Though the move is noteworthy, it could end up increasing corporates’ compliance burden, say experts
The Centre has now mandated corporate India to furnish a comprehensive report on their corporate social responsibility (CSR) activities, specifying a 11-page form (CSR-2) for this purpose. It is expected to give the government a comprehensive picture of the CSR funds spent and activities carried out.
This form will have to be submitted to the Registrar of Companies for the preceding financial year (2020-21) and onwards, the Ministry of Corporate Affairs (MCA) has said. For the information related to FY 2020-21, the CSR-2 has to be submitted by the end of March 2022.
This move has evoked mixed reaction from corporates and legal experts with some contending that it would end up increasing compliance burden of corporates. Some of the disclosures now mandated under CSR-2 are already being disclosed under the main directors’ report forming part of the annual report, they noted.
Some corporate observers, however, felt that the information trove on CSR — on the back of CSR-2 — could come in handy for the CSR department in MCA to undertake data mining and analytics so that improved policies could be rolled out on this front.
Form CSR-2 amongst other things requires certain companies to report on matters such as the constitution of its CSR committee, its meetings, whether or not the company has disclosed on its website details about its CSR committee, CSR policy, and approved CSR projects.
Also, the company is required to confirm whether an impact assessment of CSR projects has been carried out in pursuance of the Companies (CSR Policy) Rules, 2014. Under the report, the company is also required to submit detailed information around its investment in CSR Projects and the quantum of funds that has remained unspent. Maneet Pal Singh, Partner, I.P. Pasricha & Co said this new form would result in greater transparency towards CSR expenditure by corporates but will increase the compliance burden on companies.
“We believe action taken by MCA is effective but in future efforts should be made by MCA to acquire maximum information with minimum increase in compliances”, Singh said. Pritika Kumar, Founder & counsel, Cornellia Chambers, said this is an impactful amendment that will improve the manner in which corporate social responsibility as a concept is being managed across India.
This amendment will also help impact driven organisations find synergy with companies whose CSR objectives are aligned to theirs. This amendment is a step in the right direction, she said. Snigdhaneel Satpathy, Partner, Saraf and Partners, said the existing framework under the CSR rules already obligates a company to file a detailed report of its CSR activities, to be annexed to the board report.
“In this context, the recent decision to introduce a separate reporting requirement of CSR activities being undertaken by companies to be annexed to the financial statements, appears unnecessary and is precisely the type or irritant which increases compliance burden, adding to the cost of doing business. With the macro-level focus of the government, being to improve ease of doing business and the general push to move towards simplified reporting requirements, such steps are not in sync with its overall objective”, Satpathy said.
Prasenjit Chakravarti, Partner, Khaitan & Co said that given that companies are already aware of the broad level of disclosures expected from them in CSR via the already amended rules, companies should not find it too arduous to adhere to the requirement of preparing and submitting Form CSR-2.
CSR spending: The Law
The Companies Act 2013 requires companies with a net worth of ₹500 crore of more, or turnover of ₹1,000 crore or more or a net profit of ₹5 crore or more during the immediately preceding three years to spend 2 per cent of the average net profit on CSR activities.
It maybe recalled that India Inc’s (1619 companies) CSR spend for FY 2020-21 fell sharply to ₹8,828.11 crore, much lower than the cumulative spends of ₹20,150.27 crore (25,099 companies) in FY19 and ₹24,688.66 crore (22,531 companies) in FY20.
