Foreign companies’ are not bound to undertake corporate social responsibility (CSR) activity in India, Shardul Shroff, Managing Partner, Amarchand & Mangaldas, a leading law firm, has said.

This is even as the rules framed under the new company law extended the CSR provisions to foreign companies, Shroff said at an event on Companies Act, organised by KPMG in association with Indo-Canada Business Chamber here on Tuesday.

There is inconsistency between the rules and the main statute (Companies Act), which has mandated CSR spend by certain companies, Shroff noted.

India is the only country in the world that has legislated CSR and required CSR spend equivalent to 2 percent of net profit for certain companies. But there is no penalty if the provisions were not complied with.

Shroff highlighted that Section 135—the provision in the new company law that deals with CSR—applies CSR only to domestic companies.

Although the rules had extended it to foreign companies, this was prone to challenge as the main Act sought to cover only domestic companies.

“All the changes that are coming through the rules, which may affect the definition in some sense, are not lawful. If ever challenged by a foreign company in court, then the Court would tend to uphold the challenge”, Shroff said.

Rakesh Nangia, Managing Partner, Nangia & Co, a firm of chartered accountants, said the main Companies Act talks only about Indian companies when it came to CSR.

On whether a branch office or a project office of a foreign company is authorised to do CSR, Nangia said it doesn’t look likely and they will have to get Reserve Bank of India (RBI) approval on this count

Nangia also said the wholly-owned subsidiaries of foreign companies can give money for charitable activities to only those companies that are Foreign Contribution Regulation Act (FCRA) compliant.  

“We are advising our clients (foreign companies) to approach Home Ministry and get clearance or seek clarifications. They should ensure that the entities to which they donate funds are FCRA compliant”

Srivats.kr@thehindu.co.in

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