**4. Impact of Section 135**

Section 135 and the Rules as they were did not contain any enforcement provision and was thus largely viewed as a provision that would apply on a 'comply or explain' basis [15]. This means that in case of non-compliance, the board has to include an explanation in its responsibility statement with reasons as to noncompliance. Thus, the mandatory aspect of the provision was that companies were mandated to have a CSR committee and to make CSR disclosures, rather than the CSR expenditure itself. Despite the clear wording of the provision, at the outset there was some confusion as to whether the CSR expenditure requirement was mandatory or not. This was largely due to the fact that at the time the Ministry of Corporate Affairs and the headlines heralded CSR as a mandatory provision. For instance, Sachin Pilot (the then Minister of Corporate Affairs) 'claimed without batting an eyelid that India was first to make CSR mandatory although this was a largely exaggerated statement' [16].

However, the comply or explain nature of the CSR provision meant that compliance was largely dependent on companies. Early data circulated by the Government of India highlighted that in the first year of its implementation, out of 10,475 eligible companies, 7334 have reported on CSR as of 31 January 2016, indicating compliance by about 70% of the companies [17]. However, of these reporting companies, only 3139 (or about 30% of all eligible companies) actually any CSR expenditure. Thus, out of the total prescribed CSR spending of Rs 118.83 billion by these 3139 companies, Rs 88.03 billion (or 74%) was actually spent. A study by Varottil considered a preliminary analysis of CSR spending amongst a sample representing the Nifty 100 companies based on hand collected data containing disclosures made in the annual reports of the companies as required by Section 135 of the Companies Act 2013 as well as the CSR Rules [7]. The findings highlighted that for the financial year 2014–2015, out of these top 100 companies (for 91 of which data was available), 37 (40.65%) complied with the 2% CSR spending requirement, while 54 (59.35%) did not meet the requirement [7]. In the financial year 2015–2016, a total of 99 companies were analysed (for 89 of which data was available), 49 (55%) complied with the 2% CSR spending requirement, while 40 (45%) did not meet the requirement [7]. Varottil writes that, 'this suggests a perceptible increase in the number of companies that complied with CSR spending in the second year as compared to the first' [7]. However, he also points to the fact that although spending may be on the rise, the overall effect of the enactment can only be deemed to be mixed; this is because the disclosures as to non-spending are sub-standard, 'boilerplate and inadequate and do not reveal any material information to investors and other stakeholders' [7].

Unsurprisingly, another government report conducted in 2018-2019 as part of the constituted Committee on CSR found that CSR compliance in India had been moderate over the last few years except in the FY 2015-2016 when it had been quite high [18]. It defined CSR compliance in terms of the total CSR expenditure as a percentage of total prescribed amounts for all companies for each financial year [18]. In the FY 2015-2016, the compliance percentage has shot up to 85% from 59% in 2014-2015. In the subsequent years, the compliance percent has decreased from 72% in 2016-2017 to 57% in 2017-2018. The report once again found that although some of the reasons given by companies to justify non-compliance were reasonable, most others were untenable [18]. It is unsurprising that in this context it was felt that for the CSR provision to be enforced more seriously, significant changes would need to be made.

In the period between 2013 to 2019, several circulars were issued by the Ministry of Corporate Affairs to try to clarify some of the uncertainties around the implementation of s 135 of the Companies Act. A High Level Committee constituted by the Ministry also produced a report in 2015 highlighting some potential changes that would need to be made. However, the Report also clearly stated that the provision was 'based on the general principles of 'comply or explain' (which) are for the time being sufficient for ensuring compliance with the law' [19]. The next big change in CSR enforcement in India comes from the 2019 amendment of the Companies Act, which moves away significantly from this 'comply or explain' approach.
