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Non-compliance of CSR norms to invite penal action

Published: 09 Feb 2018

The government is getting serious about effective implementation of prescribed CSR norms by profit making corporates.

To hand out a strong message to the corporate community that no corporate will be spared for breaking the laws, the Ministry of Corporate Affairs has gives its nod to initiate penal action against 187 companies for dwindling to meet the terms of Corporate Social Responsibility (CSR) norms for fiscal year 2014-15.

Corporate social responsibility is a form of corporate self-regulation integrated into a business model. CSR policy functions as a self-regulatory mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards and national or international norms.

Under Section 135 of the Companies Act (Act), every company having net worth of rupees five hundred crore or turnover of rupees one thousand crore or a net profit of rupees five crore is obligated to spend every financial year at least two per cent of the average net profits of the company made during the three immediately preceding financial years as per the norms of Corporate Social Responsibility Policy.

If any corporate fails or neglects to comply with the CSR norms such company is mandated to specify the reason for its failure to meet the terms of CSR norms in its Board of Directors report.

According to the official reports, corporate community contributed Rs 9,553.72 crore during the fiscal year 2014-15 funds and Rs. 13,625.24 crore for the fiscal year 2015-16 towards CSR activities.

Effective utilization of such funds for the wellbeing of deprived people will certainly help in reducing disparities among various sections of people and pave way of structuring a self-sustained society.

Companies failing to comply with CSR norms should realize the fact Indian corporates have a massive responsibility on their shoulders in edifice strong society from grass root level without disparities to sustenance the objective of India to emerge as a super power in coming years.

It is high time for companies to contribute the prescribed fraction of their profits towards CSR activities to make sure that they are complying with the laws and causative towards formation of self-sustained society or else they have to face proceedings for ignoring their duty.

Research and inputs and Paruchuri Baswanth Mohan

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in "The A-List - India's Top 100 Lawyers" by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at bhumesh.verma@corpcommlegal.com.

Firm: Addleshaw Goddard

Practice Area: Trade & Customs

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