Here are some of the key highlights of the suggestions made by the high-level panel set up by the Ministry of Corporate Affairs (MCA) to address the concerns of the companies on the Companies Act as well as offer guidelines on how to improve the monitoring of CSR spending.
- A lenient view should be taken for first 2-3 years of companies not complying with CSR, as they will be a period of learning; the committee’s report states that penalty should not be levied for non-compliance. The liberal view can be taken at least for smaller companies, it added.
- The Committee also proposed a review of the provisions after three years.
- The Committee asked for an increase in ceiling on administrative overheads from 5 per cent at present. It has recommended that the figure can go up to 10% of the total spend.
- The committee asked for further clarity on applicability of section 135 (which deals with CSR provisions) to foreign companies. “Several foreign companies don’t have their board of directors here in India or just have branch or project offices. Applicability to foreign firms should be clarified,” the report said.
- It says that there should be uniformity in tax treatment for CSR expenditure across all eligible activities. At present, certain activities such as contribution to the Prime Minister’s National Relief Fund qualify for exemption.
- The report also points out that the existing provisions on reporting, auditing, selection of CSR activities or partners are the prerogative of the company’s board or committee and the government should not intervene.
- The committee says the government “cannot and should not maintain a data bank of implementing agencies”. The Indian Institute of Corporate Affairs (under the ministry of corporate affairs) as well as industry associations like the Confederation of Indian Industry have said they will bring out a list of accredited non-governmental organizations.
- It says the selection of implementing agencies should be left to the board of directors or CSR committees of the companies.
- The Committee suggested a need for an amendment to the CSR rules to include an “omnibus clause” in Schedule VII of the CSR rules, which detail the activities that companies may implement as part of CSR. This clause will give a little flexibility for activities that do not fall directly under the ambit of the 11 already listed in the schedule such as women’s empowerment, eradication of poverty, hunger, etc.
- It says that the government should have no role in monitoring of CSR expenditure by corporate and this should be the job of their respective boards. It also suggests that government should have no role to play in engaging external experts for monitoring the quality and efficacy of CSR expenditure of companies.
The six-member committee headed by former secretary in the Ministry of Urban Development Anil Baijal was constituted in February to recommend suitable policies for monitoring compliance with the mandatory CSR spend. In April 2014, India became the first country to make CSR activities mandatory for a certain class of companies. Under the new Companies Act, entities with a net worth of Rs 500 crore or turnover of Rs 1,000 crore or net profit of Rs 5 crore need to spend at least 2 per cent of their average net profit in the preceding three financial years on CSR activities. Schedule VII of the Act provides a list of activities such as housing for economically weaker sections, Clean India and Clean Ganga missions, education and health that can be undertaken under CSR. The measures for monitoring the implementation of Corporate Social Responsibility (CSR) Rules, 2014, have been suggested in the form of 24 recommendations submitted on 7 October 2015, which can be viewed on the MCA website.