Over 530 companies may face action for CSR norm violations

More than 530 firms have come under the scanner of the government for violating CSR spending norms under the companies law and are likely to face action.

The violations pertain to the 2014-15 financial year and reports to this regard have been submitted by Registrar of Companies (RoCs) concerned to the Corporate Affairs Ministry, sources said.

Under the Companies Act, 2013, certain class of profitable entities are required to shell out at least two per cent of their three-year annual average net profit towards Corporate Social Responsibility (CSR) activities in a particular fiscal.

In case of non-spending, the company concerned has to clarify for the same to the Ministry.

The norm came into effect from April 1, 2014.

Sources said more than 530 companies have violated the CSR norm as instances of "non-compliance" as well as "non-disclosure" have been detected for the 2014-15 fiscal — which was also the first year of implementation of the norm.

These companies are located in different states including Maharashtra, Odisha, Madhya Pradesh and Gujarat, sources added.

In this regard, various RoCs have submitted their reports to the Ministry, which is implementing the Companies Act.

Under the Act, prosecution can be initiated against the erring companies while a final decision in this respect is yet to be taken, sources said.

After finding discrepancies in CSR spending data, the Ministry, had last year, issued show cause notices to companies asking them to furnish details about social welfare activities undertaken by them under the Act.

Last year, government informed Rajya Sabha that an assessment of CSR expenditure of 7,334 companies for 2014-15 showed that 4,195 companies did not incur any CSR expenditure.

Collectively, 3,139 companies have spent a total of Rs 8,803 crore on various CSR initiatives.

Companies having a net worth of at least Rs 500 crore, turnover of Rs 1,000 crore or more as well as those with a minimum net profit of Rs 5 crore in a financial year are required to comply with CSR norm.

Such companies have to spend "in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years," towards CSR works, as per Section 135 of the Companies Act.

They also have to constitute a CSR committee of the respective board of directors and this panel would formulate and recommend to the board CSR activities that can be taken up by the company.

Further, the Act requires that the company should give preference to the local area and areas around it where it operates, for spending the CSR funds and in case of failure to spend the amount, the particular firm's board has to specify the reasons.