CSR & Companies (Second Amendment) Bill, 2019

The Union Cabinet chaired by the Prime Minister of India Mr. Modi has approved the Companies (Second Amendment) Bill, 2019 on March 4, 2020. This Bill proposes to do away with certain clauses under the Indian companies Act 2013 which tend to ‘criminalize’ certain defaults in compliance under the Indian Companies Act 2013.

Not Law as yet

This Bill will now be tabled in the Indian Parliament and after receiving assent of the President of India it will become law.

What’s proposed?

According to reports, the proposed amendments will ensure that companies which have an obligation to spend INR 50 lakh per annum or less on Corporate Social Responsibility (CSR) will no longer be required to have a CSR committee.

Also, companies that spend more than the mandatory two per cent on CSR in a particular financial year may carry it forward as credit for fulfillment of CSR obligations for the next few years.

However, it is not clear as to what extent some of the more draconian provisions proposed last year under clause 21 of the Indian Companies (Amendment) Act 2019 will be relaxed or diluted.

Status quo

For the fiscal year 2019-20 there is no change with regard to the amendment proposed last year to sub-clause (5) of 135 of the Indian Companies Act 2013 nor is compliance necessary under the proposed new sub-clauses (6), (7) & (8) of Section 135, since clause 21 of the Indian Companies (Amendment) Act 2019 was not notified and hence the proposed changes were not implemented.

For Financial Year 2019-20 there is no legal necessity for companies required to comply u/s 135 to create an escrow account for unutilized funds for ongoing projects. However, companies may voluntarily opt for the same, if they wish to.

The Board of a Company which is unable to spend at least two per cent of its pre-tax profits on CSR activities will be required to specify the reasons for not spending the amount in the Director’s Report made u/s 134(3)(o) of the Indian Companies Act 2013.