Corporate Social Responsibility (CSR) Compliance: A Case Study on Delayed CSR Contribution and Its Legal Repercussions By: Abhishek Jat, Advocate

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Corporate Social Responsibility (CSR) Compliance: A Case Study on Delayed CSR Contribution and Its Legal Repercussions

By: Abhishek Jat, Advocate

Introduction

Corporate Social Responsibility (CSR) is a statutory obligation under Section 135 of the Companies Act, 2013. Companies meeting the prescribed financial thresholds are required to allocate a portion of their profits towards CSR activities or transfer the unspent amount to a specified fund. Non-compliance with this provision invites penalties as per Section 135(7) of the Act. A recent case involving M/s. Ingeteam India Private Limited illustrates the consequences of failing to comply with these statutory requirements.

Facts of the Case

M/s. Ingeteam India Private Limited, a subsidiary of a foreign entity, was mandated to spend INR 5.09 lakhs on CSR activities for the financial year ending on December 31, 2022. As per Section 135(5) of the Companies Act, 2013, the company was required to either spend the stipulated amount on CSR initiatives or transfer it to a specified fund under Schedule VII by June 30, 2023. However, the company failed to adhere to this deadline and only transferred the amount on April 17 and 18, 2024, leading to a delay of 292 days.

Regulatory Action and Adjudication

The Registrar of Companies (ROC), Chennai, initiated adjudication proceedings under Section 135(7) of the Companies Act, 2013. Upon scrutiny, it was established that the company had violated the statutory provisions by delaying the transfer of unspent CSR funds. The key findings were:

  1. The CSR obligation for the financial year ending December 31, 2022, was INR 5,09,148.
  2. The statutory deadline for transferring unspent funds was June 30, 2023.
  3. The actual transfer occurred on April 17-18, 2024, resulting in a delay of 292 days.
  4. The company and its directors were liable for penalties under Section 135(7) of the Act.

Penalty Imposed

Pursuant to Section 135(7), the ROC levied penalties on both the company and its directors:

  • The company was fined INR 10,18,296, which is twice the unspent CSR amount.
  • Each director was penalized INR 50,915, being one-tenth of the unspent CSR amount.

Legal Implications and Compliance Considerations

This case underscores the importance of timely compliance with CSR obligations. Section 135 of the Companies Act, 2013, mandates that companies:

  • Form a CSR committee if they meet the specified financial criteria.
  • Ensure that at least 2% of the average net profits of the last three financial years are spent on CSR activities.
  • Transfer unspent amounts to designated funds within six months of the financial year’s end.
  • File requisite forms, such as CSR-2, within prescribed timelines to report compliance.

Failure to comply results in monetary penalties and reputational damage. Moreover, continued non-compliance could expose companies and their officers to additional legal consequences under Section 454(8), which provides for further fines and, in certain cases, imprisonment.

Conclusion

This case serves as a critical reminder for corporate entities to uphold their CSR responsibilities in a timely manner. The penalties imposed on M/s. Ingeteam India Private Limited reinforce the stringent enforcement of CSR norms by regulatory authorities. Companies must proactively ensure compliance by monitoring statutory deadlines, maintaining accurate records, and seeking legal guidance when necessary.

For businesses navigating CSR compliance, legal consultation can be instrumental in avoiding penalties and ensuring adherence to corporate governance norms. As CSR continues to be a key pillar of corporate accountability, companies must prioritize compliance to foster sustainable business practices while mitigating legal risks.

References

  1. The Companies Act, 2013 - Section 135 and Schedule VII.
  2. Ministry of Corporate Affairs (MCA) Guidelines on CSR Compliance.
  3. Adjudication Order issued by the Registrar of Companies, Chennai, in the matter of M/s. Ingeteam India Private Limited, F.No.Roc/CHN/TNGETEAM/ADJ/S.135/2024.
  4. Relevant notifications and circulars from the MCA related to CSR obligations and penalties.

 

 

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