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DNA MONEY EXCLUSIVE: Centre plans 30 amendments to Companies Act in Budget session

CSR provisions to be relaxed to allow companies spend funds over three years

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DNA MONEY EXCLUSIVE: Centre plans 30 amendments to Companies Act in Budget session
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In relief to the industry, the government is planning to amend the Corporate Social Responsibility (CSR) provisions of Companies Act, 2013, in the ongoing Budget session of Parliament to allow companies to spend CSR funds over a period of three years instead of the current year, people close to the development said. 

The companies will have to transfer the unspent CSR funds to an escrow account at the end of financial year, they said.

Currently, all the firms having net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore, or more have to spend 2% of their average three-year annual net profit towards CSR activities in a financial year.

EASE OF DOING BUSINESS

  • 16 – corporate offences, including non-filing of financial statements, within specified time have been decriminalised
     
  • 20 firms – A person can hold office as a director at the most, including 10 public companies 
     
  • 2X – penalty for repeated defaults by the company or a person 


The proposed change in the CSR provisions is one of the over 30 key amendments proposed by the Ministry of Corporate Affairs (MCA) to Companies Act to improve ease of doing business and compliance by the industry.

The proposal is soon likely to be put up before the Cabinet for approval. The government plans to bring an amendment Bill to replace the ordinance in the 40-day session of Parliament ending July 27. The ordinance to amend 32 sections was promulgated in November, and later re-promulgated as it could not be passed by Parliament in the NDA-1 term.

Apart from the amendments made in the ordinance, a few more have been added to the proposed amendment Bill, as per the Cabinet proposal prepared by the ministry.

“Any amount remaining unspent.. shall be transferred by the company within 30 days from the end of the financial year to a special account 'Unspent Corporate Social Responsibility Account' and such amount shall be spent by the company in pursuance of its CSR policy with a period of three years from the date of such transfer,” an official said.

“The government may later ask the companies to transfer the unspent money to a designated government fund,” the official said, adding that the amendment in the CSR provision will be moved if Cabinet approves the latest additions.

The other sections which have been amended through ordinance will, however, remain part of the amendment Bill.

To provide relief to the industry, as many as 16 corporate offences under the Act have been decriminalised. The offences which have been a source of harassment to entrepreneurs and businesses have been brought out of the purview of criminal offences. These include non-filing of annual returns and financial statements within a specified time, accepting directorships beyond a period, managerial remunerations in case of inadequate profits, failure to inform about the change in share capital and issuance of shares on discount.

Such defaults would be liable for a penalty. Earlier, the law provided for a fine of Rs 50,000 with a maximum of Rs 5 lakh or imprisonment of up to six months or both. 

The cases of default will be decided by the Registrar of Companies (RoCs) through an in-house adjudication mechanism. This will lead to de-clogging National Company Law Tribunals (NCLTs).

A new provision on disqualification of a director has been added to the law. If a person breaches the limit of a maximum number of directorships allowed under the law, it leads to an automatic vacation of office from all the existing companies. No person can hold the office as director in more than 20 firms, including 10 public companies, at the same time. 

Another one is regarding the penalty for repeat default. The penalty for repeated defaults by the company or a person has been increased to twice the amount of the penalty.

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