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

Detailed Legal Analysis

If your company in Thane has failed to spend the mandatory Corporate Social Responsibility (CSR) amount as required by Section 135 of the Companies Act, 2013, the consequences can be significant, and rectification involves specific steps.

Under the Companies Act, 2013, companies meeting certain criteria are required to allocate 2% of their average net profits of the last three financial years towards CSR activities. Failure to comply entails the following consequences:

• Financial Penalties: The company is liable to a fine of up to ₹1 crore and may face an additional fine of ₹2,000 for each day of continuing default, as per Section 135(7) of the Companies Act, 2013.
• Director Liability: Every officer of the company who is in default may also be held liable for a penalty of up to ₹2 lakh and an additional fine of ₹5,000 for each day of continuing default.
• Reputational Damage: Non-compliance can adversely affect the company's reputation, impacting stakeholder trust and investor confidence.

To rectify the failure to spend the mandatory CSR amount, consider the following steps:

• Assess Financial Performance: Review the financial records to confirm if the company meets the threshold for CSR obligations under Section 135 of the Companies Act, 2013.
• Identify CSR Activities: Determine suitable CSR activities that align with Schedule VII of the Companies Act, which includes areas such as education, health care, and rural development.
• Allocate Funds: Ensure the necessary funds are allocated to the identified CSR activities and verify that the spending meets the 2% requirement.
• Board Approval: Obtain necessary approvals from the Board of Directors for the revised CSR policy and spending plans.
• Document CSR Activities: Maintain records of the CSR activities undertaken, including receipts and reports, to ensure compliance and for future audits.
• Annual Disclosure: Disclose CSR spending in the company’s annual report, as mandated by the Companies (Corporate Social Responsibility Policy) Rules, 2014.

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