Listed Companies May Have to Spend Rs 8,000 Crore on Corporate Social Responsibility

Listed profit-making companies could spend up to Rs 8,000 crore on CSR activities if they are able to hit a target of 2% of net profits, stipulated in the new Companies Act approved by the Lok Sabha on Tuesday. MUMBAI: Listed profit-making companies could spend up to Rs 8,000 crore on corporate social responsibility (CSR) activities if they are able to hit a target of 2% of net profits, stipulated in the new Companies Act approved by the LokSabha on Tuesday. The bill, which has to be passed by the RajyaSabha before it becomes law, says that corporates ought to spend 2% of net profits on CSR activities. This is not mandatory but the company’s board will have to explain why spending has fallen short in a particular year. A study carried out by the ET Intelligence Group shows that bulk of this – nearly Rs 5,000 crore – will be spent by the companies constituting the Nifty 50 Index. But India Inc will have to scramble to meet the target as only two companies in the Nifty – Ambuja Cement and ITC- currently spend 2% of net profit towards CSR. A close examination of annual reports indicate that while most companies discuss CSR initiatives at great length only a handful have mentioned the amount spent, either in absolute terms or as a percentage of their sales or profit. Thirty eight companies of the Nifty companies mentioned CSR initiatives in their annual reports or exclusive sustainability reports, but there was no information on the amount spent. In their annual reports some companies have mentioned the amount spent by the group of which they are a part. For instance, the Mahindra Group spent Rs 72 crore on CSR while the group’s net profit was Rs 5,410 crore, which translates to 1.3% of its net profit. The Vedanta Group spent Rs 230 crore on CSR when its net profit was Rs 13,130 , or 1.75% of its net profit. “The performance of Indian companies in case of CSR has been pathetic as they have failed in their role of being a good corporate citizen. They are found to be doing more of lip service rather than actual initiatives in and around the areas of their operations,” says Anil Singhvi, chairman, Ican Investment Advisors. Companies would do well to spend more on CSR says Singhvi. “From my experience with Ambuja Cement, I can tell you we have benefited immensely from the goodwill that we generated because of engaging with the community around our operations.” As a policy, Infosys contributes 1% of its PAT to the Infosys Foundation, which then spends the money on numerous CSR initiatives. And while not all Tata group companies have disclosed their expenditure on CSR,  Tata Steel’s sustainability report mentions that the Tata group companies spend 4% of their net profit towards CSR. Others such as Ultra Tech, ICICI Bank NTPC and SBI spent less than 1% of their earnings. “Companies in India have not been able to link CSR with the sustainability of business and it is one of the reasons why companies are reluctant to spend on CSR,” says Sudhir Sinha, corporate head – CSR in CiplaBSE 1.57 %. While the company has not disclosed the amount it spends on CSR in its annual report, the company claims it to be far above 2% of its profit due to its various efforts linked to making low-cost life saving anti-HIV drugs available. “It (not spending much on CSR) is also to do with the Indian attitude that if you can get away without doing something, it is best to avoid it,” says Singhvi. Opinions vary on whether the government should have made CSR mandatory in the first place. “It’s not a good idea to make it mandatory. Companies who are doing it sincerely will continue to do it. And those who want to avoid doing it will find ways to do so,” says a sustainability and CSR consultant who did not wish to be named. But according to Rajesh Tiwari, CEO of the Indian Centre for CSR, by mandating CSR in the Companies Bill, the government has created a process whereby companies are forced to spend on social returns along with financial returns and they are forced to report on such spends.

