The General Circular no. 21/2014 dated 18 June 2014 by the Ministry of Corporate Affairs (MCA) in its annexure listed that donations made to the Indian Institute of Management Ahmedabad (IIM-A) shall be eligible as contributions for corporate social responsibility (CSR) activities. The Circular allows only donations for the specific purposes of building conservation and classroom renovation to be eligible as contributions towards CSR activities.
Donations made to IIM-A were listed as eligible activities under the head “promotion of education” in Schedule VII to the Companies Act, 2013 (The Act) in response to clarifications sought by IIM-A in this regard. However, donations to other IIMs have not yet been specifically listed in activities that qualify as CSR, which seems discriminatory to the other IIMs.
The Indian Institute of Management Calcutta (IIM-C), the oldest Indian Institute of Management, has recently written to the Ministry of Human Resource Development seeking for itself the same CSR benefits as IIM-A. The officials confirmed that they are examining the issue.1 In the wake of this communication, the Centre may extend a standard operating policy on CSR for all twenty IIMs.
This uniform standard operating policy, if implemented, would lead to significant financial support to IIMs from corporates. This could result in premier Indian management institutes getting the top-of-the-line infrastructure and becoming a preferred educational option for students from across the world.
Key Changes introduced in CSR provisions under the Companies (Amendment) Act, 2019
Prior to the enactment of the Companies (Amendment) Act, 2019, companies were either required to comply with set CSR provisions or explain reasons for failure to spend the prescribed funds on CSR activities. Failure to disclose such reasons in the annual report was treated as non-compliance.
The amended CSR provisions now require:
- Unspent CSR amounts to be transferred to a fund specified in Schedule VII (Prime Minister’s Relief Fund, Clean Ganga Fund, etc.) within a period of 6 months from the expiry of the financial year.
- Companies with unspent CSR amounts concerning their on-going CSR projects would be required to transfer unspent amounts to a special bank account (escrow account) in any scheduled bank within a period of 30 days from the end of the financial year.
- This unspent amount so deposited will then be spent by the company in the pursuance of its obligation towards CSR within a period of 3 financial years from the date of transfer.
- Failure to spend the amount deposited in the escrow account would require the company to transfer the amount to a fund specified in Schedule VII (Prime Minister’s Relief Fund, Clean Ganga Fund, etc.) within a period of 30 days from the expiry of the third financial year.
Penalties for Non-Compliances
The Amendment Act has prescribed hefty monetary fines and imprisonment for failure in complying with the new CSR regulations. Monetary fines starting from INR 50,000 and extending up to INR 25,00,000 have been prescribed. Imprisonment for a term up to three years has added to the pressure on corporates. Intense opposition by corporate India against the provisions of imprisonment has resulted in the Government agreeing not to operationalize these provisions yet. Based on recommendations by a high-level committee appointed by the Ministry of Corporate Affairs, the penal provisions for non-compliances should be restricted only to monetary fines.2 Finance Minister Nirmala Sitharaman has clarified on 23 August 2019 that violations of CSR norms under the Amendment Act will be treated as a civil liability and not as a criminal offense .3
Penalties in the form of fines and imprisonment may make the Amendment Act appear overtly restrictive. However, the Government agreeing to rollback on the imprisonment provisions is a matter of relief indeed.
On a different note, while donations to IIM can reap healthy dividends for corporate India, the argument that other underprivileged sections of society may deserve more support in the form of CSR sparks a discussion.