Govt Orders Companies to Spend 2% of Net Profit on CSR

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MUMBAI: The Indian Merchants Chamber (IMC) has raised concerns about specific clauses in the new Companies Bill 2013.

Shailesh Vaidya, IMC president, said in Mumbai, “The (negative) repercussions of certain provisions of the Bill must be considered. For instance, the definition and role of independent directors is raising concerns within the corporate sector. A sense of wariness and unease has crept in with the new code of accountability laid out in the Bill.”

Another bone of contention is related to Corporate Social Responsibility (CSR). So far CSR was the prerogative of company management. However, the new Bill mandates that every company having a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more during any financial year must constitute a CSR committee consisting of three or more directors, with at least one independent director.

This committee will formulate a CSR policy for the company and recommend the expenditure to be incurred on CSR activities. At least 2% of the average net profit of the company made during three previous financial years must be spent on CSR activities.

The new Companies Bill has had a tumultuous journey lasting the entire term of the UPA government. It awaits Presidential assent to be promulgated as law. However, the end of the controversy is nowhere in sight.

(Times of India, 29 August 2013)

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