New CSR rules try to curb fraud by companies, but open red-tapism floodgates

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March 23, 2020 8:23 AM

The new rules vest oversight of CSR projects with the Board, and mandate an additional 5% expenditure for impact assessment, over and above the 5% mandated for carrying out administrative functions of CSR initiatives.

But, the new draft CSR Rules released by the corporate affairs ministry for public consultation will likely do more harm than good.But, the new draft CSR Rules released by the corporate affairs ministry for public consultation will likely do more harm than good.

It is perhaps the various reports of CSR fraud that the government had in mind when it recently made certain amendments to Section 135 of the Companies Act, which pertains to CSR provisions. Indeed, Economic Times had reported, in 2015, how some companies were hiring charitable societies/trusts for a commission, to channel mandatory CSR spends into promoters’ accounts. But, the new draft CSR Rules released by the corporate affairs ministry for public consultation will likely do more harm than good. In a bid to to beat down fraud by companies, these could bring back red tapism that the government had earlier tried to avoid by giving companies significant freedom in undertaking social responsibility projects.

The new rules vest oversight of CSR projects with the Board, and mandate an additional 5% expenditure for impact assessment, over and above the 5% mandated for carrying out administrative functions of CSR initiatives. But, they also forbid companies from dealing with any organisation/concern other than those that are registered under Section 8 of the Companies Act and have received government approval. This, the government believes, will stop a mushrooming of rubber-stamp charitable organisations. However, such organisations are the exception rather than the norm, especially among those that are routinely preferred by big companies.

Also, firms were mostly doing due diligence to select bona fide societies/trusts; it is not like the government has systems in place to screen out shell NGOs if these have backing from members of the political class. While CSR was an unnecessary tax to being with, what the government is proposing only makes the bad worse.

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