The government on Thursday introduced a Bill in the Lok Sabha to amend the Companies Act to restructure provisions about unspent funds for the corporate social responsibility (CSR) and impose penalty on firms and officials not adhering to these provisions.
The Bill also seeks to empower the Centre to debar directors responsible for mismanagement for five years after approval from the National Company Law Tribunal (NCLT).
The Bill proposed that unspent CSR funds be carried forward to a special account and spent within three financial years in case of ongoing projects. This account will be opened by the company concerned in bank and be called the ‘Unspent Corporate Social Responsibility Account’.
In case, the money remains unspent in three years, it should be transferred to any fund specified in Schedule VII of the Act such as the Prime Minister's National Relief Fund or any other fund set up by the central or the state governments for socio-economic development and relief.
In case, the project concerned is not ongoing, the unspent fund would be transferred to the funds cited above.
Those not adhering to these provisions would be fined in the range of Rs 50,000 to Rs 25 lakh. Company officials involved could be imprisoned up to three years and fined to the tune of Rs 50,000 to Rs 5 lakh.
According to Companies Act, every firm having net worth of at least Rs 500 crore or turnover of Rs 1,000 crore or a net profit of Rs 5 crore will have to spend 2 per cent of its average net profits of the preceding three years on CSR. If not, the company has to give reasons.
Following irregularities in the IL&FS, the Bill also proposes to empower the government to debar errant directors of the companies for five years to hold the similar posts in any company.
In this regard, the Bill proposes to amend Sections 241, 242, and 243 of the Act, allowing the Centre to approach the NCLT to declare the errant persons as not fit and proper for their acts of mismanagement.
The Bill also seeks to enable the National Financial Reporting Authority (NFRA) to perform its functions through divisions and executive body.
Besides, the Bill seeks to empower Registrar of Companies to initiate action for removal of a company's name if the latter is not carrying out business activities according to the Act.
Corporate Affairs Minister Nirmala Sitharaman said the Bill is being brought in to "ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in corporate sector".