The Republic of China strengthens the enforcement of corporate social responsibility; more than a dozen companies have received penalty orders so far this year

NEW DELHI: More than three years after the introduction of penalty provisions, companies that fail to meet their social obligations under the law are increasingly facing the brunt of non-compliance. According to the Company Law, companies of a certain size or profit must spend 2% of their net profits on social work as part of corporate social responsibility (CSR).

According to the Ministry of Corporate Affairs, so far this financial year, the Registrar of Companies (RoC) in Tamil Nadu, Maharashtra, Karnataka and Delhi have lodged complaints with 14 companies for allegedly defaulting on CSR expenditures. The obligated company issued a penalty order.

Of the 14 companies facing penalty orders this fiscal, eight are spinners based in Tamil Nadu, with penalties ranging from as low as $$10,000 fine for procedural violations. Ban Sivaraj Spinners Pvt. Ltd., none of the eight companies displayed a dedicated website with contact information.

Implementation of the penalty provisions that came into effect in January 2021 has been accelerated. The first two penalty orders were issued in 2022, followed by penalty orders against 16 companies in 2023, according to orders published publicly by the Ministry of Corporate Affairs.

The reasons for being punished vary. Some companies were penalized for reporting procedural irregularities, while others were penalized for failing to transfer unspent monies unrelated to ongoing CSR projects into state-designated funds within the prescribed timeframe.

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Some of the companies that were punished pointed out that Mint The breach resulted from procedural oversight during the initial years of enforcement of the penalty provisions and has not occurred again.

Inquiries should be sent via email to Sivaraj Spinning Mills Pvt. Ltd., Convergint India Pvt. Ltd. – a systems integration company against which a penalty order was issued last year, and Toyota Tsusho India Private Limited. Co., Ltd. was also issued a penalty order last year and has not yet received a response as of press time.

Freudenberg Performance Materials India Pvt. Ltd., a technical textiles supplier, and Takraf India Pvt. Ltd. Ltd., the Indian arm of Germany’s TAKRAF GmbH, which provides technical solutions for mining and mineral processing, has also been issued an order for allegedly failing to fulfill its corporate social responsibility obligations.

Freudenberg Performance Materials India received a penalty order in August this year for failing to fulfill its corporate social responsibility obligations for fiscal 2020 and 2021. “Considering the proactive steps we have taken to rectify the procedural lapses and the subsequent compliance with our CSR obligations, which demonstrates our commitment to CSR, on the basis of the reasons stated above, the Appellate Body orders in our favor only the These charges of procedural lapse in levying minimum charges have been dismissed and the matter is now closed,” Sivasailam G Ltd, managing director of Freudenberg Performance Materials India Pvt Ltd, told Mint in response to an email query.

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A penalty order was issued to Thakraf India last year. “Subsequently, the Regional Director (RD) intervened in the RoC order on the grounds that there was only procedural supervision of the transfer to a separate special bank account,” a spokesperson for TAKRAF Gmbh said in an email in response to Mint’s query. Revised on January 22, 2021 requirement and the above breaches occurred in the first year of the requirement” The RD is the senior field officer responsible for administering the Companies Act.

“Furthermore, it should be recognized that the company did not harm the public interest or gain any unfair advantage. We actively worked to correct procedural deficiencies and the company subsequently complied with its CSR obligations, demonstrating its commitment to CSR,” the spokesperson wrote .

Subodh Dandawate, associate director of regulatory services at business and professional services firm Nexdigm, said India was the first country to legally enforce corporate social responsibility and its regulations have been tightened over a period of time. “Complying with these regulations is an absolute requirement for all companies to which CSR spending applies,” he said.

Dandawat said to avoid any potential irregularities, CSR committees and company boards need to regularly evaluate their CSR policies, monitor expenditure plans and incorporate appropriate disclosures in financial statements. He said the CSR provisions also allow companies to deposit unspent CSR amounts related to ongoing projects into a special account, offset any excess amount and transfer any unspent amount to the Companies Act Schedule Among the funds specified in Table VII. Dandavat said criminal penalties can be mitigated by always taking precautions.

Noorul, partner at law firm Lakshmikumaran and Sridharan, said with the introduction of reporting functionality, the RoC can easily identify violations and award penalties.

“To ensure compliance and effective use of funds, companies can align their CSR initiatives with legal requirements and community needs, partner with reputable organizations, and continuously monitor the effectiveness of initiatives through internal training and awareness programs Create a culture of corporate social responsibility,” Nurul said.

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