Corporate Social Responsibility under the Companies Bill

Corporate Social Responsibility (CSR) is a set of actions of a company that changes business operations to improve, maintain, or mitigate a company’s impact on society and the environment. In a nutshell, it is the responsibilities of a corporation to society at large.

As per the latest draft of the Companies Bill, 2011 as finalised by the Ministry of Corporate Affairs, it has been decided to take a middle-path in enforcing CSR by giving companies the choice to either spend two percent of their net profits on philanthropic activities, or mandatorily explain why they could not do so. This has diluted the proposed mandatory CSR spending provision due of the corporate sector's serious objections to it. 

The Bill mandates companies "having net worth of Rs 500 crore or more or turnover of Rs 1,000 crore or more or net profit of Rs 5 crore or more during any financial year" to spend 2% of their net profits on charitable and philanthropic works. However, it provides for a relief valve that "if a company fails to spend such amount, the board shall specify reasons for not spending the amount in its report." 

The company, liable to spend 2% of its net profits on philanthropy, have to “constitute a Corporate Social Responsibility Committee from the Board members consisting of 3 or more directors, out of which at least 1 shall be an independent director". The CSRC would formulate and recommend to the board a CSR policy, indicating the activities which are to be undertaken by the company, the amount of expenditure to be incurred on them and monitor the entire policy implementation. The Bill mandates the board to take into account the advice of CSRC, approve the policy, divulge its contents in annual report and place it on the company's website. The Bill lists down an indicative list of initiatives that the companies could undertake to fulfil their social responsibility.

At present, CSR is voluntary in India and there is a huge deficit in the culture of building CSR. The Bill which has been okayed by the Parliamentary Standing Committee of Finance and the Corporate Affairs Ministry will now be discussed by the Union Cabinet on October 25. The revised Bill is expected to be presented in Parliament for passage in the Winter Session.

By Prateek Bhandari (4^th year, NUJS)