With an amendment to The Companies Act 2013, CSR has been made a jailable offence.
What is Corporate Social Responsibility?
- Corporate Social Responsibility (CSR) – is a management concept which deals with a company’s accountability towards its stakeholders, employees, and society. To maintain its social responsibility company must function in a manner which is not detrimental to the environment and the general public.
- In the dispensation of its CSR duties, a company can invest in various sectors like gender equality, education or poverty.
- CSR has been undertaken as a voluntary duty towards the society around the world. In 2014, by an amendment to The Companies Act 2013, CSR was introduced in India.
The vital role of CSR:
- The underlying idea behind the concept of CSR is a company does not function in isolation with society. The policies made by a company have far-reaching ramification on its employees, environment, and society. Thus a company must consider its social accountability and invest a part of its profits in philanthropic initiatives.
- CSR also acts as a morale booster for the workers of the company and develops a good spirit between employees and the company. The initiatives taken under CSR, act as a tool to enhance the reputation of the company in the larger society.
- CSR has been undertaken as a voluntary duty towards the society around the world. In 2014, by an amendment to The Companies Act 2013, CSR was made a mandatory duty in India.
- Under this amendment, a minimum of 2 percent of the average net profit of three years is to be invested in CSR in a financial year.
- On August 13, the Lok Sabha passed the Company (Amendment) Act 2019, it penalizes the important officers of the company if the company fails to comply with the CRS norms.
- The company which are worth more than Rs.500 crore, having annual turnover more than Rs.100 crore and annual profit of at least rs.5 crore, will mandatorily have to pay a minimum two percent of their three-year average profit into CSR activities.
- If the company fails to comply with the duties, it can be fined with up to Rs. 25 lakh and the defaulting officers can be fined up to rs.5 lakh and liable to 3 years jail imprisonment.
What do the experts say?
- The expert panel committee constituted by the government on this subject has recommended to –
- Make noncompliance with the CSR norms only a civil offence
- Make the company spending taxable.
- The committee recommended the unspent CSR fund for a particular financial year to be transferred to an escrow account. Further, the suggestion to provide tax break on CSR can play a motivational role in the expansion of the company.
- The motive of Corporate Social Responsibility is to create a positive dynamic between business industries and general society by adopting a positive outlook in the strengthening of the social fabric. The recent changes in The Companies Act violate the basic spirit of the CSR by converting a voluntary duty into a jailable offence.
- In must be noted that CSR is not the primary business of the company. In the present challenging times, when the company should concentrate on their business the imposition of CSR can act as a discouragement for the company.