Streamlining Compliances vs. Avoiding Consequential Penalties: The Right Choice for Corporates

-

Author: CS Pradeep Kumar Parakh 


Introduction:

In today's complex business environment, companies face numerous regulatory requirements and compliances that must be adhered to. Failing to comply with these regulations can result in severe penalties, which may have significant repercussions on a company's reputation, financial standing, and overall operations. On the other hand, streamlining compliances can be a proactive approach that not only ensures adherence to the law but also protects the company from facing consequential penalties. To highlight the importance of making the right choice, we will examine a real-world example of an adjudication of penalty under Section 454 of the Companies Act, 2013, involving M/S Takraf India Private Limited for violating provisions of Section 135(6) of the Companies Act, 2013.

 

The Case of M/S Takraf India Private Limited:

F.NO. ROC/ CHN/ TAKRAF/ ADJ Order/ S.135(6) / 2023, dated 11 July 2023, marks a significant event in the legal journey of M/S Takraf India Private Limited. The company faced charges for violating the provisions of Section 135(6) of the Companies Act, 2013, which pertains to the mandatory Corporate Social Responsibility (CSR) spending by certain companies.

Section 135(6) of the Companies Act, 2013, requires companies meeting specific financial criteria to allocate a certain percentage of their average net profits towards CSR activities. Failure to comply with this provision can lead to potential penalties as determined by the adjudicating authorities.

 

Streamlining Compliances: The Proactive Approach :

Companies that prioritize streamlining compliances adopt a proactive approach to ensure they meet all regulatory requirements. They establish robust internal control mechanisms and compliance frameworks that monitor adherence to relevant laws and regulations. Such companies often have dedicated compliance teams, engage in regular audits, and implement corrective measures promptly to rectify any non-compliance issues.

By streamlining compliances, companies can avoid legal entanglements and safeguard their reputation, investor trust, and long-term sustainability. It also helps build a positive image with stakeholders, including customers, employees, and regulators.

 

Avoiding Consequential Penalties: The Prudent Path:

The consequences of non-compliance can be severe, both financially and non-financially. Consequential penalties often include hefty fines, potential legal liabilities, and reputational damage. Such penalties can hamper a company's growth, deter investors, and negatively impact shareholder value.

In the case of M/S Takraf India Private Limited, their violation of Section 135(6) of the Companies Act, 2013, led to an adjudication of penalty under Section 454 of the same Act. While the specific penalty amount and other details are not mentioned in the given reference, it serves as a cautionary tale for other companies to ensure compliance with CSR spending requirements.

The Right Choice - Striking a Balance:

To make the right choice between streamlining compliances and avoiding consequential penalties, companies must strike a balance between adherence to regulations and business objectives. Here are some steps companies can take to achieve this balance:

1. Invest in Compliance Measures: Allocate resources to build a strong compliance infrastructure, including training employees, engaging external experts, and leveraging technology solutions for monitoring and reporting.

2. Robust Internal Controls: Establishing robust internal control mechanisms and conducting regular audits can help identify potential non-compliance issues early on, enabling timely corrective action.

3. Continuous Monitoring: Implement a system of continuous monitoring and self-assessment to identify compliance gaps promptly.

4. Risk Management: Conduct risk assessments to understand potential legal and regulatory risks and develop strategies to mitigate them effectively.

5. Stakeholder Engagement: Engage with stakeholders, including regulators, to stay informed about changing compliance requirements and seek clarifications when needed.

 

Conclusion:

The case of M/S Takraf India Private Limited exemplifies the importance of streamlining compliances to avoid consequential penalties. By prioritizing adherence to regulatory requirements, companies can protect their interests, reputation, and financial standing. Striking a balance between compliance and business objectives ensures sustainable growth and fosters a positive corporate culture. As regulations evolve and become more stringent, companies must embrace a proactive approach to compliance to secure their future in a competitive business landscape.

 

*****

 

Copyright: This note is the sole property of the Author and no part of it can be copied, reproduced or distributed in any manner without prior approval of the Author.


Disclaimer: This note is based on the research and contains the views of the author on the above subject. This information is intended to initiate sharing of knowledge only and shall not be construed to be any professional or legal advice. In no event the author shall be held liable for any direct, indirect, specific or incidental damages resulting or arising out of or in connection with the use of this information. 

Comments

Post a Comment

Popular posts from this blog

Effective Impact Reports

-
  Effective Impact Reports Raising grants needs effective impact evidence and data-driven storytelling . We all publish our annual reports but these annual reports are no longer sufficient to raise new grants/ donations.  We must be able to demonstrate how our initiative is able to bring positive social change to people and the planet.  In India, where CSR is mandatory, impact report is must for projects of value over Rs. 50 lakh and the Company’s CSR mandate is over Rs. 1 Cr. However, it is advisable to conduct impact assessment for projects of any value. Sharing such reports with funders and other stakeholders will help build your credibility and thus, help strengthen the relationship. Example:  Suppose your organisations vision is to alleviate poverty by helping people from marginalized communities to secure affordable housing through a government scheme.  You can measure and present your organisation’s impacts as: Comparison of no. of people supported and reduction in poverty Organ
Read more

CSR Policy Amendment Rules 2022

-
Image
Author: CS Pradeep Kumar Parakh | Date: 10-Oct-2022.       The CSR Policy Amendment Rules, 2022 (“the Amendment Rules, 2022”) were notified by the MCA vide Notification No. G.S.R. 715(E) dated 20 September 2022 amending the the CSR Policy Rules, 2014 (“the Original Rules”) with effect from 20 September 2022. The key changes made to the respective Rules, effects thereof, are summarized below:    Sr. No. Rule No. of the Original Rules Mode of Amendment Topic of Amendment Description of Amendment Amendment relevant to 1. Rule 3(1) Insertion of proviso CSR Committee A Company shall continue to have its CSR Committee, till any amount remain unspent for Ongoing Project and are transferred to a separate Bank Account called as “The Unspent Corporate Social Responsibility Account” which are spent by the Company as per its obligation towards CSR within a period of three financial years
Read more

Webinar on 'NGO Management in the Current Scenario'

-
  NGO Management in the Current Scenario  In the past decade, India has witnessed tremendous economic growth and been one of the world’s fastest-growing major economies. It is now ranked as the fifth-largest economy in the world in absolute GDP and the third-largest economy in terms of purchasing power. In terms of per capita GDP, however, India ranked 153rd in 2010 and increased only marginally to 144th in 2021. The trend has been further accentuated by the pandemic, which pushed more than 200 million Indians into poverty, widened the inequality gap, and hit disproportionately disadvantaged communities hard. For NGOs, in addition to an increase in the number of people who need assistance, there are challenges related to project management, fundraising, organisation management and governance. Fundraising space is rather shrinking, there are new compliances introduced that NGOs must adhere to and there are additional requirements from donors regarding systems and processes that must be
Read more