The proposed legislation will replace the existing Companies Act 1956, which was enacted 56 years ago. The Companies Bill 2012 was passed by a voice vote in Lok Sabha in a marathon late night sitting. Besides making independent directors more accountable and improving the corporate governance practices, the Bill seeks to make corporate social responsibility mandatory for certain companies.
Corporate social responsibility
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. Mr. Sachin Pilot, Minister of State for Corporate Affairs said India would become the first country to mandate corporate social responsibility (CSR) through a statutory provision. “While framing rules for the legislation, the government will take in to confidence MPs and other stakeholders, like NGOs. It’s an evolving idea. We will make compliance easy,” he said.
Under the new legislation, companies will be encouraged to create employees’ welfare fund. “Severity of law is not deterrent; it is surety which is deterrent. The companies may engage in promoting education, reducing child mortality and any other matter they feel can contribute for social welfare,” he added. Under the new law, the CSR spending would be the responsibility of companies like their tax liabilities. The Bill, with 470 clauses, seeks to make CSR spending compulsory for companies that meet certain criteria. Firms having Rs.5 crore or more profits in the last three years have to spend on CSR activities. One of the major proposals is that companies have to mandatorily spend 2 per cent of their average net profit for CSR activities. The changes, once in place, would amend the Companies Law that has been in force since 1956.
Trinity Care Foundation is a Non Governmental Organization focusing on Craniofacial Surgeries, School Health and Outreach Health Programs in Karnataka, India.
