Will India Inc get relief on CSR spending?

Navadha Pandey Richa Mishra New Delhi | Updated on January 20, 2018 Published on June 26, 2016


Corporate Affairs Ministry not for mandating expenditure

If the Corporate Affairs Ministry has its way, Corporate Social Responsibility (CSR) spending will not be mandated and companies will be allowed to spend as they wish.

At present, under the Companies Act, 2013, the Rules on CSR state that every company having a net worth of ₹500 crore, or having a turnover of ₹1,000 crore, or making a net profit of ₹5 crore during a financial year shall ensure that at least 2 per cent of the average net profits made during the three immediately preceding financial years is spent on CSR. The companies are also mandated to set up a committee to oversee CSR activities.

The Finance Standing Committee of Parliament, which is looking into the Companies Bill, 2016, has questioned the government on why some of the earlier recommendations were not accepted, setting off a debate on the issue of mandating CSR.

A senior Corporate Affairs Ministry official said that “the Bill is still being examined by the Parliamentary Committee, so what the final decision will be cannot be said right now. We have not proposed it (making CSR mandatory).

“An earlier committee had recommended the concept of roll-over of the unspent amount meant for this purpose, and if after five years, a company is still unable to spend the money, the same can be put in a fund created by the government, making it mandatory.” In March, a Bill to further amend the Companies Act, 2013 was introduced to address the issues raised by various stakeholders and in keeping with government’s commitment to ease of doing business. The recommended amendments are by and large on the lines of what the Company Law Committee has suggested. The Committee, too, was not for mandating CSR.

According to the Corporate Affairs Ministry official, the Rules of the Companies Act, 2013 provide that if a company fails to spend the CSR amount, it can specify the reason to the government. This, he says, leaves it open to interpretation. A loophole, in other words.

“The proviso says that if you are not able to spend the money, then you will have to inform the government why you haven’t spent it. That gives an escape route to the company,” the official added.

Asked if there had been specific instances of companies taking recourse to this provision, the official said, “Companies which were anyway doing CSR have not misused it… But some may have.”

The intent of the Companies Act, he said, is to make doing business in India easier. “We just want to guide the companies into it. In that sense, it (if made mandatory) goes against the ease of doing business idea. No other country has such a provision,” he pointed out.

The view of key accounting bodies is also not to rush to mandate. Professionals institutes like The Institute of Company Secretaries of India (ICSI), in their submissions before the Parliamentary panel, have suggested that the government continue with the existing system for another three years, at least, before considering making CSR mandatory.

Published on June 26, 2016
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