CSR Compliance Regime Gets A Fillip In India - CSR rules 2014

In continuation to our recent article titled “ESG CSR Rules and the Regulatory Framework in India: A Review", we wanted to highlight a crucial change in the larger scheme of things governing the corporate social responsibility framework. This has occurred through the introduction of a new form called CSR-2 via an amendment to the Companies (Accounts) Rules, 2014 ("CA Rules"). This has been implemented through an amendment called Companies (Account) Amendment Rules, 2022 ("CSR Rules") published in the Gazette of India by the Ministry of Corporate Affairs ("MCA") on February 11^th 2022.

The Government of India ("GOI") has been pushing the cause of CSR (Corporate Social Responsibility) with the Indian corporate world continuously and the shot across the bow was by way of introduction of CSR Norms in the Companies Act, 2013 in April 2014 (more details in the abovementioned article). Subsequently, with the introduction of form CSR-1 for Non-Governmental Organizations ("NGOs") receiving CSR funds and entities undertaking CSR activities in April 2021, such entities were required to register with the GOI.

Needless to say, this registration ensured that the GOI could effectively monitor the entities and CSR spending in the country through CSR Rules. Form CSR-1 required information about the entity like its incorporation details, registration number (including permanent account number), details of directors, chairman, board of trustees, secretary, CEO or authorised representatives, director identification number and digital signature certificate of the signing director and certification by a chartered accountant, company secretary, or a cost accountant.

This year, the GOI has taken the endeavour further by strengthening the compliance requirements through the introduction of the CSR Norms. The CSR Rules essentially state that all companies which fall under the provisions of Section 135 (1) of the Companies Act, 2013 (“CA”) will be required to furnish a report on its corporate social responsibility obligations in form CSR-2 to the Registrar of Companies (for the financial year 2020-21). The form CSR-2 has to be filed as an addendum to form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as may be applicable to the company. To make things easier for the corporates, the form CSR-2 has been made available on the online portal of the MCA.

What Information Does Form CSR-2 Require?

Form CSR-2 requires various information parameters to be disclosed such as:

• Details of the company.
• Reports about the constitution of the company’s CSR committee.
• Transparent disclosure of any details of the CSR committee.
• Reports about the meetings of the CSR committee.
• Clear details about the company’s CSR policy.
• The impact assessment of the CSR projects being carried out.
• A confirmation that details of the CSR committee and approved CSR projects have been published on the company’s website.
• Information regarding ongoing projects.
• Details of the amount spent in the preceding financial years.
• Details on any unspent amount of the CSR project.
• Information regarding the transfer of the unspent amount of CSR.
• Information creation of capital assets via the CSR funds.

What Does This Mean about CSR Rules?

One of the oft-discussed reasons for such detailed and mandatory requirements is the GOI observing that the earlier regime of voluntary regulation of CSR activities did not glean as much result as was expected and a fair bit of CSR funds were allegedly not being channelized into the activities they were supposed to be used for and increasing cases of abuse were being reported. This was, of course, not palatable to the regulator and accordingly, steps had to be taken to ensure better visibility on compliance.

To up the ante and to collect data regarding CSR spending, the MCA seems to have introduced form CSR-2. It appears that the MCA is on a spree to collect and collate data concerning CSR which should help it in mapping the actual spend and to devise effective programs and mechanisms to ensure the ends are met. It has also been discussed that the MCA shall use artificial intelligence ("AI") and data analytics to monitor CSR activities by using the granular data so collected and address the issue of inaccuracy in the impact measurement process. It would also help the MCA to carry out a wider investigation covering aspects that earlier went unnoticed.

The introduction of form CSR-2 should, as already mentioned, help the GOI to create a dashboard of sorts to effectively analyze, manage and investigate the CSR data for not only compliance and enforcement, but also efficient policy formulation.

Contributed by Prashant Kataria, Partner

King Stubb & Kasiva,
Advocates & Attorneys

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DISCLAIMER: The article is intended for general guidance purposes only and is not intended to constitute, and should not be taken as legal advice. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby.