The Ministry of Finance Friday reviewed its earlier decision to treat CSR violations as criminal offences saying it would now be a civil liability.
In a press conference called to announce ‘measures to boost the economy’, Finance Minister Nirmala Sitharaman said the Ministry of Corporate Affairs will review the sections under the Companies Act and will provide companies time for completing ongoing projects towards fulfilling their CSR obligation.
Last week, a government-constituted high-level committee recommended making expenditure on CSR tax-deductible as well as treating non-compliance with CSR requirements a civil offence under the companies law.
Under the Companies Act, 2013, certain classes of profitable entities are required to spend at least two per cent of their three-year annual average net profit towards Corporate Social Responsibility (CSR) in a particular financial year.
The recommendations came as Parliament in July amended the Companies Act, specifying among other provisions that unspent CSR funds by companies should be transferred into an escrow account called the Unspent Corporate Social Responsibility Account, with the corpus to be utilised within three years of transfer.
The changes to the law also said that any unspent annual CSR funds must be transferred 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 financial-year end.
For companies failing to meet CSR norms, the changes to the law also provide for a fine of Rs 50,000 to Rs 25 lakh and a jail term of up to three years for defaulting officials of companies.