Companies evading CSR spend will get prosecuted, crackdown in offing

The government has changed its soft approach on its corporate social responsibility (CSR) law from ‘comply or explain’ to ‘comply or get prosecuted’. An executive order to this effect has been issued by the Ministry of Corporate Affairs (MCA) recently, sources said. The corporate affairs ministry is soon going to send showcause notices to the companies, which have not spent 2% of their profits on social welfare activities. 

“We are soon going to issue showcause notices to the companies which have not spent on CSR activities during the past three years (2015-18),” said a senior official in the ministry. Until now, the government was acting only against those companies that failed to explain in their annual report the reasons for not spending the amount.

The ministry has initiated penal action against 254 such companies, under Section 134(8) of the Companies Act, 2013. for the violations in the first year of the implementation of the corporate social responsibility law.

Now, the ministry will be launching prosecutions against the companies which have not spent the required amount on social welfare.

“It will be for the court to decide whether the reasons are justified or not,” said a senior official. The CSR policy was implemented in April 2014.  The companies have to spend on CSR 2% of their net profit on social welfare projects.

Similarly, the companies having net worth of Rs 500 crore or turnover of Rs 1,000 crore have to spend on CSR.

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“The government has changed its soft approach on enforcement of CSR policy. Until now, the companies which failed to spend were required to specify reasons for not spending the amount under section 134(3) of the Companies Act,” said a source in the corporate affairs ministry.

The MCA had come across an increasing number of cases related to non-compliance of the CSR norms. “The companies were giving all sorts of absurd reasons like inability to identify the projects and cash crunch, for not complying with the norm,” the official said.

The government is also changing its monitoring of the CSR projects from regional to the central level. Until now, all the 20 Registrar of Companies (RoCs) monitoring CSR projects had the discretion to decide on the cases of non-compliance. Now the scrutiny and prosecutions will handled by the ministry directly at the central level, sources said.

The lack of punishment was being seen as a deterrent to CSR spend by the companies, sources said. The expenditure on CSR activities has come down over the last few years.

As per official data, during 2016-17, Rs 4,719 crore was spent by 6,286 companies as compared to Rs 13,828 crore spent during 2015-16 by 19,184 firms. However, in the first year, about 15,000 companies spent about Rs 9,500 crore on CSR activities.

By Anjul Tomar, DNA India