This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.
Date: 1 June 2021
MCA's clarification regarding offsetting the excess amount transferred to PM CARES FUND in FY 2019-20
The Ministry of Corporate Affairs (“MCA”) vide its circular no. CSR-01/4/2021-CSR-MCA dated 20th May 2021 clarified the situation regarding offsetting the excess amount spent towards CSR by the companies in the Financial Year (“FY”) 2019-20 by way of contribution to “Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund” (“PM CARES Fund”) against the mandatory CSR obligation for the FY 2020-21. In March 2020, the MCA on 30th March 2020 had appealed to the Managing Directors (MD) and Chief Executive Officers (CEOs) of Top 1000 companies in terms of market capitalization, to contribute generously to PM CARES Fund. In the appeal, it was mentioned that such contribution may, inter-alia, include the unspent CSR amount, if any, and an amount over and above the minimum prescribed CSR amount for FY 2019-20, which can later be offset against the CSR obligation arising in subsequent financial years.
In pursuance to the said appeal, several representations were received by the MCA wherein the companies were claiming to set off the excess CSR amount spent in FY 2019-20 by way of contribution to ‘PM CARES Fund' against the mandatory CSR obligation for FY 2020-21 since many of these companies already made contributions to the PM Cares fund and then faced an economic crisis due to the severe restrictions imposed on them in the form of lockdown.
That in the wake of the above representations, the MCA vide its circular purportedly clarified that any amount spent by the companies which is over and above the minimum amount as prescribed under Section 135 (5) of the Companies Act, 2013 (“Act”) during the FY 2019-20, the same may be set off against the CSR obligation for the FY 2020-21 (only) subject to fulfillment of following conditions:
The amount offset as such shall have factored the unspent CSR amount for previous financial years;
The Chief Financial Officer (CFO) will be required to certify that the contribution to “PM CARES Fund” was made on 31st March 2020 in compliance with the appeal and will be certified by the statutory auditor of the Company as well;
The details of such contribution shall be disclosed separately in the Annual Report on CSR as well as in the Board’s Report for FY 2020-21 in terms of Section 134 (3) (o) of the Act.
This clarification by the MCA will come as a huge relief to the companies who made a generous contributions to the PM Cares Fund on the appeal of the MCA and later faced heavy losses due to the lockdown restrictions. However, it is to be noted that vide this circular, the MCA has only clarified with respect to the excess amount spent as part of CSR expenditure during the FY 2019-20 on 31st March 2020. It has failed to provide any clarification with regard to the contributions done by the companies prior to 31st March 2020. It has also not clarified with regard to the excess amount spent by the companies in the FY 2018-19 and 2017-18 and also in any other activities mentioned in Schedule VII.
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