Changes in CSR effectively rule out ‘Societies’ & ‘Trusts’ from accessing CSR funds
Another blow to the Non-Profit Sector by the Govt. Ministry of Corporate Affairs has brought out draft rules for changes in CSR rules. The proposed rules now specify that only following entities can implement CSR Projects.
- Company itself or in collaboration with another company
- a S.8 company
- any entity established under an Act of Parliament or State legislature (likely to be only Govt / Autonomous bodies promoted by Govt)
This effectively rules out Societies or Trusts from accessing CSR funds. Considering Societies/ Trusts form 90% of NGO sector organisations, this will impact most NGOs.
However all is not lost, these are still DRAFT rules, and govt has invited comments from public. We are giving a ready link for you to connect to the webpage, where you can give your comments.
In view of the severe adverse impact that such a change would have on NGOs finances, we request all to submit comments asking Govt to reconsider removal of ‘societies & trusts’ from accessing CSR funds. In this regard, we can request that old rule which required at least three years successful track record for all NGOs, irrespective of legal format be continued.
Soon we will bring a comprehensive note on proposed changes in CSR Rules on this forum itself.
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Socio
Research & Reform Foundation (NGO)
512 A,
Deepshikha, 8 Rajendra Place, New Delhi – 110008
Members may post this on the MCA feedapp link if needed. Comments invited from the public
We are a charitable trust and we register the following comments on the proposed amendment to the CSR Rules under the Companies Act, 2013.
1. It is not clear if charitable trusts and societies would be considered as entities established under an Act of parliament or state legislature, after the amendment.
The following table captures the pre and post amendment provisions regarding applicability as per Rule 4 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 (click to download PDF version of comment)
Existing:
“(2) The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through
(a) a company established under section 8 of the Act or a registered trust or a registered society, established by the company, either singly or along with any other company, or
(b) a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature:
Provided that- if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of the Act or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilisation of funds of such projects and programs and the monitoring and reporting mechanism”.
Proposed
(1) The Board shall ensure that the CSR activities are undertaken by the company itself or through:
(a) a company established under section 8 of the Act, or
(b) any entity established under an Act of Parliament or a State legislature.
Provided that such company/entity, covered under clause (a) or (b), shall register itself with the central government for undertaking any CSR activity by filing the e-form CSR-1 with the Registrar along with prescribed fee.
Provided further that the provisions of this sub-rule shall not affect the CSR projects or programmes that were approved prior to the commencement of the Companies (CSR Policy) Amendment Rules, 2020.
2. There has been a doubt raised with respect to the understanding of the amendment. It is opined that deletion of the text “or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years” would make such and trusts and societies not eligible to access CSR funds. This point needs clarification. If Societies and Trusts are not eligible to access CSR funds any more, there will be serious damages to the NGO sector which has been one of the primary pillars of voluntary/charitable services to society:
a. We like to bring to your attention the fact that nearly than 3 million NGOs are functioning in the country as Trusts and Societies. Some of them operate in remote rural and tribal areas to develop the people in those regions.
b. There are Trusts and Soceities which have been the social arms of several companies in India for years. They have done this with the main intention of giving their charitable activities a special focus. The TATAS, Birlas, Mahindra, Bajaj, Reliance are some of the well-known companies that have done this.
c. The Corporate Social Responsibility was introduced by the Government only in 2013. Much before that Indian businessmen and many others with good hearts have been contributing a society in myriad ways. These people have formed Trusts and Societies mainly to make sure their social responsibility of business receives sufficient attention. If this amendment excludes such trusts and societies, several of their activities, and the very institutions which are supported by many companies over many years will be greatly impacted. As the activities suffer, their beneficiaries in turn also suffer. Several institutions will go through a tremendous shrinking process and the purpose for which they came into being will be severely defeated. The small and the medium sized NGOs that rely on CSR funds will actually fold up. This will again impact social entrepreneurship, social capital and social impact of these organizations and their beneficiaries.
3. The Government has already put in place several regulatory/ statutory mechanisms to monitor the functioning of the NGOs. The IT department, the FCRA and the Government departments that aid NGOs funds and others have instituted several checking mechanisms to ensure the NGOs work within a regulatory framework. Now, we come to know that under this amendment as beneficiaries of CSR funding we are also expected to register ourselves with Ministry of Corporate Affairs and file annual returns.
The NGOs especially small and medium ones don’t have adequate capability to be meeting this demand for multiple returns to be filed. The demand for compliance by multiple agencies takes away top management time in these organizations that should be spent on worthwhile project activities to create better impact.
4. The amendment also insists that the companies do an impact study if their CSR funding have indeed crossed Rs.5 crores in the preceding 3 years and publish it in their annual report. If a company chooses to support multiple projects with their funds, organizing the study would be a big task. What is the purpose of this impact study? Work in remote regions and challenging projects may take years to make an impact. These studies must be based on the challenging nature of projects and should not be based on the amount of funding.
