CB BureauMandatory corporate social responsibility
(CSR) spend would become a law for the first time anywhere in the world, if the
recommendations of the Parliament’s standing committee on finance, headed by
Bharatiya Janata Party leader Yashwant Sinha, are accepted by the Lok Sabha.
The committee has recommended that the Companies
Bill, 2011, make it mandatory for companies above a particular turnover or net
worth threshold to allocate two per cent of their net profit towards CSR. The
standing committee finalized
its report on the Companies Bill on June 7, 2012, and will soon hand it over to
Lok Sabha Speaker Meira Kumar.
The report says that companies with net
worth above Rs 500 crore or an annual turnover of over Rs 1,000 crore will have
to earmark two per cent of their average net profits of three years toward
CSR.
In the Companies Bill 2009, the CSR clause was
included for the first time, but it only asked companies to voluntarily spend
on CSR activities and made it mandatory for all companies to disclose their CSR
spends to shareholders.
The government,
in its interactions with the committee, had said since CSR spend would become a
law for the first time, the clause would be reviewed
after enacting the law.
The committee also proposed the idea of
creating a central funding agency for companies that could not spend the
allocated money. The unspent funds will be parked with that agency.
The committee also asked the
government to revert to the earlier stand of appointing auditors for one year,
against the Bill’s proposal of appointing them for five years. The committee
argument is that shareholders’ nod will be required for appointing auditors for
CSR in every annual general meeting.
On the matter of having one woman director
on the board, the committee has sought a considerable transition period as
major corporate groups cannot immediately have a change in the board of
directors.
Interestingly, the Bill has been vetted for
the second time by the committee.
The Bill, first introduced in the Lok Sabha in
2008, lapsed after the dissolution of the 14th Lok Sabha. It was reintroduced
in August 2009, with the standing committee giving its recommendations in 2010.
The government had tabled the revised Bill in 2011, but the standing committee
had said it should be vetted again, claiming many provisions in the revised
Bill were new, and it had not deliberated on these.