New Companies Bill to compel CSR spending, limit auditor clients

The government today approved changes to the Companies Bill, 2011, introducing a provision to compel all companies to spend on activities related to corporate social responsibility (CSR). A company not doing so or spending less than the required amount would have to explain why.

The revised Bill is expected to be introduced in the winter session of Parliament. It has also limited the number of companies an auditor can serve at any time to 20. It has brought more clarity on the criminal liability of auditors. The changes include annual ratification of appointment of an auditor for five years and a new clause for falsely inducing banks to obtain credit.

“The proposed legislation will bring the law on the subject of corporate functioning and regulation in tune with the global best practices...through enhanced accountability and transparency,” stated the ministry of corporate affairs.

AMENDMENTS TO THE COMPANIES BILL, 2011

• Provision to make expenditure on CSR mandatory; preference to areas in vicinity of operations
• Brings in whole-time directors within the purview of “key managerial personnel”
• Clarification of provisions relating to private placement; pegging interest rate on inter-corporate loans with government-dated securities

According to Pavan Kumar Vijay, managing director of Corporate Professionals, an entity offering companies a spectrum of services: “The amendments have made the Bill stricter and law-oriented and will work in favour of attracting more domestic and foreign investors to Indian companies.”

The amendments in the Bill are in line with suggestions put forward by Parliament’s standing committee on finance. Notably, unlike most Bills, this one was referred twice to the panel. The first report, on the Companies Bill of 2009, was given on August 31, 2010.