Context: Corporate Social Responsibility or CSR was first encouraged as a voluntary contribution by business. Six years ago it evolved into a co-option of the corporate sector to promote inclusiveness in society and now with the amendments in Companies Act 2013, CSR has become an imposition.
More in news: The panel headed by Corporate Affairs Secretary Injeti Srinivas presented the ‘Report of the High Level Committee on CSR’ to the Union Minister of Finance and Corporate Affairs, Smt. Nirmala Sitharaman on 13th August 2019.
Corporate Social Responsibility (CSR):
Corporate Social Responsibility is defined as the voluntary integration of companie’s social and ecological concerns into their business activities and their relationships with their stakeholders. Being socially responsible means not only fully satisfying the applicable legal obligations but also going beyond and investing ‘more’ in human capital, the environment, and stakeholder relations.
The Companies (Amendment) Bill, 2019 and CSR:
- The Companies (Amendment) Bill, 2019 which amends the Companies Act, 2013 was passed in monsoon session have made non-compliance with CSR norms a jailable offence.
- Under the Act, if companies which have to provide for CSR, do not fully spent the funds, they must disclose the reasons for non-spending in their annual report. However, under the Bill, any unspent annual CSR funds must be transferred to one of the funds under Schedule 7 of the Act (e.g., PM Relief Fund) within six months of the financial year.
- Any violation may attract a fine between Rs 50,000 and Rs 25,00,000 and every defaulting officer may be punished with imprisonment of up to three years or fine between Rs 50,000 and Rs 25,00,000, or both.
- Under the provision of bill, if the CSR funds are committed to certain ongoing projects, then the unspent funds will have to be transferred to an Unspent CSR Account within 30 days of the end of the financial year, and spent within three years.
The High Level Committee on CSR:
- The High Level Committee on CSR was constituted in October, 2018 under the Chairmanship of Secretary (Corporate Affairs) to review the existing CSR framework and make recommendations on strengthening the CSR ecosystem, including monitoring implementation and evaluation of outcomes.
- The main recommendations are:
- making CSR expenditure tax deductible
- provision for carry forward of unspent balance for a period of 3 – 5 years
- aligning Schedule 7 with the SDGs by adopting a SDG plus framework (which would additionally include sports promotion, Senior Citizens’ welfare, welfare of differently abled persons, disaster management and heritage protection
- balancing local area preferences with national priorities
- introducing impact assessment studies for CSR obligation of 5 crore or more
- Registration of implementation agencies on MCA portal.
- developing a CSR exchange portal to connect contributors, beneficiaries and agencies,
- allowing CSR in social benefit bonds
- Promoting social impact companies, and third party assessment of major CSR projects.
- The Committee has emphasized on not treating CSR as a means of resource gap funding for government schemes.
- The Committee discourages passive contribution of CSR into different funds included in Schedule VII of the Act.
- It has emphasized on CSR spending as a board driven process to provide innovative technology based solutions for social problems.
- The Committee has also recommended that companies having CSR prescribed amount below Rs. 50 lakh may be exempted from constituting a CSR Committee.
- The Committee has also recommended that violation of CSR compliance may be made a civil offence and shifted to the penalty regime.
- CSR is a means to partner corporates for social development and such penal provisions are not in harmony with the spirit of CSR.
- CSR should not be treated as another tax on businesses.
- Non-compliance by corporates should be decriminalized and made a civil offence.