Corporate Affairs Ministry Unlikely to Heed Calls for Mandatory CSR in Companies Bill

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NEW DELHI: The Corporate Affairs Ministry is unlikely to yield to pressure from some political parties to make 2 per cent CSR spending mandatory for corporates under the new Companies Bill, which is currently being scrutinised by a parliamentary committee.

The MCA is expected to communicate its stand to the Parliamentary Standing Committee on Finance in a meeting next week, sources said.

Official sources said that the MCA will also retain some key clauses related to issues like disclosures for private placement of shares and a fixed five-year term for statutory auditors.

According to sources, some members of the parliamentary standing committee that scanned the Companies Bill, 2011, have been seeking mandatory CSR activities under the Bill.

At present, the clause suggests that large companies would have to earmark 2 per cent of their three-year average profit on CSR activities. Although failure to comply by the norm would not attract penal provisions, companies will have to mention in their annual reports the reason behind the non-compliance.

This, the standing committee had earlier said, was “check enough on compliance”, but now some MPs have been pressing for CSR to be made completely mandatory and for penal actions in case of non-compliance, a source said.

Another clause that has attracted the ire of the committee was that of disclosures to be made in case of private placement of shares. This particular clause was added after the committee had already given its report.

Under the clause, the time limit for completing private placement of shares was fixed at 60 days. It also mandated a company to to disclose the names and details of people if shares were allotted to more than 49 persons.

In a crucial meeting held on January 24, the standing committee also asked the MCA to explain why rotation of statutory auditors has been fixed at five years instead of maintaining the existing provision under which companies renew contracts with their external auditors every year.

“We feel that auditors may come under pressure of getting their contracts renewed and so compromise with the company management. Our intention is purely to avoid occurrence of a fraud,” another source said.

The Companies Bill was sent back to the MCA by Opposition parties led by the BJP as about two dozen changes were made to the Bill after it was last scanned by the Committee.

The new Companies Bill, which would replace the existing half-a-century-old Act, seeks tighter corporate governance norms and greater disclosure by companies.

(PTI)

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