New Delhi: Parliament approved the Companies (Amendment) Bill which seeks to tighten CSR norms and ensure stricter action for non-compliance of the company law regulations.
The legislation was passed in the Rajya Sabha with voice vote. Lok Sabha had passed the bill on July 26.
Finance and Corporate Affairs Minister Nirmala Sitharaman said the government has brought in all the provisions of the ordinance and has also added new amendments in the bill.
A key change in the bill pertains to Corporate Social Responsibility (CSR) spending, wherein companies would have to mandatorily keep unspent money in a special account.
The new amendments of the act says that any amount remaining unspent under sub-section 5, pursuant to any ongoing project fulfilling such conditions, undertaken by a company in persuance of its Corporate Social Responsibility (CSR) 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.
The sub-section 5 of the act, says that the articles may contain the provision for the entrenchment whether made on formation of a company or by amendment, agreed by all the members of the company in case of private company and special resolution in case of public company.
The unspent amount shall be spent by the company in pursuance of its obligation towards CSR Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the amount to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
If a company contravenes the provisions of sub-section 5, the company shall be punishable with the fine of not less than Rs. 50,000 and may extend to Rs. 250,000.
If the company fails to file the copy of the financial statements, before the expiry of the period specified in section 403, the company shall be punishable with fine of one thousand rupees for every day during which the failure continues.
The fine shall not cross Rs, 10 lakh, but the managing director and the Chief Financial Officer of the company, or in the absence, any other director who is charged by the Board with the responsibility of complying with the provisions of the section, or in the absence of any such director, all the directors of the company, shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 100,000 and may extend to 5 lakh rupees, or with both.
Referred in sub-section 1, which instructs the company on its management, the Board of every company shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
If a company fails to spend such amount, the Board shall, specify the reasons for not spending the amount in its report.
Clause 21 empowers the Central Government to prescribe the conditions which need to be fulfilled for which unspent CSR amounts may be transferred to the special account under sub-section 6 of section 135.
Section 135 of the Companies Act, 2013, provides for companies having net worth of Rs. 500 cr or more or turnover of Rs 1000 cr or more or a net profit of rupees 5 cr or more in a financial year to spend atleast 2% of the average net profits of last 3 years for the company’s CSR policy.
To bring clarity in section 135 of the Act the amendment is made, to carry forward the unspent corporate social responsibility amount, to a special account to be spent within three financial years and transfer thereafter to the Fund specified in Schedule VII, in case of an ongoing project and transfer the unspent amount to the Fund specified under Schedule VII, in other cases.
If the company has not completed the period of three financial years since its incorporation, it shall be inserted during such immediately preceding financial years.