Parliamentary panel for mandatory CSR

Report on Companies Bill tabled in the Lok Sabha also wants clearer definition of private placement

A parliamentary panel has asked the government to make corporate social responsibility (CSR) spending mandatory for companies above a certain threshold. It also wanted the government to clearly define in the Companies Bill the term ‘private placement’ of instruments to raise money.

In its report on the Companies Bill, 2011, tabled in the Lok Sabha on Monday, Parliament’s standing committee on finance also suggested to the government that appointment of auditors be approved by shareholders at the annual general meeting . The Bill had proposed to allow appointment of auditors for the straight five years.

It endorsed the Bill’s provision that not only partners of an audit firm, but the firm itself be penalised if auditors are found to be involved in fraudulent purposes. However, the panel wants the penalty to be specified and not be open-ended, as it would expose auditors to uninsurable risks. The Yashwant Sinha-headed panel also wanted the whole time director to be included in the definition of key managerial personnel, whether or not the company has managing director. The corporate affairs ministry had told the committee that whole-time directors need not be brought within the purview of these personnel, as they do not exercise substantial powers of management where managing directors are in position. Experts said the committee wanted this provision so that whole time directors were held responsible in case of certain irregularities.

It said the provisions of the Bill on CSR should be modified by substituting the words "shall make every endeavour to ensure (CSR)” with “shall ensure".

The Bill said every company having a net worth of at least Rs 500 crore or turnover of at least Rs 1,000 crore or a net profit of Rs 5 crore in any financial year would make an endeavour for CSR. The Bill prescribed that these companies try to spend at least two per cent of average net profit in the preceding three years on CSR every financial year. If not, the board of directors would have to state the reasons in its report. As such, the bill did not make CSR mandatory.

To a suggestion by the standing committee that it be made mandatory, the corporate affairs ministry had said,"India will be the first country to include provisions on CSR in its company law. The provisions may be reviewed after enactment of the legislation and watching the experience of companies.

The committee also wanted the government to clearly define the term 'private placement'. The ministry of corporate affairs, to this suggestion of the committee, had earlier stated that as the term ‘public offer’ had been defined, there was no need to further define the term.

RAISING CONCERN
First report on Companies Bill, 2009 given by committee on August 31, 2010 Revised Bill, 2011, referred to Standing Committee on Finance, as certain new provisions included
COMPANIES BILL 2011	STANDING COMMITTEE ON FINANCE
* Wants companies to make endeavour for CSR	* Says CSR should be mandatory above a certain threshold
* Does not provide definition of private placement	* Wants private placement to  be defined
* Proposes appointment of auditors for straight 5 years	* Wants appointments to be approved by shareholders at every AGM
* Does not include whole-time directors in key managerial personnel, in case MD is there	* Wants whole-time directors to  be part of key managerial personnel
* Proposes eligible members of CLB to be members of NCLT	* Wants fresh selection process regarding the issue
CLB: Company Law Board, NCLT: National Company Law Tribunal , AGM: Annual General Meeting,CSRr: corporate Social Responsibility, MD: Managing Director

Vijay explained that if a company raised money from more than 50 people, it was considered a public issue and the company had to make more disclosures.