Amendments To Companies Act, 2013 Which Attract Jail Terms And Fines For CSR Violations Make Firms Anxious

Indian companies have become anxious after recent amendments to the Companies Act, 2013 which attract jail terms and fines in case of non-compliance with the latest Corporate Social Responsibility (CSR) norms under the act.

According to the amended act, CSR norms violations could attract fines ranging between Rs 50,000 and Rs 25 lakh, and even imprisonment of up to three years for defaulting executives.

Earlier, Union Finance minister Nirmala Sitharaman had mentioned that the latest amendments seek to check the practice of companies “getting away” after providing an explanation about why they failed to comply with CSR norms.

However, practitioners of the law believe that such clauses are harsh and could be misused. They believe that prison terms for violation of CSR requirements is too harsh and that penalties are appropriate.

There are others who believe that the amended CSR norms may lead to much better compliance, since company boards would be forced to take these norms seriously and implement them.

It has been pointed out that large-cap corporates already tend to comply with the prescribed CSR norms, while it is the smaller companies which don’t seem to comply.

Others have suggested that there could have been some relaxation for small scale units which lack full-fledged CSR units to comply with the new norms.

Incidentally, after the latest amendments, companies which are unable to spend their CSR funds within the stipulated period are allowed to transfer them to a government fund specified in Schedule 7 of the amended Companies Act. These could include the Prime Minister's National Relief Fund.

However, if companies fail to comply with this norm, fines and imprisonment clauses would become applicable.