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Amendment to Companies Act for CSR

July 23, 2019

The Government introduced the concept of corporate social responsibility vide the enforcement of the Companies Act, 2013(hereinafter referred to as the “Act”) on August 29, 2013. Companies undertake various such as working towards eradicating poverty, promoting healthcare, education, gender equality, environmental sustainability, natural heritage, rural sports to name a few.

As a part of this social economic obligation, every company ensures that it spends, in every financial year, at least 2 % of its average net profits made during the three immediately preceding financial years, in pursuance to its
Corporate Social Responsibility Policy. As per Section 135 of the
Companies Act, 2013, following companies are mandated to adhere to its corporate social responsibility obligations:

  • Companies having net worth of INR 5,000,000,000 or more, or
  • Companies having turnover of INR 10,000,000,000 or more or;
  • Companies having a net profit of rupees INR 50,000,000 or more

The Companies (Corporate Social Responsibility) Rules, 2014 were enforced on February 27, 2014 in order to ensure proper monitoring and regulation of the corporate social responsibility activities undertaken by the companies.

As a further amendment to the provisions of the Act, the Union cabinet on July 17, 2019 cleared the Companies (Amendment) Bill 2019[1] whereby the following changes may be introduced:

  • Companies would be mandated to deposit funds for mandatory corporate social responsibility expenditure for a given fiscal in the escrow account for up to 3 years, if the amount is part of an ongoing project that requires funding in stages; AND
  • Any due expenditure for a fiscal that is not spent within 3 years would to be transferred to the National CSR Fund

This will enable the Government to ensure better utilization of the unused corporate social responsibility fund for public welfare.

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[1]https://economictimes.indiatimes.com/news/economy/policy/cabinet-clears-bill-to-amend-companies-law/articleshow/70261679.cms

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