Firms sitting on unspent CSR funds may face heat

Companies that are holding back on their corporate social responsibility (CSR) spending and are re-routing the funds to the balance sheet could soon face the music as the government is mulling amendment to the Companies Act to make the errant firms fall in line.

The new restrictions on the CSR funds will be part of the list of proposed amendments to the Companies Act, 2013, that the government will be taking up during the winter session of Parliament, sources in the know told BusinessLine.

The proposal with regard to the CSR funds says that unspent money under the head will have to be declared in the company’s annual report at the end of every fiscal. Further, it will have to be transferred to a separate bank account and spent within three years. The amendment may make CSR spending mandatory. Currently, companies either have to “comply” (spend) or “explain” (the non-compliance).

1,000 firms under scanner

The Corporate Affairs Ministry recently said the government was scrutinising the records of the top 1,000 companies that were required to spend under their CSR initiative. According to PRIME Database, disclosures from 77 companies for FY18 showed they had unspent amounts that equalled a third of the prescribed CSR spending. Though there had been some improvement over the years, the majority of the funds (57.66 per cent) were unspent for the median companies in 2014-15, which improved to 30.02 per cent in 2017-18.

The government is also said to have examined 6,286 companies, and a majority of these firms reportedly spent less than what is required to be spent in April-November of 2016-17. A total of 2,203 firms spent more than what was required during the same time.

The proposed amendment relating to the funds is said to have originated from a high-level committee that was set up recently to strengthen CSR norms.

“The amendments seem to force companies to spend money earmarked towards CSR rather than letting them accrue it on the balance sheet. Keeping the money reserved but unspent does not serve any purpose,” a legal expert on the matter told BusinessLine.