India Inc worried over 3-yr jail for violating CSR norms

Tribune News Service 
New Delhi, August 1

Buffeted by poor results and a weakening economy, corporate India is further perturbed over the recent amendments to the Companies Act, which now stipulate a jail term of three years for those firms that fail to adhere to the norms for compulsory spending on corporate social responsibility (CSR).

The industry is especially shaken by the provision that “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 or both”.

The industry has started requesting the Prime Minister and the Finance Minister to make operating conditions less onerous for corporates. The Confederation of Indian Industry (CII), the country’s leading chamber of commerce and industry, said the penal provisions had taken it by surprise. 

The CSR amount, it said, could have been unspent for several reasons, including the need to exercise due diligence to ensure proper allocation of money for social purpose. The government’s drive to make it a penal offence would mean that it is more concerned that the money is somehow spent rather than ensuring it is well spent on genuine social causes.

An industry expert who wished to remain anonymous said India Inc was expecting the Companies Act to rationalise offenses and roll back inspector raj. The imposition of penalty with a jail term capping it had jolted the industry, he added.

Company representative also pointed out that the ideal spending is in backward and less developed areas. As communication was difficult and working conditions tough, there was always the likelihood that in the initial years, companies may not be able to spend all the money. As companies build up capacity and gain experience of working in unfamiliar conditions far removed from their natural habitat, they would be spending the allocated amount completely.

‘Share Profits’

• According to new CSR norms, a company has to earmark a part of its profit towards social activities and transfer all unspent amount into an escrow account (if it is an ongoing project)
• The CII said the government’s drive to make it a penal offence would mean it is more concerned that the money is somehow spent rather than ensuring it is well spent genuinely