Companies Act amendments likely for clarity on CSR norms

ATR prepared on recommendations made by govt-appointed panel

Government is likely to make further amendments in the Companies Act along with changes in certain rules as part of its efforts to provide more clarity on Corporate Social Responsibility (CSR) provisions.

A government-appointed high level panel recently submitted recommendations on CSR norms to the Corporate Affairs Ministry, which is implementing the Act.

Under the Companies Act, 2013, certain class of profitable entities are required to shell out at least 2% of their three-year annual average net profit towards CSR activities. These provisions came into force from April 2014.

Sources said an action taken report has been prepared on the recommendations made by the panel. The report has been cleared by Corporate Affairs Minister Arun Jaitley.

For further action on the panel's suggestions, the ministry is looking at various options, including possible amendments to the Companies Act, they added.

Changes would be made to certain rules related to CSR activities apart from coming out with clarifications through circulars, sources said.

While amendments to the Act need to be cleared by Parliament, rules can be changed by the ministry itself.

Proposals for possible amendments to the Act would be submitted to the Companies Law Committee, sources said.

Amid concerns over certain provisions in the new Act, the ministry had set up the committee in June this year. The panel is expected to finalise its report by December-end.

The panel, chaired by former Home Secretary Anil Baijal, was tasked to make suggestions for improved monitoring of CSR spending.

"Reference to 'any financial year' in Section 135(1) of the Act, needs to be re-examined by the Ministry of Corporate Affairs with a view to making necessary amendment(s) either in Section 135(1) or in the relevant rule," the panel said.

Besides, it has called for clarification with regard to the definition of the term 'net profit' used for deciding CSR spending criteria. 

Section 135 of the Act pertains to CSR.

Among others, the committee had said differential tax treatment for expenditure on various CSR activities may create unforeseen distortion in allocation of funds across development sectors.

At present, certain activities such as contribution to the Prime Minister's National Relief Fund qualify for tax exemption.

Already, the ministry has made a raft of changes to the Companies Act, 2013 -- whose most provisions came into effect from April 1, 2014. Besides, various rules have been amended.

As per the Companies Law Committee's terms of reference, it would also examine the recommendations received from the Bankruptcy Law Reforms committee, Committee on CSR, Law Commission and other agencies.