Companies Bill: Firms keep fingers crossed on CSR

Indian companies opposing the government’s plans to make Corporate Social Responsibility (CSR) spend mandatory under the proposed Companies Bill 2009, may hope to find relief in the form of exemptions or riders in the rules which will follow the new Act.

A delegated legislation, or leaving aside legal procedural aspects of rules that are to be notified at a later date, without a prior parliamentary approval, will thus be the key to most industry worries.

Mandatory CSR, even if mentioned in the Bill passed in Parliament, may not be binding for all companies across the board. Also, the government may not suggest penalties for failing to spend the required percentage of the company’s profits on CSR. The rules or delegated legislation, to be notified later, will address genuine industry concerns, according to officials.

The Parliamentary Standing Commitntee on Finance, which looked into the Bill, had identified 235 instances where the draft Bill leaves the specific law making to the rules. The panel had asked the ministry that at least in 25 cases, the Act should not leave substantive provisions for rule making at a later stage.

The thrust on delegated legislation will allow the ministry to push the Companies Bill — revised after receiving the suggestions of the Parliamentary panel and legal vetting — during the ensuring Budget session of Parliament. The session begins on February 21.

According to the draft Bill, the companies were expected to earmark two per cent of their net profits towards CSR activities every year. The law was meant to be applicable for all companies with a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more. The third criteria was a net profit of Rs 5 crore or more. It is expected that the government may allow more flexibilities in this threshold.

Delegated legislation also becomes necessary as the Bill intends to allow scope for law making covering futuristic issues such as environmental pressures, impact of global operations of Indian firms on domestic stakeholders, technological collaborations, free movement of capital etc.

The key areas where Parliamentary panel wanted more clarity in the Act itself, include proportion and procedure for retirement of directors by rotation, computation of net profit, definition of small companies, manner of subscribing names in the memorandum of association, prescription of time to refund share application money, manner of conducting extraordinary general meeting, resolutions and agreements to be filed with registrar of companies, etc.