In the decade since its introduction in 2013, the Corporate Social Responsibility (CSR) regime, with frequent amendments and modifications, has now become quite prescriptive, departing from its original form which was geared towards nudging the corporates to work on CSR.

In 2021, the Ministry of Corporate Affairs (MCA), introduced the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. Amongst other things, the new rules introduced a responsibility on the Board of Directors of the company to satisfy that the money disbursed for CSR has been used for the specified purpose.

Soon thereafter, the MCA, through a circular in the form of FAQs, declared that, “mere disbursal of funds for implementation of a project would not amount to spending unless the implementing agency utilises the whole amount during a financial year.” This clarification superimposes the timeline available to ‘spend’ onto timeline for ‘utilisation’.

Leaving aside the impracticality of idea propounded by the FAQs, it is important to first evaluate the legal enforceability of the same considering that it ostensibly contradicts/expands the requirement of the Companies Act, 2013. While there is no explicit provision in the Act authorising MCA to issue circulars, it has powers to do anything deemed incidental or consequential to the powers granted. Various Courts in the past have held that circular(s) are advisory in character and should, under no circumstance prevail over the provisions of the Act and or regulations enacted therein (Bhagwati Developers (P) Ltd vs Peerless General Finance & Investment Ltd).

The overzealous nature of the FAQs comes from the perspective of ensuring compliance by companies and perhaps ignores the needs of the development sector. Imposing the timeline provided for “spending” to “utilisation” would force companies to reduce advance payment to implementing agencies and push the CSR project implementation arrangements with NGOs to have a back-ended payment plan. This will be counter-productive for the development sector as unlike the corporate world, the development sector neither has the resources nor the entrepreneurial streak to embark on projects without first securing the entire funding for the same.

Also, the compliance of the FAQs would mean that identification of the CSR project as well as an implementing agency for the same, has to happen early in any fiscal year. Only then funding can be provided to the agency, and it also provides the agency with enough time to implement the project within the fiscal to ensure utilisation of the CSR funds. This may essentially mean that NGOs will only scout for CSR projects funding in the first-half of the year and implementing them in the second. Artificially incorporating such cyclicity in an otherwise year-round working sphere of an NGOs cannot be good for the sector.

There are enough guardrails within the law for effective implementation of the CSR, as is the intention of the legislation. The over-prescriptive approach adopted in the FAQs is nothing short of micro-management and likely to do more harm than good. Utilisation of CSR amount, as the FAQs requires, is not entirely in the hands of the company, therefore, it is not possible to control its fulfilment.

The author is Partner, Nangia Andersen, LLP