CSR May Become Mandatory in India, if Companies Bill is Passed with House Panel Suggestions

NEW DELHI: Decks have been cleared for reintroduction of the Companies Bill, 2011, in the monsoon session. If the bill is passed after endorsing all the suggestions made by the Parliamentary Standing Committee on Finance, corporate social responsibility (CSR) would, for the first time in the world, become mandatory.

The report recommends that companies with net worth above Rs 500 crore, or an annual turnover of over Rs 1,000 crore, earmark 2% of average net profits of three years towards CSR. In the draft Companies Bill, 2009, the CSR clause was voluntary though it was mandatory for companies to disclose their CSR spends to shareholders.

The panel, headed by Yashwant Sinha, finalised and adopted the report last Thursday. It has proposed that company boards should have at least one woman member. If the report is passed, it would be the first time in the world that CSR would not be a voluntary issue, but incorporated in law making it mandatory.

The committee has recommended that a central fund be created for companies which are unable to spend the allocated funds for CSR. The unspent funds would be parked in this central fund for future schemes.

The Left has submitted a dissent note to the report, saying the bill has loopholes, as it overlooks the basic question of stopping corporate delinquency. CPI MP Gurudas Dasgupta has raised specific issues pertaining to CSR, corporate delinquency and accountability and independence of auditors.

The note, which is part of the standing committee report, says, “it is with people’s money that private managements run their businesses. Above all, they get loan at concessional rate, they get tax exemptions. Therefore, the management may be private, but resources are public… There has to be social accountability… The bill does not provide anything. Most companies are violating laws, not paying money to banks, violating labour laws and even manipulating balance sheets… After so many years, the bill is sought to be passed, it is full of loopholes providing every opportunity for corporates to become delinquent.”

This is the second time that the panel has vetted the bill. The legislation was first introduced in 2008 in the Lok Sabha, but lapsed. It was re-introduced in August 2009, after the new Lok Sabha was constituted and the standing committee gave its recommendations in 2010.

The government tabled a revised bill in 2011, and it was once again referred to the standing committee. The report would be tabled in the Lok Sabha in July.

(Economic Times)
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