Companies Face Penalty For Not Meeting CSR Spend

Although the new rule is expected to be applied with prospective effect, it is unclear if a case can be made out against the IL&FS directors, who were sacked.

The government on Wednesday recommended several amendments to the Companies Act, including penalty on companies that do not meet the mandated 2% spending requirement towards corporate social responsibility (CSR) and “fit and proper” criteria for debarring directors from holding board positions.

The move is a fallout of the IL&FS scandal, where the government was forced to supersede the board and take control but realised that it can do little to bar the disqualified directors, including some top names of the corporate sector, from holding board positions as the new Companies Act did not provide for such as action.

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As a result, it has decided to go back to the Companies Act 1956, which allowed the Centre to not just seek the removal of persons concerned with the management of a company and suspected of “fraud, misfeasance, persistent negligence or default in carrying out his obligations under the law or breach of trust” but also barred them from being appointed board members for five years from the date of removal. Under the new law the government will have to move an application before the National Company Law Tribunal, sources said.

Source: Economic Times

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