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House panel bats for mandatory CSR

Yashwant Sinha-led parliamentary committee to scrutinise only new clauses

Gyan Varma & Joe C Mathew  |  New Delhi 

A parliamentary panel has stuck to its position to make it mandatory for companies to spend a portion of net profit on corporate social responsibility (CSR).

The standing committee on finance also decided to take for scrutiny only the new clauses added to the Companies Bill, 2011, after the panel’s earlier inspection.

“It should be made mandatory because the public sector companies are already giving five per cent CSR on the total profit, while it is not known to people what the private companies are doing,” a committee member said. “The committee, in its report in August 2010, had recommended two per cent CSR but the government diluted it.”

The government had wanted the standing committee to take another look at the Bill, as the Bharatiya Janata Party-led Opposition expressed reservation at the changes made to the draft after its earlier version was vetted by the panel.

The committee was divided on whether the members should discuss the entire Bill or only take the 22 new issues brought in by the government. After discussion, Yashwant Sinha, the panel chairman, decided only the new provisions would be discussed. Sinha said the issues already agreed upon will not be taken up, unless some specific concerns are raised by members.

The committee, which met earlier this week, opposed the government’s decision to dilute the recommendation for mandatory corporate social responsibility spend. It had suggested companies be asked to set aside two per cent of net profits for such activities. The government retained the two per cent CSR clause, but stopped short of making it mandatory. As of now, the Bill makes disclosure on CSR spend mandatory.

Almost two dozen clauses were added by the government after the Companies Bill, 2009, was approved by the panel. These include the ones that cover the definition of a private company and the number of members it can have, modification of provisions related to private placement and rotation of auditors.

One such clause that had worried industry was the definition of “officer who is in default”. Instead of including “promoter”, as suggested by the panel, the government took a broad view to include “any person on whose direction or instruction the board is accustomed to act” under this definition.

Another area of concern was modifications in provisions related to private placement — the exclusion of qualified institutional buyers from this provision, prescription of minimum application size and insistence on cheque payments. The number of members in a private company has been proposed to be increased from 50 to 200.

Similarly, the 2011 Bill does not allow creditors to file class-action suits, unlike the proposal in the 2009 Bill. In place of creditors, depositors are now given the right to file class-action suits.

The introduction of a clause on merger and amalgamation of a company with a foreign company is also among the new clauses inserted.

The new clauses sparked talks of formation of mediation and conciliation panels by the central government for speedy decisions on pending cases, and has sought exemption to a class or classes of companies from the provisions of the proposed Act. Similarly, it has re-inserted the current provision of allowing Courts to grant relief in certain disputes, though this provision was taken out in the Companies Bill, 2009.

The 2011 Bill mentions the need for a specific “number” of members who can move a notice for removal of directors while no number was prescribed in the earlier version of the Bill. It limits the requirement of appointing a small shareholder nominee in the director board to listed companies.

On redemption of minority shares, experts said the 2011 Bill has taken a contrarian view, as it goes against the spirit of empowerment of small shareholders.

On the basis of the report submitted by standing committee in August 2010, the Centre agreed to incorporate 157 of the 178 amendments suggested by the standing committee, but the government brought 22 new changes to the Bill.

The parliamentary committee has also decided to call representatives of the ministry of micro, small and medium scale enterprises to know their views.

The opposition members of the standing committee alleged that the government is deliberately delaying the Bill to benefit a few and is blaming the standing committee for the delay. The government is hopeful of introducing revised Companies Bill in the Budget session.

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First Published: Fri, January 27 2012. 00:55 IST