Several companies barely allocated funds towards CSR activities

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

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.