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CSR 2021-An Overview

CSR 2021-An Overview

Corporate Social Responsibility (CSR)is a business model which makes a company accountable to itself, its stakeholders and the public. Basically, engaging in CSR means contributing positively towards the enhancement society and the environment. Many companies view this as an integral part of brand image and outlook. CSR activities help in establishing a healthy bond among the company and their stakeholders and as a result help in connecting the employees and employers with the outside world. The composition of CSR was explained in the case of Charan Singh Meena v. UOI[1]CHARAN SINGH MEENA v. UNION OF INDIA(Writ Petition (service) No. 877 Of 2017 (Pil). | 07-02-2018).

The practice of CSR was a pattern for firms and businesses to follow initially evolved from its early days as a trend by some firms following it to the present-day realities of the 21st century where it is no longer just a trend but a mandate to be socially responsible.

On 22nd January 2021, the Ministry of Corporate Affairs (MCA) issued the Companies (Corporate Social Responsibility Policy) Amendment Rules giving effect to the changes introduced in CSR by the Companies Amendment Acts of 2019 and 2020.

Changes brought in the New Amendment:

Some notable changes include introduction of a new term “Administrative Overheads” under section 2(b) which is inclusive of the expenses incurred for general management and administration of CSR. This definition strictly excludes expenses incurred for designing, implementation, monitoring, and evaluation of a particular CSR project.

Section 2(e) now defines CSR Policy which contain the directions and plan of action given by the board taking inputs from its CSR committee for the formulation and implementation of the annual action plan.

The new rules had allotted section 2(d) of the Companies Act for the definition of CSR. The definition also brought in with itself some exceptions such as:

  • any activity incorporated by the company outside India does not come under the purview of CSR except for training of Indian sports personnel representing any State or Union territory at national level or international level.
  • contribution of any funds directly or indirectly towards any political party do not fall under CSR.
  • those activities like sponsorship for showcasing its own products is kept aside of CSR and the ones benefiting their employees alone.

Post section amendment, the 2021 amendment changed the title of rule 4 from CSR activities. As per the new rules, a company can carry on self-made CSR implementations or derive from other companies under section 8 of the Companies Act. It initially omitted draft rules of public trusts and societies for CSR implementations which the 2014 Rule had incorporated but on subsequent objection by the stakeholders, it brought back the 2014 policy rules. Effectively from 1st April 2021, the new rules insisted on registration by themselves all the CSR activities with the Central govt. by filing CSR-1 electronically. Those companies submitting the CSR-1 form get a dedicated CSR Registration Number. As a result, the MCA has the details of all the CSR activities to be implemented by companies which aids in timely fulfilment of promised activities. These companies are also granted access to the past implementation report which help them in formulating future CSR activities.

The Board as per the new rule 4(5) is mandated to see to it that the funds are utilized for the purpose approved by it, however it also has the power to make modifications for the purpose of easer implementation.

Further moving forward, this rule mandates the board to disclose information regarding composition of CSR members, the policy, the Annual Action Plan, the project and other related contents on their website for public access. This disclosure of contribution to society enhancement greatly aids the public in making informed decisions. This also attracts investors as they aim at investing in companies that take steps towards the societal development and betterment.

Apart from the website disclosure, which was totally an absolute boon, the Board has been given the responsibility to ensure administrative overheads with respect to CSR do not exceed five percent of total CSR expenditure of the company. Under Rule 8(3)(c) of the New Rules, companies carrying out impact assessment have been allowed to claim five percent of total CSR expenditure or fifty lakh rupees, whichever is less, as a CSR Expenditure.

Subsequently, the New Rules specify that any surplus from CSR activities ought not to be considered business profit and need to be either ploughed back into the same project or, transferred to the Unspent CSR Account or,transferred to a Fund specified in Schedule VII within a period of six months from the expiration of the financial year.

Under the New Rules, a company is further allowed to spend the CSR amount for creation or acquisition of a capital asset held by: (a) Section 8 company  , a registered public trust or a registered society, having charitable objects and CSR Registration Number; (b) beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or (c) a public authority.

Welcoming Rule 10 – Transfer of unspent CSR Amount

  • Unspent CSR fund to be carry forwarded to the fund specified in Schedule VII within six months of closure of the financial year along with reasons for not spending the same to be brought to the knowledge of the board. Therefore, the unspent funds (apart from ongoing projects) for the financial year of 2020-2021 is required to be transferred to fund of Schedule VII before September 2021.
  • The ones relating to the ongoing projects to be transferred to a new account created in any scheduled bank called Unspent Corporate Social Responsibility Account (UCSRA) within thirty days from the end of financial year, say April 30th,2021.
  • A period of three financial years will be available for spending the unspent CSR of the ongoing project, failing which the amount shall be transferred to a fund specified in Schedule VII within thirty days from the date of completion of the third financial year.

To conclude, the overall amendment has made the CSR better, but however certain amendment like change in definition and section seemed little unnecessary. However, on the big picture, rule 4,9 and introduction of 10 has taken a positive step towards the stakeholders and public. Some notable ones include the registration of CSR activities with the MCA, website publication for public access, access to previous CSR activities and transfer of unspent CSR to UCSRA. These help in proper channelizing of CSR funds and effective usage of funds for CSR activities and also prohibit usage of these funds for other activities apart from CSR activities.

Overall to conclude, this was a necessary amendment which, on the long run, may pave way for a positive society and induce competition among companies to have a better CSR than the rest. However, as years pass, we can witness the outcome on our own. CSR, once optional now mandatory.

References

1 CHARAN SINGH MEENA v. UNION OF INDIA

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