The recent introduction of penal provisions by the Ministry of Corporate Affairs (MCA) for not complying with Corporate Social Responsibility (CSR) rules has left the whole corporate India anxious. With stricter penalties ranging up to 25 lakhs and a jail term of three years, the newly approved amendment to the Companies Act can now hold a company criminally liable for not fulfilling any CSR obligations. In another notification, companies will soon have to geo-tag and share pictures of all the Corporate Social Responsibility (CSR) projects that it undertakes.
Companies having a net worth of INR 500 cr, or a turnover of INR 1000 cr or with a net profit of 5 cr have to spend at least 2% of last three years’ average profit on CSR activities. The law also applies to foreign firms that have their offices in the country.
India is the first country in the world that has made carrying out of CSR activities by a firm mandatory. According to a report by MCA, as much as INR 13,466 cr was spent by companies on CSR activities in the year 2017.
The government called for these stern measures as the majority of the firms were not following the rules laid under the Companies Act for CSR activities while others were investing in their own trusts or funds. The move is also aimed at boosting transparency as in many cases the CSR spend does not tally with the annual reports.
The corporate industry is irked by this new imposition and feels that this new obligation can be wasteful and will not give the desired outcome. India is the first country in the world that has made carrying out of CSR activities by a firm mandatory.
According to a report by MCA, as much as INR 13,466 cr was spent by companies on CSR activities in the year 2017. With the new regulations in place, this amount is expected to increase significantly.