In a noteworthy move, Saankhya Labs Private Limited has been fined a considerable sum of Rs. 66,16,156 (66.16 Lakh) by the Karnataka Registrar of Companies for violating the Corporate Social Responsibility (CSR) rules of Section 135(6) of the Companies Act, 2013. The decision has broad ramifications for CSR accountability and corporate governance.
In order to decide fines, the Ministry of Corporate Affairs designated the Adjudicating Officer in accordance with Section 454 of the Companies Act of 2013. In this situation, Saankhya Labs Private Limited is a company that was registered with the Registrar of Companies in Karnataka after being founded in 2006.
According to Section 135(1) of the Act, businesses that satisfy certain financial requirements must set up a Corporate Social Responsibility Committee. At least three directors, including at least one independent, are required for this committee.
CSR SPENDING OBLIGATIONS
According to the Corporate Social Responsibility Policy, corporations must invest at least two percent of their average net earnings from the three previous fiscal years in CSR initiatives, as mandated by Section 135(5) of the Act.
UNSPENT CSR AMOUNT AND TRANSFERS
According to Section 135(6) of the Act, any unused funds from continuing programs that meet the required criteria must be deposited within 30 days after the end of the fiscal year into a unique account called the Unspent Corporate Social Responsibility Account. After that, the funds must be used within three fiscal years or transferred to one of the funds listed in Schedule VII.
Penalties for noncompliance are outlined in Section 135(7). A firm that is in default is accountable for fines, and its officers may also be subject to penalties.
In an adjudication application, Saankhya Labs Private Limited admitted to breaking Section 135 of the Act. It was discovered that the business did not meet its 2020–21 and 2021–22 financial year CSR spending commitments. The company only donated Rs. 3,00,000 towards CSR activities for 2020–21, while the remaining amount was sent slowly. The company was supposed to spend Rs. 18,63,032 on CSR activities. No money was spent in 2021–2022 and the remaining CSR funds were disbursed slowly.
HEARING AND SUBMISSION
At the hearing that followed the adjudication application, Mr. Dwarakanath—a licensed company secretary—presented the corporation’s case.
APPLICABILITY OF LESSER PENALTIES
It is observed that the business does not meet the requirements of Section 2(85) of the Companies Act, 2013 in order to be considered a small business; as a result, the provisions of Section 446B, which imposes lighter penalties, do not apply.
The adjudicating officer penalized the corporation and the officers in default separately for each of the two financial years in which the infractions occurred.
The Companies Act, 2013’s requirement that Saankhya Labs Private Limited adhere to CSR expenditure commitments and timely transfers is highlighted by the enforcement of a hefty penalty of Rs. 66,16,156 (66.16 Lakh). The requirement for openness and commitment to corporate governance norms is highlighted by the possibility of severe financial penalties for breaking CSR regulations.