The Ministry of Corporate Affairs (MCA) has sent fresh notices to over 5,000 companies that have failed to spend 2% of their profits on social welfare activities under the mandatory corporate social responsibility (CSR) policy.
As per the Companies Act, 2013, a section of profitable companies are required to shell out 2% of the average of three-year annual profit towards CSR activities. This covers the companies having a net worth of Rs 500 crore and more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more.
"The erring companies have been asked to furnish information or give an explanation for non-compliance," a senior government official told DNA Money. Under Section 206 of the Companies Act, 2013, the government has powers to call for information and inspect the books of a company.
The preliminary notices have been issued to the companies that did not comply with CSR requirements and also have not furnished valid details for not spending or lower spending.
"A total of 5,382 companies has been identified so far in the current fiscal year. The violations pertain to 2015-16. Earlier in July, about 300 such notices were sent by the MCA. The next step will be showcause notices followed by the filing of cases in the court," said a source.
The action will also be initiated in case of CSR violations during 2016-17 and 2017-18, sources said.
The MCA recently set up a Centralised Scrutiny and Prosecution Mechanism (CSPM) to keep a tab on the firms and also to examine the records of the companies obliged to spend on CSR activities.
Four years after the CSR law was implemented in April 2014, the government feels that the law requires a strict approach for better compliance.
To review existing CSR framework and recommend guidelines for enforcement of CSR provisions as well as audit, the government has set up a 13-member High Level Committee on CSR under the chairmanship of MCA secretary Injeti Srinivas.
So far, the government's soft approach, suggested by Baijal committee, has allowed the firms to get away with prosecutions if they explained in the annual report the reason for not spending on CSR. They faced court action only if couldn't justify nil or inadequate spends. As many as 254 such companies are facing prosecutions for violations during 2014-15.
As per Section 135 of the Companies Act, 2013, the "Board of every company shall ensure that the company spends in every financial year at least 2% of the average net profits made during the three immediately preceding financial years. And if the company fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount."
"The companies by merely giving explanation for not undertaking expenditure on CSR are showing compliance of the law," sources said, adding that there had to be a genuine reason for not spending.
Over the fiscal years 2015-16 and 2016-17, the amount spent on CSR has seen a decline. The government figures show that 19,933 companies spent Rs 13,465 crore on the various social welfare activities during 2016-17, as against Rs 14,366 crore spent during 2015-16 by 21,498 firms. However, in the first year (2014-15) of implementation of the CSR law, about 16,785 companies spent over Rs 10,066 crore on CSR activities.
CSR panel report in three months
A high-level committee set up by the government to review the Corporate Social Responsibility (CSR) law framework and to recommend the audit of CSR works undertaken by the companies met here last week.
The 13-member committee headed by the Ministry of Corporate Affairs secretary Injeti Srinivas held its first meeting."The panel took an overview of the law and held a discussion on measures for adequate monitoring and evaluation of CSR by the companies," sources said.
The scope of the committee includes "to examine and recommend audit (financial, performance and social) for CSR, as well as analyse outcomes of CSR activities."
The committee will also recommend guidelines for enforcement of CSR provisions after reviewing existing CSR framework as per the Act, rules and circulars issued from time to time. It has also been asked to suggest measures for adequate monitoring and evaluation of CSR by firms.
The members of the committee include Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi, Tata Sons's chairman N Chandrasekharan, Apollo Hospitals executive vice chairperson Shobnana Kamineni, Bain Capital Private Equity MD Amit Chandra, Helpage India CEO Mathew Cherian, NBCC chairman Anoop Kumar Mittal, additional solicitor general P S Narsimha, Luthra and Luthra law firm MD Rajiv Luthra and DG, Indian Institute of Corporate Affairs (IICA) among others.
The committee has to submit its report within three months from the date of the first meeting.
PLANTING A SAPLING
5,382 – companies have been identified so far in the current fiscal year
300 – such notices were sent by the Ministry of Corporate Affairs in July
2% – of average of three-year annual profit has to be spent on CSR activities
Rs 14,366 cr – spent during 2015-16 by 21,498 firms
Rs 13,465 cr – spent by 19,933 companies on CSR during 2016-17
16,785 – companies spent over Rs 10,066 crore on CSR activities during 2014-15, the first year of the CSR law
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