Mumbai: The ministry of corporate affairs (MCA) has criticized companies for failing to meet the mandatory spending requirement on corporate social responsibility (CSR) initiatives.

Rejecting reasons cited for not spending on CSR, the ministry has told companies that they can contribute to the Prime Minister’s Relief Fund to meet their targets, said two people familiar with the matter. “The MCA has sent out notices to companies for failing to meet the requirement of spending 2% of average net profits towards corporate social responsibility initiatives," said one of the two people, a senior MCA official.

These notices were sent out to close to 50 companies in July and August and most of these companies have already replied to the ministry.

In their replies, the companies have cited lack of means and good avenues.

“Most of the companies in the listed and unlisted space are in compliance with the statutory requirement of spending on CSR. But some are still not able to as they are too small and lack the means to search for good avenues to make spends towards CSR activities," said the second person cited above.

Government rules now mandate that companies with a net worth of Rs500 crore or revenue of Rs1,000 crore or net profit of Rs5 crore should spend 2% of their average profit in the last three years on social development-related activities.

“Companies say that they are too small to identify good projects for CSR. But, then why can’t they contribute to the Prime Minister’s Relief Fund, which is a good avenue to deploy funds and also helps in meeting the statutory requirement," said the MCA official.

While spending on CSR is a mandatory requirement under the law, there are no penal provisions for failing to meet the criteria.

“This is because as per Section 135 the only consequence for not contributing is for the board of directors to specify in its report the reasons for not spending on CSR and there is no other penalty provided in the Companies Act, 2013" said Lalit Kumar, partner, J. Sagar Associates.