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Companies Not Spending 2% On CSR Should Be Penalised: Parliamentary Panel

A handful of large corporations have spent more than the mandatory 2% CSR spend as mandated by the Companies Act 2013. And there are other companies setting bench marks by re-aligning their current CSR activities according to the provision of the CSR rules and expanding their sphere of impact. But what about a large majority of companies who have not spent on CSR at all in the first year of the CSR law coming into effect?

A Parliamentary panel has recently suggested to the government that it should impose a penalty on corporates for not spending the mandatory 2% of their net profit on CSR activities. Shanta Kumar, Chairperson of Committee on Public Undertakings said “There is penalty for non-disclosure, there should be penalty for non-performance in the area of Corporate Social Responsibility (CSR). It is important to disclose as well as spent the funds due for CSR purpose, it should be made mandatory in the Act that funds due for CSR must be spent.”

The committee believes that mandatory CSR  spend will not be mandatory after all – unless suitable amendments are made in sub-section 5 of section 135 of the Act which “dilutes the spirit of making the provision mandatory.”

The second proviso of sub-section 5 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. So currently, companies can get away simply by stating the reasons for not spending their CSR corpus and a penalty is only imposed for non-disclosure of CSR as per the Companies Act 2013.

Expressing serious concern over more than 50% of the allocations remaining unspent with these CPSUs, even when they have experience in implementing CSR for a considerable length of time, the panel headed by the senior BJP leader said that it would like to be apprised of the reasons for huge under-spending.