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The much-talked-about Companies Bill 2011, which has finally
been introduced in the Parliament, has strict expenditure and disclosure
guidelines for corporate social responsibility (CSR) activities of companies. Despite major protests by corporate groups, the
bill makes disclosure of CSR spend mandatory for companies with a net worth of
Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or a net profit of
Rs 5 crore or more during any fiscal.

However, the bill does not have any provision/section that
says what action can be taken against the companies that fail to spend the said
percentage. The bill says that any company failing to spend the ‘mandatory’ percentage
on CSR will not be penalized in any way. They will only have to provide
sufficient reasons for non-compliance.

Interestingly, there is no example of ‘sufficient reason for
non-compliance’ mentioned in the bill. This has irked a section of ardent CSR
professionals and certain NGOs. A CSR head at a major corporate, who did not
want to be named, told CauseBecause, ‘Big companies are masters of “reasoning
and rationalizing”. Hence, the bill will only make the conscious companies obliged to
spend on CSR, while the rest will spend on finding reasons to not comply. The responsible ones
are anyway spending considerable amounts on CSR. The bill should have had teeth
to ensure that everybody spends equally on CSR.’

It is to be noted that the new bill asks companies to
earmark two per cent of their three years’ average profit for CSR and disclose
the manner in which it was carried out. It has also listed certain activities
that can be included in the CSR reports of companies. The bill lays emphasis
on spending towards environment conservation and humanitarian affairs like poverty
eradication, promotion of education, and women empowerment. Companies can also
choose among reduction of child mortality, improving maternal health, and fight
diseases such as AIDS and malaria.

Financial donations are also accepted as CSR, provided the
amount goes to the Prime Minister’s National Relief Fund or funds set up by the
central government or the state governments for socio-economic development and
relief.

Contributions
to government funds for the welfare of the scheduled castes, the scheduled
tribes, other backward classes, minorities, and women will qualify for CSR.

Interestingly, the
bill also considers spending towards
skill enhancement of own employees as well as incentives for their families as
part of the company’s CSR.

Some of the other amendments in the Companies Bill include fixed
term for independent directors and allowing one-person company, as well as
strengthening the provisions to check fraud and tighten laws for raising money.

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