Draft CSR Policy Amendment Rules 2020

MCA Proposes Amendments in CSR Rules-Invites Comments till 28^th March 2020 

The Ministry of Corporate Affairs (MCA) has published draft CSR Rules Amendments. There are many changes and developments that will impact India’s CSR ecosystem. 

Here are a few key insights from the notification of Amendment in CSR Rules issued by Ministry of Corporate Affairs under the Companies Act Amendment Rule 2020, proposed on 13th March, 2020

Implementation of CSR projects: 

(1)   The Board shall ensure that the CSR activities are undertaken by the company itself or through:

(a) a company established under section 8 of the Act, or 

(b) any entity established under an Act of Parliament or a State legislature. 

Provided that such company/entity, covered under clause (a) or (b), shall register itself with the central government for undertaking any CSR activity by filing the e-form CSR-1, (Download) with the Registrar along with prescribed fee.

whereas the statement as per the points under currently applicable CSR rules in the Company’s ACT 2013 are:

(2) The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through

(a) a company established under section 8 of the Act or a registered trust or a registered society, established by the company, either singly or along with any other company, or

Or

(b) a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature:

Provided that if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of the Act or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilisation of funds of such projects and programs and the monitoring and reporting mechanism”. 

Inferences from the draft CSR Rules Amendments 2020:

• The Ministry has clearly indicated that they are bringing a central monitoring system for CSR spent, and each implementing agency will have to get themselves validated through filling up of CSR-1 form.

• There is no clarification on the track record of the implementing agencies (Section 8 companies), it means that newly registered section 8 companies after submitting CSR Form 1 will become eligible for implementation of CSR projects.

• The amendment will not affect the CSR projects or programmes that were approved prior to the commencement of the Companies (CSR Policy) Amendment Rules, 2020

Engagement of International Organizations in CSR projects

Another interesting point is that, the international organizations will not only be eligible in designing, monitoring and evaluation of CSR project and capacity building of its own CSR personnel but will also be allowed to directly implement CSR projects through direct funding by the company (subject to approval by Central Government) 

Inference

The proposed statement by Ministry looks ambiguous as the section under implementing agencies mentioned above clearly states that CSR project can either be implemented by company itself, or by a section 8 company or an entity registered under Act of Parliament or a State legislature. How will the international organizations will become eligible in this case, will require clarity from MCA.

Formation of Unspent Corporate Social Responsibility Account by the Company (donor)

Unspent balance, if any, towards fulfilment of CSR obligation at the time of commencement of these Rules shall be transferred within a period of thirty days from the end of Financial Year 2020-21 to special account viz., ‘Unspent Corporate Social Responsibility Account’ opened by the company and shall be consumed within three years from the date of transfer.

National Unspent Corporate Social Responsibility Fund by Central Government

If the company fails to spend the unspent amount accumulated in its unspent CSR account within three years, then the unspent amount will have to be transferred to the National Unspent Corporate Social Responsibility Fund.

Transparent and Well-Structured CSR Reporting

• The companies with yearly CSR budget is above 5 Crore in 3 consecutive years, will have to undertake a third-party impact assessment survey. The details of the surveys will also have to be reported and disclosed under company’s annual report.

• All companies shall have to mandatorily disclose their CSR activities on their websites under public domain

Ownership of  the Assets

The CSR amount may be spent by a company for creation or acquisition of assets which shall only be held by a company established under section 8 of the Act having charitable objects or a public authority.

The points which are unchanged from the previous law:

• The administrative overheads incurred by a company shall not exceed over 5% of the total CSR budget for the financial year. 

• The impact assessment fee of the project shall not exceed over 10% of the total budget for the financial year.

• Any surplus arising out of the CSR projects shall not form part of the business profit of a company and shall be ploughed back into the same project or shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy and action plan of the company

Download Full CSR Amendment Rules 2020

https://csrbox.org/media/Draft_CSR_Policy_Amendment_Rules_2020_by_MCA.pdf

Download Draft CSR Form 1

https://csrbox.org/media/Draft_CSR_Form1_by_MCA.pdf

Download Draft Format of Annual Report of CSR

 https://csrbox.org/media/Draft_format_annual_report_CSR_Activities.pdf 

For any query/suggestion on CSR and draft rules, please send us an email at shilpi@csrbox.org   or you may directly login to the MCA portal