A Detailed Analysis of Companies (CSR Policy) Amendment Rules 2021 notified by MCA

Recently, the Ministry of Corporate Affairs (MCA), by way of powers conferred under section 135 and 469 (1) and (2) of the Companies Act 2013, has decided to amend the provisions of Companies (Corporate Social Responsibility Policy) Rules 2014. Further, the said rules will be known as Companies (Corporate Social Responsibility Policy) Amendment Rules 2021.  Also, these rules will come into force from the date of its publication in the Official Gazette, i.e., 22.01.2021.

In this blog, we will discuss in detail about the Companies (CSR Policy) Amendment Rules 2021 notified by MCA.

Concept of Corporate Social Responsibility

The term CSR or Corporate Social Responsibility denotes a self-regulating business model that assists a company in becoming socially accountable towards its stakeholders and the general public. The main aim behind the implementation of CSR policy was to make companies responsible for enhancing the environment and society, instead of contributing negatively towards them.

Further, section 135 of the Companies Act 2013 governs the activities undertaken by companies as CSR. Also, it shall be relevant to take into the record that the provisions of CSR are based on the globally accepted concept of COREX. The term COREX stands for Comply or Explain.

Reasons to Make Amendments in Companies (Corporate Social Responsibility Policy) Rules 2014

The main reason for making amendments in Companies (Corporate Social Responsibility Policy) Rules 2014 are as follows:

• To Infuse more Transparency; and
• To Increase Accountability;

Key Provisions of Companies (CSR Policy) Amendment Rules 2021

The key provisions of the Companies (CSR Policy) Amendment Rules 2021 are as follows:

• Rule 2: Definitions;
• Rule 4: CSR Implementation;
• Rule 5: CSR Committees;
• Rule 7: CSR Expenditure;
• Rule 8: CSR Reporting;
• Rule 9: Website Disclosure;
• Rule 10: Transfer of Unspent CSR

Summary of Changes made in Companies (CSR Policy) Amendment Rules 2021

The summary of the changes made in Companies (CSR Policy) Amendment Rules 2021 are as follows:

Compulsory Registration of CSR Entity

As per the amended laws, from the 01.04.2021 onwards, every business entity or company that intends to undertake any CSR Activity will need to register itself with the CG or Central Government. The same can be done by filing form CSR 1 with the ROC (Registrar or Companies).

However, it shall be significant to state that in case a company is undertaking a new CSR project form 01.04.2021, then, in that case, form CSR 1 will need to be first signed and verified by a Practicing CA, CS or Cost Accountant in practice prior to its submission.

Further, after submitting the form online on the official website, a unique CSR Registration Number will be generated automatically, which will assist the companies in identifying the entities that are engaged in CSR activities on behalf of other companies. The same will enhance the level of transparency as well.

Involvement of International Organizations for CSR Designing

As per the sub rule (3) of Rule (4) of the Companies (CSR Policy) Amendment Rules 2021, a company or the business entity has the power to appoint international organisations for designing, monitoring, and evaluation of the CSR programmes and projects. Also, it shall be relevant to record that a company can take assistance from international organisations in building its own CSR personnel.

Collaboration with Other Companies for undertaking CSR Programmes

As per sub rule (4) of Rule (4) of the Companies (CSR Policy) Amendment Rules 2021, a company or a business entity has the power to collaborate with other companies for undertaking CSR programmes and projects. However, it shall be taken into due consideration that the decided collaboration must be done in such a way that CSR Committees of the involved companies are in a position to separately file reports on such programmes or projects. Also, such a report must be in accordance with the rules passed.

Certification by Chief Financial Officer

Based on sub rule (4) of Rule (4) of the Companies (CSR Policy) Amendment Rules 2021, it is mandatory for the board of a company, whether it is a private limited company or public limited company, to obtain a Certificate from the Chief Financial Officer, stating that the funds of CSR has been utilised only for the purposes and activities approved.

