FAQs on Corporate Social Responsibility- Series I
The Government provides the broad framework for Corporate Social Responsibility (CSR) through Section 135 of the Companies Act, 2013 (‘Act’), Schedule VII of the Act, Companies (CSR Policy) Rules, 2014 and amendments thereof.
The Ministry of Corporate Affairs passed the Companies (Amendment) Act, 2020, on January 22, 2021. Along with this, MCA also notified the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (Amendment Rules) and brought the concept of Ongoing Projects in CSR.
Today, in this CSR Series-1 we tried answering some frequently asked questions on the topic ‘Ongoing Project’.
What is an Ongoing Project
An ongoing project means a multi-year project that a company undertakes to fulfil its CSR obligation within three years, excluding the financial year it was commenced. It also includes projects that were initially not approved as multi-year projects but whose duration is extended beyond one year by the Board based on reasonable justification.
What is the maximum permissible time period for any ongoing project? Can the time period of an ongoing project be extended beyond the permissible period?
As per the definition of an ongoing project, the maximum permissible time period shall be three financial years excluding the financial year in which it is commenced i.e., (1+3) financial years. Under no circumstances shall the time period of an ongoing project be extended beyond its permissible limit.
What are the responsibilities of the Board in case ongoing projects are undertaken by the company?
In case of ongoing projects, the major responsibilities of the Board, inter-alia, include: (i) identification of the ongoing projects; (ii) year-wise allocation of funds; (iii) transferring the unspent money to a separate bank account as prescribed under sub-section (6) of section 135; (iv) monitoring the implementation of the projects with reference to the approved timelines and year-wise allocation; and (v) making modifications, if any, for smooth implementation of the projects within the overall permissible time period.
Can ongoing projects be implemented through implementing agencies?
Yes, once the Board approves a project as an ongoing project, then it can choose to implement the project either itself, or through any of the implementing agencies as mentioned in rule 4(1) of the Companies (CSR Policy) Rules, 2014.
Does the Board have the power to abandon or modify an ongoing project within the permissible period of three years?
As per provisions of the CSR Rules, the Board may abandon or modify an ongoing project, partially or wholly, under exceptional circumstances, during the prescribed project period as per the recommendation of its CSR Committee, and by providing reasonable justification to that effect. It is important to keep in mind that the maximum permissible period for an ongoing project is three years excluding the year of its commencement.
Can funds earmarked for one project be used for another project?
Yes, the budget outlay dedicated for one project can be used against another project. In such a case, the Board and CSR Committee should appropriately record the alteration in the target spending and modify the same in accordance with the actuals
Is there any need for creation of a provision in the event of a shortage in spending CSR Obligation?
The Companies (Amendment) Act 2019 has provided that any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
Should a company open a separate ’Unspent CSR Account’ for each ongoing project?
No, as specified in section 135 (6) of the Companies act, 2013, a company can open a single special account, called ‘Unspent Corporate Social Responsibility Account’, for a financial year in any scheduled bank, to transfer the unspent amount w.r.t ongoing project(s) of that financial year.
A company needs to open a separate ’Unspent CSR Account’ for each financial year but not for each ongoing project.
In a given year a corporate has allocated 100% of its CSR budget but spent only a portion with remaining going to an unspent CSR account (UCSRA). Can it still spend 5% of the CSR budget towards administrative expenses in that financial year?
Yes, it can spend 5% of CSR obligation as administrative expenses in particular financial year irrespective of amount spent.
In the case of ongoing projects, how should M&E (Monitoring & Evaluation) fees be planned for agencies being paid out through year on year contracts?
For ongoing projects, M&E fees has to be planned to be paid out in the year of allocation of budget. Only implementation of ongoing project/s will be year on year basis.
In case of an ongoing project, if the disbursed money is left unutilised by the implementing agency at the end of the FY, should the money be returned to the unspent account of the donor / corporate?
It is a grey area, however it is advisable to be returned to the corporate. Otherwise, the NGO can maintain respective bank account for the corporate, so that corporate can track any interest arrived from the amount.
Please note that corporates should make disbursement of money for any project, based on requirement of implementing agency after proper due diligence, to avoid the above action.