Company slapped with ₹1 Cr penalty for failure to utilise CSR funds
May 10, 2023
The Registrar of Companies (RoC), Mumbai region, has filed over 100 cases against errant companies in the past, for their failure to comply with CSR provisions, at designated special courts in Mumbai.
The highest penalty of Rs 1 crore has been imposed on a leading high-grade supplier of refractory furnaces, for failure to utilise Corporate Social Responsibility (CSR) funds. The Registrar of Companies (RoC), Mumbai region, has filed over 100 cases against errant companies in the past, for their failure to comply with CSR provisions, at designated special courts in Mumbai.
The RoC penalised RHI Magnesita India Ltd for violations and non-compliance on unspent CSR funds. The adjudicating officer imposed a penalty of Rs 1 crore on RHI Magnesita India Ltd, penalties of Rs 2 lakh each on the MD, Pramod Sagar, Director Rudraju Suryanarayana, Company Secretary Sanjay Kumar and CFO Sanjeev Bhardwaj, for violations of provisions under section 135 of the Companies Act.
The listed company was required to transfer its unspent CSR funds – of Rs 1,35,40,799 – until March 2021, to any of the prescribed funds listed by the government, within six months. But RHI Magnesita had only deposited Rs 32 lakh by this date and had failed to transfer the unspent CSR amount of Rs 1,03,40,799 to the prescribed funds by September 2021.
The violation of CSR provisions was brought under the purview of the adjudication mechanism of the corporate affairs ministry from January 2021 and the 7th Schedule to the Companies Act specifies government-approved CSR activities, like eradicating hunger, poverty and malnutrition, promoting healthcare, education and gender equality. It also covers activities related to environment sustainability, art and culture, contribution to the Prime Minister’s National Relief Fund and disaster management.
About CSR rules
The rules stipulate that companies with a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or posting a net profit of Rs 5 crore or more in the preceding financial year are required to spend two per cent of their average net profit of the preceding three years on CSR. These activities are governed by section 135 of the Companies Act, 2013, and the government specifies activities to be undertaken by the company under CSR.
Confirming the penalty, a RoC Mumbai official said, “Earlier, action was taken against companies for non-compliance with CSR provisions in the board reports and cases were filed against them. The CSR provisions have been decriminalised and brought under the purview of the in-house adjudication mechanism of the Registrar of Companies.”
Subsequently, the company deposited the balance unspent CSR amount of Rs 1.03 crore to the Prime Minister’s Citizen Assistance and Relief in Emergency Situation Fund. The authorised representative of RHI Magnesita, Company Secretary Sanjeev Kumar, attended the adjudicating meeting with the Mumbai RoC and submitted that the delay in spending the CSR funds was due absence of employees affected by Covid-19 pandemic. The adjudicating officers passed the orders for penalty “commensurate with the failure committed by every officer of the company” and ordered the penalty amount of Rs 1 crore and Rs 2 lakh each on four senior officials of RHI Magnesita to be deposited within 30 days.
[The Free Press Journal]