Mandated CSR spending not met, lack of transparency in reporting, and failure to engage with local communities led to RHI Magnesita India Ltd’s penalty for CSR non-compliance
NEW DELHI (India CSR): RHI Magnesita India Ltd faced penalties for not spending the mandated amount on CSR – Corporate Social Responsibility activities, failing to transfer unspent CSR funds within the required timeframe, and responding slowly to regulatory requirements.
RHI Magnesita India is the foremost provider of premium refractory products, systems, and solutions essential for a diverse range of industries such as steel, cement, non-ferrous metals, and glass, where high-temperature processes surpassing 1,200°C are crucial.
Here are the top three reasons for RHI Magnesita India Ltd being penalized for CSR non-compliance are:
1. Failure to Spend Allocated CSR Funds
RHI Magnesita India Ltd was required to spend a specific amount of its profits on CSR activities as per the rules laid out in section 135 of the Companies Act. The company did not meet this requirement, leading to a substantial amount of unspent CSR funds.
2. Non-compliance in Transferring Unspent Funds
The company was required to transfer its unspent CSR funds, amounting to Rs 1,35,40,799, to any of the prescribed funds listed by the government within a stipulated timeframe. However, RHI Magnesita only transferred Rs 32 lakh by the due date, leaving a significant amount untransferred.
3. Delayed Response to Regulatory Requirements
The company failed to rectify its non-compliance within the period specified by the adjudication mechanism of the corporate affairs ministry. Despite the introduction of the in-house adjudication mechanism, the company did not take prompt action to deposit the remaining CSR funds, leading to the imposition of penalties.
RHI Magnesita India Ltd Penalized for CSR Non-compliance
A Stiff Penalty for CSR Violations
The Registrar of Companies (RoC) has delivered a significant judgement against RHI Magnesita India Ltd, imposing a fine of Rs 1 crore due to violations and non-compliance in relation to unspent Corporate Social Responsibility (CSR) funds.
An additional fine of Rs 2 lakh each has been imposed on the company’s key officials, including MD Pramod Sagar, Director Rudraju Suryanarayana, Company Secretary Sanjay Kumar, and CFO Sanjeev Bhardwaj.
This action comes in light of violations of provisions under section 135 of the Companies Act.
The fallout of Unspent CSR Funds
RHI Magnesita was mandated to transfer its unspent CSR funds amounting to Rs 1,35,40,799 by March 2021 to any of the prescribed funds as listed by the government within six months.
Despite this, the company had only deposited Rs 32 lakh by the specified date, leaving an unspent CSR amount of Rs 1,03,40,799.
This amount was not transferred to the prescribed funds by the deadline in September 2021, resulting in the current punitive action.
New Mechanisms for CSR Violations
The violation of CSR provisions has been monitored by the adjudication mechanism of the corporate affairs ministry since January 2021.
The 7th Schedule to the Companies Act outlines government-approved CSR activities, ranging from eradicating hunger, poverty and malnutrition, to promoting healthcare, education, and gender equality.
Activities pertaining to environmental sustainability, art and culture, contributions to the Prime Minister’s National Relief Fund, and disaster management are also included.
Understanding the CSR Rules
As per the rules, companies possessing a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or posting a net profit of Rs 5 crore or more in the preceding financial year are obligated to spend two per cent of their average net profit of the preceding three years on CSR.
These activities are governed by section 135 of the Companies Act, 2013, and the government specifies the activities to be undertaken by the company under CSR.
A Shift in Regulatory Approach
A RoC Mumbai official confirmed the penalty, remarking on the shift in regulatory approach. Earlier, companies were penalized for non-compliance with CSR provisions in the board reports and cases were filed against them.
Now, CSR provisions have been decriminalized and brought under the purview of the in-house adjudication mechanism of the Registrar of Companies.
Company Response and Subsequent Actions
Following the ruling, RHI Magnesita deposited the outstanding unspent CSR amount of Rs 1.03 crore to the Prime Minister’s Citizen Assistance and Relief in Emergency Situation Fund.
Company Secretary Sanjeev Kumar, representing the company, attended the adjudicating meeting with the Mumbai RoC. He stated that the delay in spending the CSR funds was due to the absence of employees affected by the Covid-19 pandemic.
The adjudicating officers have ordered the penalty amounts to be deposited within 30 days, in a move commensurate with the failure committed by the company’s officers.
Also Read: Govt Issued Notices To 1,018 Firms For CSR Non-compliance – India CSR
