Penalise firms not spending 2% of profits on CSR: Par panel

A Parliamentary panel has suggested to the government that it impose penalty on corporates for not spending mandatory 2% of their net profit on CSR activities.

Currently, the penalty can be imposed for non-disclosure of CSR as per the Companies Act 2013.

"There is penalty for non-disclosure, there should be penalty for non-performance in the area of Corporate Social Responsibility (CSR)," Shanta Kumar Chairperson of Committee on Public Undertakings said.

It is important to disclose as well as spent the funds due for CSR purpose, he said, adding that "it should be made mandatory in the Act that funds due for CSR must be spent."

The report which was tabled in the Lok Sabha today said Ministry of Corporate Affairs or Department of Public Enterprises have apprised the Committee that CSR expenditure which was a voluntary initiative, has been made compulsory with the enactment of Section 135 of the Companies Act, 2013.

"Although the word 'shall' has been used in sub-section 5 of Section 135 for making CSR expenditure, second proviso to this sub-section dilutes the spirit of making the provision mandatory," it said.

The second proviso provides that if the Company fails to spend specified amount under CSR, the Board shall in its report specify the reasons for not spending the amount.

The Committee strongly feel that the whole purpose of making the CSR spending as mandatory is defeated by the second proviso as a Company can get away easily by simply stating the reasons for not spending prescribed CSR allocations.

It has recommended to review sub-section 5 of section 135 of the Act and make suitable amendments in line with spirit of mandatory allocation to be made under CSR by the companies.

The panel headed by senior BJP leader also expressed serious concern over more than 50% of the allocations remaining unspent with these CPSUs, particularly when they have been implementing CSR for long and have experience and expertise in the field.

The committee said that it would like to be apprised of the reasons for huge under-spending in this regard.

Taking cognisance of ever-increasing incidence of critical or life threatening diseases among the poor population, the report said assistance provided to the poor under CSR can be of some help to them at a time the poor and their families are fighting against critical health and life threatening ailments.

The Committee are of the strong view that such humanitarian practices can be replicated by companies under CSR too so that poor people suffering from terminal illnesses could get some relief through CSR, it said.

"Hence, they recommend DPE to include this activity in the list of activities under CSR," it said.
The Committee noted that equally disturbing is inadequate

and decreasing allocation for healthcare as is evident from the budgetary allocation made by the Ministry of Health and Family Welfare in 2015-16.

Not only that budgetary allocation for some of the critical healthcare programmes like cancer, stroke, cardio and vascular diseases during the current year are nil or negligible.

The panel also recommended that a separate cell in the Health Ministry should be set up to assist and monitor the grant provided to these affected persons through PSUs' CSR budget on the pattern of Prime Minister's Relief Fund where relief for treatment is provided to the patient through hospital only.

With regard to monitoring, the panel suggested for introducing mechanism of social audit and evaluating the credibility of NGOs on a regular basis so as to ensure durable and quality infrastructure being created under CSR.

Observing that the essence of CSR lies in greater public participation so as to achieve the goal of inclusive growth, the Committee have recommended that local masses, local MPs/MLAs elected representatives of local bodies should be involved more effectively for selection of projects as they are in a better position to identify the problems or necessity of poor people in the area they represent.

The panel has recommended that in line with ensuring executive accountability to Parliament, an Annual Report containing data on CSR, as collated and analysed should be laid in Parliament by the Ministry of Corporate Affairs.

It has also recommended for making non-compliance of spending of prescribed allocations on the admissible activities in the prescribed manner a punishable offence and for making suitable provisions in this regard.

The committee has recommended that the respective administrative ministries or CPSU may be sensitised to give more emphasis on creating durable assets, having long term planning and prioritising activities so as to have long-term impact on the lives of the targeted masses or areas.