Readers will recall the debates in the lead up to the Companies Act, 2013 as to whether the provisions relating to corporate social responsibility (CSR) ought to be mandatory or voluntary. Finally, a compromise position was arrived at that largely amounts to a “comply-or-explain” approach. Since the CSR provision (section 135) was brought into effect from April 1, 2014, its impact (particularly on CSR spending) will be known only when companies begin reporting their expenditure and other details in their annual reports for the financial year ending March 31, 2015.
In the meanwhile, indications from the Government are that the CSR compliance will be closely monitored, both at the individual company level and also on an overall basis. Towards this end, the Ministry of Corporate Affairs earlier this month constituted a committee to suggest measures for improved monitoring of the implementation of the CSR policies by companies under section 135 of the Companies Act, 2013. The terms of reference of the committee include suggesting measures for adoption by companies for systematic monitoring of CSR initiatives, and also mechanisms for providing feedback to the Government regarding efficacy of the CSR expenditure and quality of compliance.
This step indicates that the Government continues to place considerable importance on CSR measures. Although structured largely on a “comply-or-explain” basis, the intention seems to be to ensure maximum compliance.