Sev­eral com­pa­nies barely al­lo­cated funds to­wards CSR ac­tiv­i­ties

There has been a rising trend of vi­o­la­tion of Cor­po­rate So­cial Responsibility pro­vi­sions by com­pa­nies.

The Sunday Guardian - - COVERT - KUNDAN JHA NEW DELHI

Since 2014, as many as 18,398 com­pa­nies did not spend a sin­gle penny on al­lo­cat­ing manda­tory Cor­po­rate So­cial Responsibility (CSR) funds while as many as 13,987 com­pa­nies spent less than the pre­scribed CSR amount dur­ing the same pe­riod. How­ever, the Reg­is­trar of Com­pa­nies (ROC), work­ing un­der the Min­istry of Cor­po­rate Af­fairs (MCA), has so far ini­ti­ated ac­tion against only 254 com­pa­nies, a doc­u­ment ac­cessed by The Sun­day Guardian has re­vealed.

The spec­i­fied Sched­ule VII of the Com­pa­nies Act, 2013, pre­scribes that ev­ery com­pany hav­ing net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more dur­ing the im­me­di­ately pre­ced­ing fi­nan­cial year, shall en­sure that the com­pany spends, in ev­ery fi­nan­cial year, at least 2% of the av­er­age net profit of the com­pany made dur­ing the three im­me­di­ately pre­ced­ing fi­nan­cial years in areas or sub­jects men­tioned in above Act. As per the second pro­vi­sion of the Com­pa­nies Act, if a com­pany fails to spend the pre­scribed CSR funds, the Board of that com­pany shall spec­ify the rea­son for not spend­ing the amount and dis­close the same in its re­port. Also, the com­pany is re­quired to con­sti­tute a com­mit­tee of the Board to for­mu­late the CSR policy, re­com- mend projects for ap­proval of the Board and mon­i­tor the ex­e­cu­tion thereof. Fur­ther, in case a com­pany fails to take the above mea­sures, and avoid the ex­pen­di­ture of CSR funds, the ROC has power un­der the Com­pa­nies Act to ini­ti­ate ac­tion against the de­faulter com­pa­nies.

How­ever, the Reg­is­trar failed to ini­ti­ate any sub­stan­tive ac­tion against the com­pa­nies ex­cept for 254, against whom the ROC had already ini­ti­ated ac­tion.

Ac­cord­ing to the doc­u­ment ac­cessed by The Sun­day Guardian, in 2014-15, as many as 8,833 com­pa­nies failed to spend a sin­gle penny; in the fol­low­ing fi­nan­cial year 201516, a to­tal of 9,219 com­pa­nies did not spend the pre­scribed CSR funds. Sim­i­larly, dur­ing April 2016 to March 2017, 346 com­pa­nies did not bother to spend their pre­scribed CSR funds. The data for 2018 was not ac­ces­si­ble to this re­porter.

The data ac­cessed by this news­pa­per also re­veals that for 2014-15, as many as 4,001 com­pa­nies had spent less than the pre­scribed CSR funds and for 2015-16, the num­ber of such com­pa­nies in­creased to 6,268. The to­tal num­ber of com­pa­nies which spent less than the pre­scribed amount dur­ing April 2016 to March 2017 is 344.

The num­ber of com­pa­nies which spent more than the pre­scribed limit of the CSR funds was 1,633, 3,038 and 203 dur­ing the pe­riod 201415, 2015-16 and April 2016 to March 2017 re­spec­tively.

Out of the 254 com­pa­nies against which the ROC has ini­ti­ated ac­tion so far for gross vi­o­la­tion of the CSR pro­vi­sion made un­der Com­pa­nies Act, only 33 com­pa­nies had filed “com­pound­ing plea”, ac­cord­ing to the doc­u­ment. How­ever, in order to check the rising vi­o­la­tion of CSR pro­vi­sions, the MCA last year in April had set up a Cen­tralised Scru­tiny and Pros­e­cu­tion Mech­a­nism (CSPM), but, as per sources, the CSPM has so far not come up with any sub­stan­tive re­sults.

Var­i­ous reports have sug­gested that the CSR pro­vi­sions need a holis­tic policy re­view and only man­dat­ing CSR for busi­nesses houses will not gar­ner any fruit­ful re­sults. A re­port of KPMG, a pro­fes­sional ser­vice com­pany and one of the big four au­di­tors, along with Deloitte, Ernst & Young, and Price­wa­ter­house­c­oop­ers, has pointed out sev­eral loop­holes in the CSR policy in India.

The re­port has stated that “geo­graphic bias” with re­spect to a com­pany’s CSR fund­ing ac­tiv­i­ties is preva­lent in the coun­try. Firms tend to fund projects that are closer to where the firm is based. Also, the cor­po­rate tax rate in India is levied at 34.61% that is one of the high­est in the world, com­pared to the global av­er­age of 21%. There­fore, CSR is viewed by many firms as 2% ex­tra bur­den, though this amount is not paid to the gov­ern­ment.

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