Formulation of the Annual Action Plan

According to Rule (5) of the Companies (CSR Policy) Amendment Rules 2021, it is the duty of the CSR Committee of the company to formulate and recommend to the BOD (Board of Directors) an annual action plan in consonance to the CSR Policy. The said policy must include the following details:

• A complete list of the approved CSR Programmes and project, based on schedule VII;
• The manner of executing such CSR projects or programmes;
• The modes of utilising funds and implementation of schedules for the programmes or projects;
• The monitoring and reporting mechanism for the CSR projects;
• All the details concerning the need and impact of the projects undertaken by the company;

However, it shall be taken into due consideration that the Board of Directors has the power to alter or modify any of the decided plans at any time during the financial year. But the same will only be done after receiving the recommendation from the CSR committee, which should be based on a reasonable justification as well.

Omission of Rule 6

It shall be significant to note that the Rule 6 of the Companies (Corporate Social Responsibility Policy) Rules 2014, has been completed omitted by the MCA in the Companies (CSR Policy) Amendment Rules 2021. That means there is no rule named CSR Policy in the amended Regulation.

Setting off of CSR Expenses

If in case a company wants to spend more amount on CSR activities than decided under section 135 (5) of the Companies Act 2013, then, in that case, such an excess amount or funds used needs to be set off against the prerequisites mentioned under the said section. Also, it shall be pertinent to note that such an amount needs to set off within the next three financial year, subject to the conditions as follows:

• The amount available for setoff must not include any surplus arising out of the CSR activities;
• The Board of Directors must have passed resolution in that effect;

CSR on Acquisition or Creation of Asset

If a company wants to spend CSR amount on the acquisition or creation of a capital asset, the same will be possible in the cases as follows:

• If a company having the CSR registration number has obtained either of the following mentioned registrations and is working to achieve Charitable Objects:
• Section 8 Company Registration;
• Trust Registration; or
• Society Registration;
• When the beneficiaries of the CSR project are collective entities or self-help groups;
• A Public Authority;

Impact Assessment of CSR

As per clause (A) of the sub rule (3) of Rule 8 of the Companies (CSR Policy) Amendment Rules 2021, every Company, which is having an average CSR (Corporate Social Responsibility) Obligation of Rs 10 crores or more in accordance with section 135 (5) of the Companies Act 2013, needs to undertake an impact assessment by way of an independent agency of their CSR plans having an outlay of Rs 1 crore or more, also, which have completed not less than one year prior to undertaking impact study.

Further, the report of Impact Assessment must be placed prior to the Board of Director. The same must be annexed with the annual report of Corporate Social Responsibility.

Display of CSR Activities on Website

It is mandatory and compulsory for the BOD (Board of Directors) of the company to disclose the details as mentioned below on the official website:

• Composition of the CSR Committee;
• CSR Plans and Policy approved by the BOD;
• CSR Policy;

Transfer of Unused CSR Fund

If in case any company fails to spend the full amount of the CSR Funds for any financial year, then, in that case, the remaining or unused CSR amount will be transferred by the company, both private limited company and public limited company, to a fund specified by the government as per Schedule VII of the Act.

Conclusion

In a nutshell, Corporate Social Responsibility denotes a self-regulating business model that is based on a globally accepted concept named COREX. Further, section 135 of the Companies Act 2013, acts as the regulatory force for all the CSR related issues.

Also, recently, the MCA or Ministry of Corporate Affairs have amended some of the Companies (Corporate Social Responsibility Policy) Rules 2014, to infuse more transparency and increase the level of accountability of the companies towards the enhancement of environment and society. The amendment in the said rules is known as the Companies (Corporate Social Responsibility Policy) Amendment Rules 2021.

Lastly, in case of any doubt or dilemma, reach out to Swarit Advisors, our proficient and skilled Chartered Accountants and Company Secretaries are always there to serve you with the best advice and guidance.

Copy of the Official MCA Notification

CSRAmendmentRules_22012021