The Registrar of Companies (RoC) Pune has levied a penalty of ₹5.03 lakh on Clairvoyant India Private Limited and its directors for not forming a Corporate Social Responsibility (CSR) Committee, despite the company’s net profit exceeding the threshold stipulated under Section 135 of the Companies Act, 2013.
As per Section 135, companies with a net profit exceeding ₹5 crore in the previous financial year are required to establish a CSR Committee composed of at least three directors, including one independent director.
Key Facts:
Clairvoyant India Private Limited, a company registered under the Companies Act, 2013, was found in violation of Section 135. According to Section 135(1), companies with a net worth of ₹500 crore or more, a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more must set up a CSR Committee consisting of at least three directors, including one independent director. Section 135(5) mandates these companies to spend at least 2% of their average net profit over the past three financial years on CSR activities.
The company submitted a suo-moto application to initiate adjudication proceedings due to its failure to comply with Section 135. Clairvoyant India did not form a CSR Committee despite having a net profit exceeding the threshold 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 designated funds by September 30, 2021, as required 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 claimed that the failure to spend the CSR amount and form a CSR Committee was due to inadvertence and misinterpretation of the Act. They argued that, as per Section 135(9), if the CSR obligation does not exceed ₹50 lakh, forming a CSR Committee is not mandatory. For the financial year 2020-21, the CSR obligation was calculated at ₹8,93,311, which, according to a notification dated January 22, 2021, made the CSR Committee requirement optional for that period.
The company also noted that the COVID-19 pandemic severely disrupted its operations, making it challenging to coordinate and gather necessary information.
The company argued that the non-compliance was due to a misunderstanding of Section 135’s provisions and requested leniency, citing no malicious intent and genuine inadvertence.
RoC Observations:
According to Section 135(1) of the Companies Act, 2013, companies meeting certain financial criteria must establish a CSR Committee with at least three directors, one being an independent director. They must also spend a prescribed percentage of net profits on CSR activities and transfer any unspent amount to a specified fund within six months of the financial year’s end.
The RoC observed that Clairvoyant India did not meet these requirements. For the financial year 2020-21, the company was required to spend ₹8,93,311 on CSR activities but failed to form a CSR Committee or spend the required amount. The company only transferred the amount to the Prime Minister’s National Relief Fund on September 14, 2022, well past the deadline.
The RoC noted that a change in management on December 16, 2021, did not rectify the earlier non-compliance. The argument that the CSR Committee requirement was exempted from January 22, 2021, was deemed invalid as the exemption could not be anticipated for the 2020-2021 financial year. Therefore, the previous management was held responsible for the non-compliance.
Notices were issued to both current and former management. Despite attempts to communicate, there was no response from the former directors, and the company did not confirm receipt of the notices.
As a result, the RoC imposed penalties for violations under Section 135(1) and Section 135(5) of the Companies Act. Penalties were based on the number of days of default and the applicable provisions:
- Shantanu Prakash Mirajkar: Default for 32 days, totaling a penalty of ₹42,000.
- Amita Mirajkar Shantanu: Default for 32 days, totaling a penalty of ₹42,000.
- Chandra Sekhar Ambadipudi: Default for 21 days, totaling a penalty of ₹31,000.
- Shekhar Sastry Vemuri: Default for 21 days, totaling a penalty of ₹31,000.
For failing to spend the CSR amount, the penalty was 10% of the unspent 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.
In total, the RoC imposed a penalty of ₹5,03,244 on the company’s directors.
Posted and reproduced in Public Interest by
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