A parliamentary panel has recommended the Companies Bill make it mandatory for companies above a particular turnover or net worth threshold to allocate two per cent of their net profit towards corporate social responsibility (CSR).
Parliament’s standing committee on finance, headed by Bharatiya Janata Party leader Yashwant Sinha, on Thursday finalised its report on the Companies Bill, 2011. The report would be given to Lok Sabha Speaker Meira Kumar soon.
The committee wanted the government to have a clause in the Bill stating companies with net worth above Rs 500 crore or an annual turnover of over Rs 1,000 crore would have to earmark two per cent of their average net profits to CSR. The average net profits would be for the three-year period preceding the year in which the CSR allocation is to be spent, sources privy to the development told Business Standard.
Companies Bill 2009 had this particular clause, but it was later diluted to make companies’ spends on CSR voluntary. However, according to that Bill, companies not spending on CSR would have to disclose this to shareholders.
The government, in its interactions with the committee, had said since CSR spend would become a law for the first time anywhere in the world, the clause would be reviewed after enacting the law.
The committee also suggested a central funding agency be created for companies that couldn’t spend the allocated money, and these funds be parked in that agency, something the government said it would review. The panel also asked the government to revert to the earlier stand of appointing auditors for a year, against the Bill’s proposal of appointing them for five years.
“The standing committee has suggested shareholders’ nod would be required for the appointment of auditors at every annual general meeting,” said a source.
The committee has also sought a transition period for companies to appoint at least one woman director on the board.
This is the second time the standing committee has vetted the Bill. The Bill, first introduced in the Lok Sabha in 2008, lapsed after the dissolution of the 14th Lok Sabha. It was reintroduced in August 2009, with the standing committee giving its recommendations in 2010. The government had tabled the revised Bill in 2011, but the standing committee had said it should be vetted again, claiming many provisions in the revised Bill were new, and it had not deliberated on these.