New Delhi, 16 March 2021: Industry body Confederation of Indian Industries (CII) has asked the centre to re-frame the monetary penalty for CSR non-compliance in such a way that it should not exceed the unspent CSR amount by the companies.
"We would recommend that the penalty that be imposed for non-compliance should not exceed the unspent CSR amount," CII said.
The industry body presented its recommendation through a Paper submitted to the Ministry of Corporate Affairs highlighting matters with respect to framework for settlement of offences; liability of independent directors; vicarious liability, etc.
The CII has submitted the paper in response to the recently concluded the exercise of decriminalising the Companies Act, 2013.
In January this year, the Corporate Affairs Ministry had changed the provisions for monetary penalty for businesses not spending 2% of net profit on CSR or for not transferring unspent amounts to specified accounts.
According to the new rules announced by the Ministry of Corporate Affairs, the penalty for non-compliance of CSR is at least Rs 1 Crore for the defaulting company and at least Rs 2 lakh for each defaulting officer.
The current rule was a replacement of the earlier imprisonment provision—maximum three years—for defaulting officers. The provision was removed after strong resentment among corporates followed by protests by corporates and different industry bodies.
Need to limit liability for independent directors
The CII also asked the government to limit the liability upon the independent directors regarding the wrong doing in a company. It advocated that establishing safe harbours will go a long way towards addressing concerns of talented individuals wishing to join company boards as independent directors.
"Liability of an independent director under the Companies Act may be limited to the extent of such contraventions / defaults, which are committed by the company with the knowledge or consent of the said independent director," CII said.
The chamber said it is necessary to expressly exempt independent directors from vicarious criminal liability since they are not involved in the day-to-day running of the company.
"While wrong doers must be prosecuted, there need to be procedural guidelines/safeguards across laws to restrict and minimize proceedings against individuals who are not actually and demonstrably in charge of the management," said CII.
It asked the government to allow proceedings against the independent directors, only when there is prima facie evidence of their involvement in a matter.
"A non-obstante clause may be incorporated in the Act to exclude independent directors from any vicarious criminal liability for offences committed by the company," it said.
As a general principle, given the onerous responsibilities and liabilities on directors, including independent directors and company secretaries, penalties ought to be limited to fines instead of imprisonment, suggested the chamber, adding, "The whole idea of decriminalizing civil duties is essential to conserve faith in the institution of independent directors."