5. We do not have any other adverse remarks in other amendments being proposed.
We request to you to
a. Continue the availability of funds to “or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years” or clarify the position of charitable Trusts and with respect to their eligibility to receive CSR funds
b. Review the need for e-CSR 1 which appears to be more for a section 8 company than for a Trust or Society
c. Review the need for impact assessment in case of CSR contribution of Rs. 5 crores or more in the preceding three financial years.
The comment I gave earlier has a table which this box is not permitting. Sorry about that. I will split the table separately and post
Hi Mital Ji,
Brilliantly identified. Maybe the centre has other aspects in mind.
They talk of Vishwas, but where is that with NGOs.
There is a lack of interaction with NGOs on many subjects resulting in such discrepancies.
We saw what happened to the ‘Introduction of GST’
Government has to start recognising NGOs as an important means of development-We are NOT there yet.
Surat
I disagree with Mr. Subramania that the third option covers all the trust and societies registered under Indian Trust Act or Societies Registration Act. The various trusts and societies registered under the Indian Trust Act or Societies Registration Act are not entities registered under the central or state legislation. The entities registered under the central or state legislation are ICAI, ONGC, Highway authority of India, Food Corporation of India etc.
The reason behind this could be there are several fake, inactive or politically motivated trusts, or religious trusts or NGOs who are making frauds and also not filing any statutory returns etc. India has over a million NGOs registered under Trust or Co-op Societies Act. Government may have to make an exception to those who are genuine and reliable organizations working not just for profit but really mean social service through CSR. Very few of them may be 8,000 or so are really worth looking at and all others are of no use. I think Govt. may issue some guidelines making exception for good and reliable NGOs.
There are always black sheep in any sector, that does not mean, Govt should make it impossible for the Sector to survive. Voluntary Sector has contributed immensely to social development sector. Govt relies on it to implement its schemes. Many of the schemes like Swajaldhara, SHG sector, and many others were initiatives undertaken by Non Profit organisations, which Govt later adopted. Sector is all for regulatory framework. Govt has been making it tougher and tougher laws for sector to follow, and voluntary sector has been complying with it.
dear
i absolutely disagree with the above comments, with the present draft societies and trust seems to be out from CSR. but quite surprise how they can do so whereas a major junk of CSR is met out through the societies and trusts. A protest should be lodged and it should be considered for allowing trusts and societies.
Only way you can acheive what you are saying is by posting comment in Ministry of Corporate Affairs website. A link is given in the post, create a user id and post your views.
Dear
I have gone through the above said process.In my opinion there is not such that have describe in this way there are two types of entity
One,A company established under the section 8 of the Act,and
Any entity established under an act of parliament or a State legislature.
I think society &trusts would be cover under 2nd.
If you see the current CSR rules,
Rule 2 states that a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature.
The new rule has just dropped ‘registered trust or a registered society’, making intention of the Govt very clear that a registered trust or society is not to be considered as an implementing agency under new Rules. Further if you refer to new Form CSR-1, which is required to be filed by all those entities which receive funds under CSR. These can be filed only by an incorporated company, as it requires CIN. Even in the Annexure (i.e. Report by company undertaking CSR) the company needs to report CIN of the company which is implementing CSR projects.
So the second entry is limited only to specific organisations constituted through a specific legislation, for example, Institute of Chartered Accountants of India, and similar other autonomous bodies.
The Rule 2 mentioned above indicates a registered trust or a registered society established by Central Government or State Government. There are Trusts and Societies created or established by Central of State Governments and the reference was to those organisations only. The third option of any entity established under an Act of Parliament or a State legislature refers to all the Trusts and Societies registered under Indian Trust Act or Registration of Societies Act or any Acts passed by the State Governments. Since that portion is retained, I don’t think the Trusts and Societies are not excluded. Any way we can get clarification on this point from the Ministry of Corporate Affairs.
Sorry, old rule 2 stated by me above is older version, which was amended in 2016.
I think there is a confusion here. There is a difference between “by an Act of Parliament or State legislature” and “under an Act of Parliament…….” The former would mean a State body whereas the latter would mean an organisation registered under an appropriate Act. Therefore, it does not rule out NGOs etc. In any case, an NGO can also be registered under Section 8. So, if the intention was to exclude them, mention of Section 8 would not have been there.
Soumen Biswas
Basically, Govt basically wants all funds given under CSR to be tracked. That is why the new rule requires that all those who want to receive CSR funds need to register with RoC by filing Form CSR 1 on MCA Portal. Such a Form can be only filed by a company which has a CIN No. Thus intention of the Govt is clear that they want all those receiving CSR funds to be tracked. In long term most societies / Trust will form S.8 company, but it raises two issues.
First, in the interregnum, CSR implementation will go down as organisations would take time to form S.8 company. Secondly, ‘Societies & Trust’ fall under the States subject list, while S.8 company falls in the jurisdiction of union Govt. Is it not discriminatory for a central legislation to bar state registered organisations from receiving CSR funds, which effectively puts them at disadvantage in raising of resources.
Good point Mittalji As suggested by you earlier let us try to include societies and trust in addition to sec 8 companies as being existing now