Business Leaders Question Mandatory CSR

Business Leaders Question Mandatory CSR NEW DELHI: Indian Express reported that India Inc today reiterated its concern on the mandatory spending of at least 2 per cent on the corporate social responsibility activities. Rahul Bajaj, chairman of Bajaj Group, told that the government “succumbed” to the pressure exerted by the standing committee on finance and members of Parliament, who were keen on making it mandatory in the Bill. “The Companies Bill that has been passed by the Lok Sabha has many important features including those relating to independent directors, auditors. However, the most noteworthy and new feature of the Bill makes every corporate meeting certain criteria liable to spend 2 per cent of the average net profit of the last 3 years on CSR activities or explain why it has not been done so. Such a provision probably does not exist in Companies Act of any major economy of the world. It appears that the standing committee and most Parliament members were very keen on the provision and hence the government succumbed to the pressure,” Bajaj said. He said that most of corporates spend amount for CSR activities and “I can’t agree that philanthropy, CSR activities and our generosity should be mandatory.” After getting delayed for several years, the Bill was finally passed yesterday through voice vote by the lower House. The Bill brings the management of the corporate sector in line with global norms. It introduces concepts like responsible self-regulation with adequate disclosure and accountability, ushers in enhanced shareholders’ participation and provides for a single forum to approve mergers and acquisitions. Venu Srinivasan, chairman of TVS Motor, also said making the CSR spend mandatory is akin to levying another tax. “The new Bill has tried to strike balance between the autonomy of the board. (On the CSR) If it is made mandatory, it becomes another tax in a sense. I am not comfortable with that position. But in a country like India, if companies don’t undertake CSR activities, we will have serious issues in the long term. It is not a great deal of money (2 per cent of net profit) but on a principle basis I am not comfortable with it, even though I am not against CSR,” he said. “The emphasis has been on improving the corporate governance. The most welcoming step is the inclusion of one woman director on board… I was hoping that the government would incentivise the CSR activities,” Kiran Mazumdar Shaw, CMD, Biocon, said.

India Approves Company Bill 2011, making CSR mandatory

LokSabha Approves Company Bill 2011 Posted: 19 Dec 2012 09:04 AM PST INDIACSR Bureau NEW DELHI: On 18 December, finally the Lok Sabha passed the Companies Act 2011,  paving the way for a new modern company law. The new act will replace the existing Companies Act 1956, which was enacted 56 years ago. More importantly, the bill gives more muscle to shareholders. Now, shareholders can take legal action against frauds. It is to be noted that Company Bill closes a window for independent directors as they won’t get any stock options. Besides making independent directors more accountable and improving the corporate governance practices, the Bill seeks to make corporate social responsibility mandatory for certain companies. More Power to Serious Fraud Investigation Office Replying to the discussions on the Bill, Corporate Affairs Minister Sachin Pilot said that more powers are being conferred upon Serious Fraud Investigation Office  (SFIO) to tackle the issue of corporate frauds. SFIO will be given more statutory powers in the new Bill. Moreover, there will be better co-ordination between investigative agencies at the State and Centre, I-T Department and the Information Technology Ministry with SFIO. The Minister also sought more cooperation from the state investigative agencies in this regard. According to Sachin Pilot, when the current Companies Act of 1956 was made, there were only 30,000 registered companies in India. In 2012, there are over 8,50,000 companies. The Companies Bill, 2011, which was passed by the Lok Sabha yesterday (18 December 2012), on its enactment will allow the country to have a modern legislation for growth and regulation of corporate sector in India. The existing statute for regulation of companies in the country, viz. the Companies Act, 1956 had been under consideration for quite long for comprehensive revision in view of the changing economic and commercial environment nationally as well as internationally. In view of various reformatory and contemporary provisions proposed in the Companies Bill, 2011, together with omission of existing unwanted and obsolete compliance requirements, the companies in the country will be able to comply with the requirements of the proposed Companies Act in a better and more effective manner. The Companies Bill proposes that profit-making companies that meet certain conditions will be required to set aside 2 per cent of the net profit towards CSR. The Salient features of the Companies Bill 2011 are as follows: 1. (Amendment in Clause 135): In the Section on Corporate Social Responsibility (Section135), which is being introduced as a statutory provision for the first time, the words ‘make every endeavour to’ have been omitted from its Sub-clause (5). So that the first para of Sub-clause (5) of Clause 135 now reads as follows: “The Board of every company referred to in sub-section (1), shall ensure that the company spends in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.” Such clause is also amended to provide that the company shall give preference to local areas where it operates, for spending amount earmarked for Corporate Social Responsibility (CSR) activities. The approach to ‘implement or cite reasons for non implementation’ retained. 2. (Amendment in Clause 36): To help in curbing a major source of corporate delinquency, Clause 36 (c) amended, to also include punishment for falsely inducing a person to enter into any agreement with bank or financial institution, with a view to obtaining credit facilities. 3. (Amendment in Clause 143): Provisions relating to audit of Government Companies by Comptroller and Auditor General of India (C&AG) modified to enable C&AG to perform such audit more effectively. 4. (Amendment in Clause 186): Clause 186 amended to provide that the rate of interest on inter corporate loans will be the prevailing rate of interest on dated Government Securities. 5. (Amendment in Clause 144): Provisions relating to restrictions on non audit services modified to provide that such restrictions shall not apply to associate companies and further to provide for transitional period for complying with such provisions. 6. (Amendment in Clause 203): Provisions relating to separation of office of Chairman and Managing Director (MD) modified to allow, in certain cases, a class of companies having multiple business and separate divisional MDs to appoint same person as chairman as well as MD. 7. (Amendments in Clause 147 and 245): Provisions relating to extent of criminal liability of auditors – particularly in case of partners of an audit firm – reviewed to bring clarity. Further, to ensure that the liability in respect of damages paid by auditor, as per the order of the Court, (in case of conviction under Clause 147) is promptly used for payment to affected parties including tax authorities, Central Government has been empowered to specify any statutory body/authority for such purpose. 8. (Amendment in Clause 141): The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as twenty companies. 9. (Amendment in Clause 139): Appointment of auditors for five years shall be subject to ratification by members at every Annual General Meeting. 10. (Amendment in Clause 139): Provisions relating to voluntary rotation of auditing partner (in case of an audit firm) modified to provide that members may rotate the partner ‘at such interval as may be resolved by members’ instead of ‘every year’ proposed in the clause earlier. 11. (Amendment in Clause 2): ‘Whole-time director’ has been included in the definition of the term ‘key managerial personnel’. 12. (Amendment in Clause 42): The term ‘private placement’ has been defined to bring clarity. 13. (Amendment in Clause 61): Approval of the Tribunal shall be required for consolidation and division of share capital only if the voting percentage of shareholders changes consequent on such consolidation. 14. (Amendment in Clause 152): Clarification included in the Bill to provide that ‘Independent Directors’ shall be excluded for the purpose of computing ‘one third of retiring Directors’. This would bring harmonisation between provisions of Clause 149(12) and rotational norms provided in Clause 152. 15. (Amendment in Clause 470): Provisions in respect of removal of difficulty modified to provide that the power to remove difficulties may be exercised by the Central Government up to ‘five years’ (after enactment of the legislation) instead of earlier up to ‘three years’. This is considered necessary to avoid serious hardship and dislocation since many provisions of the Bill involve transition from pre-existing arrangements to new systems.

