Company and Directors Fined for CSR Non-Compliance

The Tribunal imposed a compounding fee on the company and its directors for non-compliance with CSR provisions under sections 134(3)(o) and 135 of the Companies Act, 2013. The company admitted the violation for the financial year 2014-15 due to market conditions but utilized the unspent amount in subsequent years. The compounding fee was set at a specific amount for each party, to be paid within 15 days. The matter was scheduled for compliance review, considering the company's admission, reasons for non-compliance, and steps taken to rectify the situation in later financial years.

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Issues:
Violation of provisions of section 134(3)(o) read with section 135 of the Companies Act, 2013 for corporate social responsibility (CSR) obligations.

Analysis:
The applicants filed an application under section 441 of the Companies Act, 2013 seeking compounding for non-compliance with CSR provisions. The respondent had lodged a complaint against the applicants for not adhering to section 134(3)(o) and section 135, which require disclosure of CSR initiatives and the constitution of a CSR committee. The applicants admitted the violation for the financial year 2014-15. The company had failed to spend the required amount on CSR activities due to market conditions but had utilized the unspent amount in subsequent years, as detailed in the report submitted by the Registrar of Companies, Hyderabad.

The Tribunal had jurisdiction to compound the offence under section 134(3)(o) read with section 135 of the Companies Act, 2013 as the maximum fine exceeded twenty-five lakhs. The counsel for the applicants argued that the non-compliance was unintentional, citing the newness of the CSR provisions in the Act. The Registrar of Companies recommended directing the company to spend the remaining amount towards CSR activities. The Tribunal noted that the offence was compoundable under section 441(1) of the Companies Act, 2013, even after the institution of prosecution, which had already occurred in this case.

After considering the submissions and evidence, the Tribunal imposed a compounding fee for the delay in complying with section 135 of the Companies Act, 2013 on the company and its directors. The compounding fee was set at a specific amount for each party involved, to be paid within 15 days from the date of the order. The matter was scheduled for compliance review on May 6, 2019. The decision was based on the company's admission of the violation, the reasons provided for non-compliance, and the steps taken to rectify the situation in subsequent financial years.

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