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CSR no more an act of magnanimity; no intention to criminalise any default: Corp Affairs Sec

Business Finance

Press Trust of India  |  New Delhi 

The government has absolutely no intention to criminalise any default in Corporate Social Responsibility spending under the companies law, Corporate Affairs Secretary Injeti Srinivas said on Thursday and asserted that CSR is no more an act of magnanimity.

Amid concerns over penal provisions for non-compliance with CSR requirements in the amended Companies Act, 2013, Srinivas said businesses should not fear and that the government greatly appreciates contributions made by them so far.

Under the Act, certain classes of profitable companies are required to shell out at least two per cent of their three-year annual average net profit towards CSR activities in a particular financial year and the requirement came into force from April 1, 2014.

"As far as the penal provision is concerned, Section 134 of the Companies Act, 2013 already contains an identical penal provision, which was invoked against defaulting companies since inception. There is nothing new which has been added here in substance that is not already there. It is more of a drafting issue and not imposition of an additional penal provision.

"Nothing has changed after the amendments vis-a-vis penal provision is concerned. It has been articulated in the section (Section 135) also," Srinivas told PTI in an interview.

Now under Section 135, non-compliance with CSR spending requirement could attract a fine of at least Rs 50,000 and the quantum could go up to Rs 25 lakh.

Besides, every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than Rs 50,000 but which may extend to Rs 5 lakh, or with both, as per the amended Act.

Section 135 pertains to CSR.

"Business should not fear and we have highest respect for the corporates. We greatly appreciate contributions made by them so far. There is absolutely no intention to criminalise any default in CSR. It was just a part of the drafting in line with existing architecture of the Companies Act," Srinivas said.

Further, the secretary said that in his opinion there has been a communication gap or a misinterpretation as though something new has been introduced to make non-compliance a criminal offence.

As per data available with the ministry from disclosures made by companies, more than Rs 52,000 crore has been spent from 2014-15 to 2017-18 period towards CSR activities.

Section 134 has a certain reporting obligation and Section 135 talks about operational aspects. Whenever there is under spending, action was being initiated under Section 135 read with Section 134, which is based on harmonious construction. Now it has been made a standalone, he said.

"While enforcing CSR provisions, the enforcement authority looks at Section 135 read with Section 134. That punishment provision was always available under Section 134," he noted.

Noting that the compliance culture is gradually building up, the secretary made it clear that the government was not treating CSR as a resource to bridge any funding gap in social programmes.

"We respect the sentiments of the industry and the intent was never to treat CSR defaulters as criminals. The misunderstanding appears to be an outcome of a drafting exercise that was undertaken to bring parity among Sections 134 and 135," he said.

"Many people have said that people's welfare is solely the government's responsibility. That is incorrect. Business and human rights have today become a global movement.

"There is an inter-governmental working group set up by the UN, which is discussing a multilateral framework for making business and human rights obligations a legally binding obligation... CSR is no more an act of magnanimity; it is a legal obligation for inclusive growth," the secretary said.

According to him, in the last five years, the ministry has issued over 5,000 show cause notices and hundreds of prosecutions were filed for non-compliance with CSR requirements but in a large number of cases compounding was done with a small penalty provided the deficit spend was made good.

"Throughout this period, consciously the government adopted a light touch approach towards CSR enforcement because it is not only a new provision but unique as well. There are lot of issues, including capacity issues, in the implementation.

"In no case, we have pressed for criminal action to be taken and as already stated, in most cases, companies are compounding it. It is a compoundable offence," he noted.

Talking about the amendments, Srinivas said it has also given greater flexibility as companies now have four years for meeting their CSR liability arising each year.

"This is a major step towards empowering companies in deciding the manner in which CSR expenditure would be made," he added.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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First Published: Thu, August 08 2019. 17:20 IST