RoC Pune Imposes ₹5.03 Lakh Penalty On Clairvoyant India Pvt. Ltd. For Failing To Constitute CSR Committee
The Registrar of Companies, Pune has imposed a penalty of ₹5.03 lakh on Clairvoyant India Private Limited and its directors for failing to constitute a Corporate Social Responsibility (CSR) Committee, despite the company's net profit exceeding the threshold specified under Section 135 of the Companies Act, 2013.
According to Section 135, companies with a net profit exceeding ₹5 crore in the preceding financial year are required to establish a CSR Committee consisting of at least three directors, including at least one independent director.
Brief Facts:
Clairvoyant India Private Limited a registered entity under the Companies Act, 2013 was found to be non-compliant with the provisions of Section 135 of the Companies Act. Section 135(1) mandates that companies with a net worth of five hundred crore rupees or more, turnover of one thousand crore rupees or more, or a net profit of five crore rupees or more must constitute a Corporate Social Responsibility (CSR) Committee consisting of at least three Directors, including one Independent Director. Section 135(5) requires these companies to spend at least two percent of their average net profit over the preceding three financial years on CSR activities.
The company filed a suo-moto application to initiate adjudication proceedings noting its failure to comply with Section 135. The company did not constitute a CSR Committee despite having a net profit exceeding the threshold set by Section 135(1) for the financial year ending March 31, 2020. Additionally, the company failed to spend the required CSR amount by March 31, 2021, and did not transfer the unspent amount to one of the specified funds by September 30, 2021 as mandated by Section 135(5).
The Adjudication Officer (AO) issued a notice under Section 454(4) of the Companies Act, 2013, to the company's officers in default. The company's response contended that the failure to spend the CSR amount and constitute a CSR Committee was due to inadvertence and misinterpretation of the Companies Act's provisions. The company argued that, according to Section 135(9), if the CSR obligation does not exceed fifty lakh rupees, the constitution of a CSR Committee is not mandatory. The CSR obligation for the financial year 2020-21 was calculated to be INR 8,93,311, which, as per the notification dated January 22, 2021, meant that the requirement for a CSR Committee was optional for the period in question.
The company further explained that during the financial years 2020-21 and 2021-22, the COVID-19 pandemic severely disrupted its operations which lead to difficulties in coordinating and accessing necessary information.
The company contended that the non-compliance was inadvertent and resulted from a misunderstanding of the provisions of Section 135. It argued that due to the pandemic's impact, its operations were significantly disrupted, which affected its ability to adhere to the CSR requirements. It requested leniency and a minimal penalty and argued that there was no malafide intent and that the failures were due to genuine inadvertence and misinterpretation.
Observations by the RoC:
Under Section 135(1) of the Companies Act, 2013, companies meeting certain financial thresholds are required to establish a CSR Committee. This Committee must consist of at least three directors, one of whom should be an independent director. Additionally, the company must spend a specified percentage of its net profits on CSR activities and transfer any unspent amount to a fund specified in Schedule VII within six months after the financial year ends.
The RoC noted that the company did not comply with these requirements. For the financial year 2020-2021, the company was obligated to spend ₹8,93,311/- on CSR activities. However, it failed to constitute a CSR Committee and did not spend the required amount. Instead, the company only transferred the amount to the Prime Minister's National Relief Fund on September 14, 2022, which was beyond the prescribed timeline.
The RoC noted that the company had a change in management on December 16, 2021 which did not rectify the earlier non-compliance. The RoC observed that the argument regarding an exemption from constituting the CSR Committee from January 22, 2021 was invalid. The exemption could not be anticipated during the financial year 2020-2021. Consequently, the previous management was held to be responsible for the non-compliance.
The RoC issued notices to both the current and former management. Despite efforts to communicate, there were no replies from the old directors, and the company did not confirm the receipt of notices by the former management.
Therefore, the RoC imposed penalties for violations under Section 135(1) and Section 135(5) of the Companies Act. The penalties were calculated based on the number of days of default and the applicable provisions.
The penalties were calculated as follows:
Shantanu Prakash Mirajkar: Default for 32 days, resulting in a total penalty of ₹42,000.
Amita Mirajkar Shantanu: Default for 32 days, resulting in a total penalty of ₹42,000.
Chandra Sekhar Ambadipudi: Default for 21 days, resulting in a total penalty of ₹31,000.
Shekhar Sastry Vemuri: Default for 21 days, resulting in a total penalty of ₹31,000.
For the violation of Section 135(5), which requires spending on CSR activities, the penalty was calculated as 10% of the unspent CSR amount:
Shantanu Prakash Mirajkar: Penalty of ₹89,311.
Amita Mirajkar Shantanu: Penalty of ₹89,311.
Chandra Sekhar Ambadipudi: Penalty of ₹89,311.
Shekhar Sastry Vemuri: Penalty of ₹89,311.
Therefore, the RoC imposed a total penalty of ₹5,03,244 on the directors of the company.