Companies Bill 2011: CSR Mandatory for Profit-Making Companies

NEW DELHI: The Lok Sabha on Tuesday approved the much-awaited Companies Bill, 2011, making it mandatory for profit-making companies to spend on activities related to corporate social responsibility. If a company does not do so, it will have to explain the reasons for it. The Bill, aimed at improving corporate governance, also contains provisions to strengthen regulations for companies and auditing firms. Moving the Bill for consideration, Sachin Pilot, minister of state (independent charge) for corporate affairs, said private companies, while maximising their growth, also had some responsibility towards society and in the country’s equitable and sustainable growth. The changes in the Bill include provisions that make it mandatory for firms – those that have reported profits of Rs 5 crore (Rs 50 million) or more in last three years- to spend at least two per cent of their average net profit on CSR activities. Companies failing to meet the obligation and not disclosing reasons for it in their books of account would face action, including penalty. The Bill to amend the Companies Act, in force since 1956, had been hanging fire since August 2008, when it was first introduced. It was withdrawn as the Lok Sabha was dissolved. Pilot emphasised the Bill aimed to encourage firms to undertake social welfare voluntarily, instead of that being imposed through “inspector raj”. Safeguarding workmen in the legislation, the new law mandates that firms winding up operations have to pay their employees two years’ salary. This liability would be overriding, Pilot said. The amended legislation, with 470 clauses, caps at 20 the number of companies an auditor can serve. It also brings in more clarity on auditors’ criminal liability, besides including annual ratification of their appointment for five years. Also, a clause related to offence of falsely inducing banks for obtaining credit has been introduced. The changed law gives more statutory powers to the Serious Fraud Investigation Office to better tackle corporate fraud.