First time in the world, CSR is included in an enactment

Come Monsoon session, the 56-year-old Companies Bill incorporating social responsibility obligations on corporate houses will be
rewritten.

Although the government, amid stiff resistance
from the corporate world, is not making the CSR obligation compulsory, it is
putting a moral obligation on companies to report their CSR initiatives. It
has also made it mandatory for each company to give reasons in case of failure
to report.

“For the first time, CSR is included in any
enactment anywhere in the world. We have made reporting mandatory
and they will have to explain if they cannot perform. That is provided in
the bill,” said Corporate Affairs Minister M Veerapa Moily in an
interview with Press Trust of India.

As per the bill, every company with a
net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net
profit of Rs 5 crore and above, in a fiscal will have to form a CSR committee,
consisting of three or more directors, of which at least one director should be
an independent director. The obligations involving spending of two per cent of
net profit on CSR activities has already created quite a storm with India Inc
bitterly opposed to it. The corporates say they already perform a lot of social
responsibility and would not like a situation of police raj in the eventuality of such obligations becoming
mandatory.

Moily said the law would give social
sanction and create some kind of pressure on corporates. Indicating that there
would be a step-by-step progress on the issue, Moily said, “For the
present, this is enough. Making it mandatory will create a lot of problems for
the corporates.”

The bill is in the last stages of
considerations before the Parliamentary Standing Committee and the government hopes
that its recommendations will be placed in parliament shortly.

“I was told that the Parliamentary
Commitee had its last meeting on June 5. They will formulate recommendations
and send it to us. If they send it to us in time, we can move it. If there are
substantial changes, then we will send it to the Cabinet before taking it for
passing in Parliament,” said Moily.

Introduced in the wake of the Rs
14,000-crore Satyam fraud, the fresh bill proposes to enhance the accountability
of companies, seeking greater disclosure and protection of investors and
minority shareholders. Under the provisions of the bill, the Serious Fraud
Investigation Office (SFIO) will have powers to arrest and prosecute cases of
corporate crime. A completely new provision will be that SFIO will have powers
to issue letters rogatory to foreign jurisdictions in cases where people
involved are located outside the country.