 5 Crore must spend a minimum of 2% of their net profit on CSR activities. Failure in complying with this provision will result in the imposition of penalty on firms and officials and the firms are would need to pay a fine of INR 50,000 to INR 25 Lakhs. For the offence, the involved company officials may get imprisoned for up to three years and fined for INR 50,000 to INR 5 Lakhs.

The Bill also seeks to empower the government by proposing that it can debar errant directors of the companies from holding similar positions in any company for a period of five years. According to Corporate Affairs Minister Nirmala Sitharaman, “The Bill will ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in the corporate sector.”

Passed on August 29, 2013, the CSR provisions governed under Companies Act 2013 made it necessary for companies to form a CSR committee consisting of their board members and at least one independent director. Under this Act, the corporates were to spend at least 2% of their average net profit in the preceding three years on CSR activities. This Act lists certain causes towards which corporates run and implement their CSR budget. The list includes eradication of hunger and poverty, promotion of education, women empowerment, gender equality, improvement in maternal health and child mortality, environmental sustainability, combating terminal illness, employment enhancement, contribution towards Prime Minister’s relief fund and other such funds and a few other issues.

The corporate social responsibility was brought to the forefront and made transparent with the Companies Act 2013. The CSR activities moved to community development. This Act helped in integrating CSR into the core operations of a company allowing stakeholders to be aware of its usage.

To know more about how to better spend your CSR fund, click here.