The Government of India is planning a comprehensive update to the Companies Act, 2013. This is aimed at creating a more business-friendly environment while strengthening corporate governance, particularly regarding Corporate Social Responsibility (CSR) compliance.
These reforms, guided by recommendations from the Company Law Committee (CLC) in its 2022 report, involve public consultations and active discussions with key ministries, signalling a commitment to modernising corporate law in line with evolving business practices. The goal is to provide for ease of doing business with rigorous accountability, fostering a responsible corporate culture.
Bolstering the CSR Framework
One of the focus of the amendments is to reinforce the existing CSR framework. India is the first country in the that has mandated CSR as a statutory requirement. The proposed changes will be aimed at further improving transparency and accountability in how companies approach their social responsibilities.
Under the current regulations, companies meeting specific financial thresholds are required to spend 2% of their average net profits (from the previous three years) on CSR activities. These thresholds apply to companies with:
– A net worth of ₹500 crore or more
– A turnover of ₹1,000 crore or more
– A net profit of ₹5 crore or more
Companies are obligated to disclose their CSR policies, activities, and expenditures in their annual Board Reports, on their company websites, and through the annual CSR-2 Form. This disclosure includes details about the composition of the CSR Committee, activities undertaken, budgets, implementation strategies, and impact assessments.
The CSR Committee is also responsible for recommending an annual action plan, ensuring funds are used appropriately, establishing monitoring mechanisms, and evaluating the impact of ongoing projects.
To enhance financial accountability, statutory auditors, under the Companies (Auditor’s Report) Order (CARO) 2020, must report any unspent CSR amounts and provide insights into how funds have been deployed. This adds an extra layer of scrutiny, ensuring CSR isn’t treated as a mere formality.
Streamlining Compliance and Promoting Ease of Business
The proposed amendments are aimed at making India a more attractive destination for businesses while maintaining regulatory oversight. The CLC’s 2022 report highlights the importance of:
– Promoting ease of doing business for law-abiding companies
– Streamlining the Companies Act to reduce unnecessary compliance requirements
– Addressing emerging trends in the corporate world
– Recognising new business models and digital transformation
These reforms are aligned with the government’s vision of “Ease of Living,” aiming to create a simplified and transparent legal environment for businesses, especially small and medium-sized enterprises (SMEs) and start-ups.
The Ministry of Corporate Affairs (MCA) is working closely with other ministries and stakeholders to refine the amendment proposals. The public consultation process allows industry experts, legal professionals, and business leaders to share their suggestions, reflecting a commitment to inclusive lawmaking.
While the amendments are generally welcomed, some industry voices have raised concerns about the increased compliance burden on SMEs, the complexity of CSR impact assessments for smaller companies, ambiguities in interpreting Schedule VII of the Act, and potential overlap between CSR and ESG reporting requirements. Experts suggest the need for clearer guidelines, particularly regarding the intersection of CSR with ESG disclosures and sustainability reporting.
