Finance Minister has unveiled a new rule stating that corporate social responsibility (CSR) violations will no longer be considered as criminal offences. Instead, such legal missteps will now fall into the category of civil liability. This sweeping change comes alongside the removal of the three-year imprisonment penalty for company officials who fail to meet the obligatory CSR expenditure.
The Implementation of Injeti Srinivas Panel
The backdrop to these legislative changes was the recent establishment of the Injeti Srinivas panel, which was tasked with reviewing CSR expenditure. The panel’s role was to deeply analyze the spending trends and habits related to CSR, as well as examine the potential implications of decriminalizing CSR violations.
Effects of Decriminalization
The leniency towards CSR infringements is expected to give corporations the liberty to think innovatively and strategically about their CSR funds deployment. This freedom to decide and select the areas of CSR-centric work is envisaged to trigger more effective and impactful utilisation of CSR funds.
Amendments to the Companies Act, 2013
The Parliament also added few amendments to the Companies Act, 2013 recently. The significant changes include mandatory transfer of unspent CSR funds by companies into an earmarked escrow account named “Unspent Corporate Social Responsibility Account.” The shifted money should be used within a three-year period from the date of transfer. If any annual CSR funds remain unutilized, they must be sent to one of the funds under Schedule 7 of the Companies Act, such as the Prime Minister’s Relief Fund within six months of the fiscal year-end.
Corporate Social Responsibility Overview
Under the Companies Act, 2013, certain types of profitable entities are obligated to allocate at least two per cent of their three-year average yearly net profit for CSR in a specific financial year.
CSR In Numbers: Overview
| Companies Act, 2013 | Mandatory CSR Expenditure |
|---|---|
| Profitable Entities | 2% of 3-year annual average net profit |
| Unspent CSR Funds Transfer | Within 6 months to PM’s Relief Fund |
| Utilize Transferred Funds | Within 3 years |
Summarizing The Changes
The decision to decriminalize CSR violations and the amendments to the Companies Act, 2013 represent a significant shift in the approach towards corporate social responsibility in the country. By providing more flexibility in how funds are used, it is hoped that companies will find more innovative and effective ways to meet their CSR obligations, leading to broader societal benefits.
