Home CATEGORIES Business Ethics & Philanthropy Amendment to the CSR Law: Monetary Penalty to Non-Compliant Actors

Amendment to the CSR Law: Monetary Penalty to Non-Compliant Actors

The government of India has made significant amendments to the CSR law in order to provide greater transparency and flexibility to the corporate sector. Let us understand these amendments made to the CSR section of the Companies Act.

Monetary Penalty

One of the amendments relates to the non-compliance of the law. According to the government order, a monetary penalty will be imposed on the businesses that are not spending 2 per cent of their net profit on CSR or are not transferring the unspent amount to specified accounts. The penalty could be up to Rs. 1 Crore for the defaulting company and up to Rs. 2 Lakhs for each defaulting officer.

Registration of Implementing Agencies

The government has mandated for the companies to register their entities such as trusts, societies, etc. that are conducting and executing their CSR initiatives, with the ministry’s MCA-21 portal which will generate a CSR registration number. This will enhance the transparency of CSR initiatives. Further, it has disallowed the international organisations to act as implementing agencies however specified that they can be hired to design, monitor and evaluate CSR projects, which would help to bring in the international best practices in the sector.

Impact Assessment

The government has also mandated the businesses to conduct an impact assessment of large projects. In fact, as per the rules, companies with an average CSR obligation exceeding Rs. 10 Crores in three preceding fiscal years will have to employ an independent agency to assess the impact of its CSR initiatives. Such firms will be allowed to count up to 5 per cent of their CSR expenditure or Rs. 50 Lakhs – whichever is lower – as their CSR spends to recover the cost of hiring such agency.

Multi-Year CSR Projects

Lastly, in the spirit of ease-of-doing-business, the ministry has allowed the companies to undertake multi-year projects. The rules state that companies can set off any surplus CSR expenditure against its CSR obligations for three financial years, which was the defined time frame or an “ongoing project”.