My company in Rohtak has failed to spend the mandatory CSR amount; what are the consequences and how can I rectify it?

Detailed Legal Analysis

Failure to spend the mandatory Corporate Social Responsibility (CSR) amount can lead to significant consequences for your company in Rohtak under the Companies Act, 2013.

According to Section 135 of the Companies Act, 2013, companies meeting certain thresholds are required to spend at least 2% of their average net profits of the preceding three financial years on CSR activities. If your company has failed to comply, the following consequences and rectification steps are applicable:

• Consequences for Non-Compliance:
  • The company may face a penalty of up to ₹1 lakh, and in the case of continuing failure, an additional ₹5,000 for each day of default (Section 134(8)).
  • Directors of the company may also be held liable, facing fines ranging from ₹25,000 to ₹1 lakh (Section 134(8)).
  • Failure to disclose CSR spending in the Board report, which is required under Section 134(3), could also attract penalties.
• Rectification Steps:
  • Assess Financial Position: Review your financial statements to determine the exact CSR obligation based on the average net profit for the last three financial years.
  • Identify CSR Activities: Select appropriate CSR activities that align with Schedule VII of the Companies Act, 2013, which outlines permissible CSR projects.
  • Spend the Amount: Ensure that the necessary funds are allocated and spent on the identified CSR activities, keeping documentation for auditing purposes.
  • Board Resolution: Pass a resolution in the Board meeting authorizing the CSR spending and detailing the CSR activities undertaken.
  • File CSR Report: Disclose the CSR activities and expenditures in your annual Board report as mandated under Section 134(3).
  • Future Compliance: Establish a CSR committee as per Section 135(1) to ensure ongoing compliance and planning for future CSR activities.

By taking these steps, you can mitigate the consequences of failing to meet your CSR obligations and ensure compliance moving forward.