The Ministry of Corporate Affairs (MCA) recently imposed a hefty penalty of ₹2.16 crore on Stanley Black & Decker India Private Limited for failing to transfer unspent Corporate Social Responsibility (CSR) funds to a designated Unspent CSR Account as mandated by the Companies Act, 2013. The issue arose when the company, despite its explanations citing the COVID-19 pandemic as a cause of delays, did not fulfill its obligation to transfer the unspent CSR funds within the prescribed timeline.
Judgement and Synopsis:
On 1st August 2024, the Ministry of Corporate Affairs (MCA) issued Adjudication Order No. RoCP/ADJ/order/4/135/SBDIPL/24/1069 to 1074, wherein a penalty of ₹2.16 crore was imposed on Stanley Black & Decker India Private Limited for its failure to transfer the unspent CSR funds to the specified account. The MCA scrutinized the company’s explanations and found them unsatisfactory, emphasizing that the obligation to transfer unspent funds is a mandatory requirement under the law and cannot be circumvented.
Adjudication Order No. RoCP/ADJ/order/4/135/SBDIPL/24/1069 to 1074, dated 1st August 2024
Case History and Background:
Stanley Black & Decker India Private Limited was required under Section 135 of the Companies Act, 2013, to allocate and spend a certain amount on Corporate Social Responsibility (CSR) activities for the financial years 2020-21 and 2021-22. The company had set aside ₹8.46 crore and ₹6.34 crore for these years, respectively. However, due to various delays, including those caused by the COVID-19 pandemic, the company failed to spend the entire allocated amounts on CSR activities within the specified period.
As per the Companies Act, any unspent CSR funds at the end of a financial year must be transferred to a designated Unspent CSR Account within 30 days from the end of that year. The purpose of this provision is to ensure that unspent funds are eventually utilized for CSR activities within the next three years. Stanley Black & Decker India, however, did not comply with this requirement, citing challenges in identifying appropriate CSR projects during the pandemic.
Under Section 135 of the Companies Act, companies meeting certain criteria are required to spend a specific portion of their profits on CSR activities. If the amount allocated for CSR is not fully utilized in a given financial year, the unspent amount must be transferred to a special account within 30 days from the end of the financial year. This account is intended to ensure that the funds are eventually used for CSR purposes within the next three years.
In this case, Stanley Black & Decker India had allocated ₹8.46 crore and ₹6.34 crore for CSR activities in the financial years 2020-21 and 2021-22, respectively. However, the company failed to transfer the unspent amounts to the designated account, citing delays in identifying suitable CSR projects and challenges posed by the pandemic. The MCA, after examining the facts, rejected the company’s explanation, emphasizing that the compliance requirement under the Companies Act is mandatory and cannot be waived or postponed.
The MCA’s action underscores the importance of strict adherence to CSR regulations. It serves as a reminder to all companies that CSR obligations are legally binding and that failure to comply can result in significant financial penalties. The ruling also highlights the government’s commitment to ensuring that corporate entities contribute to social and community development as per the law.
The Adjudication Order No. RoCP/ADJ/order/4/135/SBDIPL/24/1069 to 1074, dated 1st August 2024, refers to the imposition of a ₹2.16 crore penalty on Stanley Black & Decker India Private Limited. The penalty was levied for failing to transfer unspent Corporate Social Responsibility (CSR) funds to a designated Unspent CSR Account as required under Section 135 of the Companies Act, 2013. The MCA found the company non-compliant with the mandatory provisions, despite their explanations citing delays due to the COVID-19 pandemic.
