With a consideration towards the strategy of inclusive growth, the new Companies Bill, 2013 has indirectly…

Question

With a consideration towards the strategy of inclusive growth, the new Companies Bill, 2013 has indirectly made CSR a mandatory obligation. Discuss the challenges expected in its implementation in right earnest. Also discuss other provisions in the Bill and their implications.

Ghissu Editorial · Accepted Answer

Mandatory CSR under Section 135 of the Companies Act, 2013 faces a weak comply-or-explain start, skewed geography, scarce implementing capacity and an outlay-over-outcome culture. The Act's other provisions, independent and women directors, auditor rotation, class action suits and the NCLT, strengthen corporate governance after Satyam.

**Introduction**

The Companies Act, 2013, shaped by the lessons of the Satyam fraud, made India the first country to write a CSR duty into company law: under Section 135, large companies must spend 2% of their average net profit of three years on Schedule VII activities, linking corporate growth to inclusive growth.

**Challenges in Implementing Mandatory CSR**

SKETCH: flow | How Section 135 Works
- Crosses size threshold
- Board CSR committee
- CSR policy, Schedule VII
- Spend 2% of profit
- Report or explain

1. **Comply-or-explain loophole**: Firms could simply explain non-spending until the 2019 amendment forced unspent sums into an Unspent CSR Account or a Schedule VII fund.
2. **Skewed geography**: The local-area preference concentrates money in Maharashtra, Karnataka and Gujarat, leaving the North-East and aspirational districts short.
3. **Capacity and diversion**: Scarce credible NGOs and routing through promoters' own trusts led the 2021 Rules to require Form CSR-1 registration of implementing agencies.
4. **Outlay over outcome**: Companies report rupees spent, and only those with a CSR obligation of Rs 10 crore or more must assess impact.

**Other Provisions of the Act and Their Implications**

1. **Board reform**: Section 149 mandates one-third independent directors on listed boards and at least one woman director, improving oversight and diversity.
2. **Auditor rotation**: Section 139 rotates auditors after fixed terms, curbing the cosy ties exposed in Satyam.
3. **Investor protection**: Class action suits under Section 245 and a statutory SFIO under Section 211 raise the cost of fraud.
4. **One Person Company and NCLT**: Sole entrepreneurs gain limited liability, and the NCLT, set up in 2016, centralised company disputes, though compliance costs rise for small firms.

**Conclusion**

Mandatory CSR and the 2013 governance reforms have drawn corporate India into inclusive growth; if spending follows need and is judged by impact, CSR can become a true partner of SDG 8 and Viksit Bharat 2047.

With a consideration towards the strategy of inclusive growth, the new Companies Bill, 2013 has indirectly made CSR a mandatory obligation. Discuss the challenges expected in its implementation in right earnest. Also discuss other provisions in the Bill and their implications.

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