The Union Finance and Corporate Affairs Minister Nirmala Sitharaman on Monday asserted that Corporate Social Responsibility (CSR) are Board level decisions and government cannot “impose decisions” on India Inc as to where they must spend their CSR funds.

Making an intervention in Lok Sabha during question hour, Sitharaman noted that Boards of Corporate India are “conscious” about the desire and interest (of the government) that companies spend their CSR funds on local areas.“

Aware of local priorities

“CSR are board driven decisions and no government can impose on companies that they have to spend on this area or that area. Companies are increasingly aware that local priorities should be taken up. Boards are conscious”, Sitharaman said.

With decisions being Board driven, the Board of the company is empowered to plan, decide, execute and monitor CSR activities of the entity based on recommendations of its CSR committee. In 2020-21, India Inc had spent about ₹24,865 crore towards CSR. 

More awareness required

The Corporate Affairs Minister told the Lok Sabha that Ministry of Corporate Affairs (MCA) Secretary and officials periodically hold meetings with companies on the CSR front. She admitted that more detailed awareness was needed and information should be spread on the CSR framework. Sitharaman highlighted that the law and rules are now facilitating Board decisions and there is already provision to carry forward unspent CSR expenditure (earmarked for a specific project) for three years.

In a written reply on Monday, Sitharaman said there is no specific incentive mechanism in place to incentivise the effective utilisation of CSR funds by the companies as this is a regulatory requirement under the Companies Act, 2013.

Amended CSR provisions

However, the Corporate Affairs Ministry has amended the CSR provisions of the Act to provide flexibility to the Board of companies to carry forward the unspent CSR amount as well as set-off the excess CSR spent in any particular financial year upto succeeding three financial years as per the requirements of CSR projects, she added.

Further, on the recommendation of high level committee on CSR (HLC-2015), the MCA has instituted National CSR Awards to recognise companies for their outstanding contribution through CSR initiatives, Sitharaman said. These awards (winners and honourable mentions) are given to companies in three broad categories.

Earlier, CSR related defaults were compoundable offences. Now, the non compliance of CSR provisions has been made a civil wrong with effect from January 22,2021. Currently, the CSR architecture is disclosure based and CSR mandated companies are required to file details of CSR activities annually in MCA21 registry.

Compliance of provisions

The government monitors the compliance of CSR provisions through the disclosures made by the companies in MCA21 Portal. Whenever any violation of CSR provisions is reported, action against such non compliant company is initiated as per provisions of the Companies Act after due examination of records and following due process of law.

As on date, there is no structured study of the impact of the enforcement of the Companies Act pertaining to CSR.