In the wonderland of Indian Corporate Social Responsibility, CSR Compliance seems to be, as Alice would have said in Lewis Carroll’s wonderland, getting "curiouser and curiouser".
General Circular No. 06/2018 dated 28th May 2018 issued by the Ministry of Corporate Affairs (MCA) seeks to address concerns raised by some stakeholders regarding non-compliance of the first proviso to sub-section (5) of section 135 of the Indian Companies Act 2013, which lays down that the company shall give preference to the local area and areas around where it operates, for spending the amount earmarked for CSR activities.
The circular emphasizes and reiterates that this provision “has to be followed in letter and spirit”.
- What would qualify as local area? The City or town where the company operates or the entire district or the State?
- Does this mean if the company operates only in Mumbai or Pune, it cannot support activities outside the Municipal boundaries of Mumbai or Pune?
- The term ‘preference’ in the context of this law would mean ‘priority’ should be given to issues or programs in and around the area where the company operates. There is nothing wrong with this principle. However, if one goes strictly by the letter of the first proviso to sub-section (5) of section 135 of the Companies Act 2013, supporting any activity outside the area where the company operates would be disallowed and considered non-compliance under Section 135(5)!
In our opinion, MHA owes yet another clarification to stakeholders in terms of what would be MCA’s definition of “local area and areas around where it (the company) operates”!
We have repeatedly been saying this, and we have no hesitation in reiterating that excessive regulation will ultimately destroy the very spirit of CSR.
Noshir H. Dadrawala