As already four years have passed since the CSR spending was made mandatory, the government has now decided to go to next level for implementation of the Corporate Social Responsibility rule in true spirit. The government is seriously mulling to ask those companies which have defaulted in spending the prescribed 2% of their profits on CSR during the three previous years to deposit the unspent amount in various Central government funds designated to benefit society, like Prime Minister’s National Relief Fund (PMNRF), Swachh Bharat Kosh, Clean Ganga Fund etc. The MCA has initiated a process for compiling a database of companies regarding CSR spending between FY2014-15 and FY 2017-18 and identifying the defaulter companies in these 4 years. “We have sent notices to the defaulting companies through the Registrar of Companies and are trying to persuade them to spend the CSR budget judiciously on social work. If they still do not fall in line, the government is seriously thinking on making them pay the unspent amount to the Central welfare funds,” disclosed a top MCA official.
Interestingly, the companies will also get 100% tax exemption for CSR funds deposited in these funds. Already the process has been initiated by the MCA to mark the defaulting companies and the National CSR portal is being updated accordingly to analyse these companies. Show cause notices have been sent to these companies to furnish the details of the amount spent and unspent on CSR and to explain the reason for not spending the appropriate amount on CSR programmes. It has also been asked why penalty should not be imposed on them for the default.
The data of the last three years have been taken into account for this action and the government has made its intention quite clear to the companies that those not complying with the statutory provisions will face prosecution. Hitherto, the government approach was to persuade the companies to spend the CSR mandatory amount on social activity. In the GDP’s last year’s annual issue on CSR, we had drawn the attention of the government, especially the MCA, to the lacuna that defaulters could go scot-free as the CSR law lacked the desired teeth to make companies abide by the law and spend the CSR amount. Now, four years after the implementation of CSR provisions in April 2014, the MCA has rightly started thinking on this line and has felt that law requires a strict approach for better compliance..
In fact, as per the information that the GDP has gathered, companies that do not spend the required CSR amount during FY2018-19 will face prosecution and even legal proceedings. Merely giving explanation for not making expenditure on CSR will no longer qualify as compliance with the law. On the other hand, for the default made during the last four years till FY17-18, the government may ask companies to deposit the unspent amount in government welfare funds and already several meetings have been held in this regard.
This article is part of 2nd Annual Issue of GDP Magazine on CSR. Governance Democracy& Politics (GDP) Magazine’s Special Issue on #CSR Takes A Deep Dive on the state of CSR Spending. It has a regressive database of 6000+ companies on CSR Spending.
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