M/s Ceratizit India Private Limited was incorporated on 22nd January 1996 under the provisions of the Companies Act 1956 and the company falls under the jurisdiction of the Registrar of Companies, Karnataka. The company filed an adjudication application on April 19, 2023, under sections 134(3)(o) and 135 of the Companies Act 2013. It cited a failure to disclose reasons for not spending CSR amounts in the board report for 2017-18 and 2018-19. The company rectified this by spending the entire CSR amount in 2020-21 (Rs. 13,19,849 and Rs. 14,47,982). Notably, there were no penal provisions for non-spending; the requirement was only to disclose reasons in the board report under section 134(3)(o) when CSR was introduced.
CSR Disclosure Requirements:
Companies are obligated, under Section 135(5), to disclose reasons in their board reports for not expending the stipulated CSR amount.
Failure to spend this amount necessitates the Board to articulate reasons in its report as per Section 134(3)(o).
Penalty for Non-Compliance:
Non-compliance with Section 135 can lead to fines.
Section 134(8) prescribes fines ranging from INR 50,000 to INR 25 lakh and potential imprisonment for officers in default.
Adjudication Process:
Upon receiving the company’s adjudication application, the Registrar of Companies found reason to believe that the company and its officers violated section 134(3)(o) of the Companies Act 2013 by not disclosing reasons for not spending CSR amounts in the respective years. Despite subsequent full spending, the non-disclosure in the board report constituted an offence. Therefore, the Registrar decided to proceed with adjudication.
Personal Hearing
An authorized representative (an advocate) presented the company’s case and argued that there is no penal provision for not spending CSR amounts, only disclosure is required.
Emphasized that the entire amount was spent in the subsequent year (2020-21) as mentioned in the adjudication application.
Conclusions reached by the Registrar of Companies / Adjudicating Officer
Despite spending the prescribed CSR amount for 2017-18 and 2018-19 in 2020-21, the company violated regulations.
Emphasis on the board’s obligation to disclose the failure to spend the prescribed amount in the respective years in the board report under section 134(3)(o) of the Companies Act 2013.
Non-disclosure of reasons for not spending the CSR amount in the board report led to a violation of section 134(3)(o) read with the second proviso of section 135(5), triggering penal actions under section 134(8) of the Companies Act 2013.
Penalty Imposed
Company and officers penalized as follows:
Company: Rs. 6,00,000 for combined violations in 2017-18 and 2018-19.
Managing Director: Rs. 1,00,000.
Company Secretary: Rs. 1,00,000.
Total penalty imposed: Rs. 8,00,000.
SW Point of View: The above case highlights the severity of non-compliance with CSR reporting requirements. The imposed penalties underscore the regulatory emphasis on transparency. This incident serves as a reminder for companies to diligently adhere to reporting obligations to avoid legal and financial repercussions, emphasizing the importance of corporate accountability.
