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HDFC, Voda get waiver for CSR compliance deadline

This will set a precedent for over 5,000 companies which are facing scrutiny for flouting CSR rules under the Companies Act, 2013

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In a first, the Ministry of Corporate Affairs (MCA) has relaxed Corporate Social Responsibility (CSR) norms for two big corporates, allowing them to utilise their old unspent funds during this year.

This will set a precedent for over 5,000 companies which are facing scrutiny for flouting CSR rules under the Companies Act, 2013.

As per the Act, a category of companies are required to spend 2% of their average three-year annual net profit towards CSR in a financial year.

SOME RELIEF

  • This will set a precedent for over 5,000 companies which are facing scrutiny for flouting CSR rules under the Companies Act, 2013
     
  • As per the Act, a category of companies are required to spend 2% of their average three-year annual net profit towards CSR in a financial year

HDFC and Vodafone are the two companies which have got a waiver from the deadline for using CSR funds. This comes ahead of the government bringing in an amendment to the Companies Act to allow companies to utilise the CSR funds over three years instead of one year at present. The change will be brought in from prospective effect. Meanwhile, the ministry has recently issued a set of guidelines for resolving the old cases.

According to a senior official, "Around 3-4 companies have applied for relaxation in the deadline for incurring CSR expenditure. Two have been given the waiver so far."

All the firms having a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or a net profit of Rs five crore or more have to spend 2% of their average three-year annual net profit towards CSR activities in a financial year, as per the Companies Act.

Both HDFC and Vodafone had approached the MCA with a request for relaxation in the current CSR rules, citing restrictions under the Foreign Contribution Regulation Act (FCRA) and the unavailability of relevant projects. The two have been granted waiver on the condition that the money would be spent by them over the next one-and-a-half-year.

HDFC will have to spend around Rs 54 crore, which is 2% of its profits made during 2015-16, on CSR related activities. The company has said it could not transfer grants that were considered a foreign contribution to its NGO partners not registered under FCRA.

Similarly, Vodafone has promised to incur close to Rs 76 crore on CSR activities this year. The telecom giant could not spend the entire 2% of profits during the past years. The two companies have submitted to the ministry their plans for utilising the money on CSR activities over the next 18 months.

After the two companies got the extension in the existing deadline for spending CSR funds, the ministry subsequently framed a new set of guidelines for such companies that would want to seek relaxation under the existing CSR rules. If any waiver is required to be given for compliance of CSR rules, the matter would need to be placed before the minister, the circular said.

The new guidelines will apply to those firms which have not spent 2% of their profits on social welfare activities within the stipulated time or not made disclosure in the Board report as mandated under the Companies Act, 2013.

The MCA has sent notices to as many as 5,382 companies over non-compliance with CSR norms. These include Oil and Natural Gas Corporation, Infosys, HDFC, Bharti Airtel, ICICI Bank, Axis Bank and HDFC Bank, which have been sent notices during the last one year. Of them, over 2,000 companies have replied to the notices sent to them by the ministry under the Centralised Scrutiny Prosecution Mechanism (CSPM) set up in July last year to prosecute the erring firms.

According to the guidelines on non-compliance of CSR provisions, no prosecution can be initiated against a company if it has not spent the prescribed CSR amount within the same financial year but has done so in the subsequent years up to the financial year 2018. Similarly, non-disclosure of unspent funds in the annual Board report will not invite any action from the authorities.

As per Section 135 (5) of the Companies Act, "The Board of a company shall ensure that the company spends, in every financial year, at least 2% of the average net profits made during the three immediately preceding financial years, in pursuance of its CSR Policy... If the company fails to spend such amount, the Board shall, in its report, specify the reasons for not spending the amount."

Section 134(8) of the Companies Act provides for imposing a minimum fine of Rs 50,000, and the amount may go up to Rs 25 lakh for certain violations.

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