MPs want firms to give 2% profit to society
9 July 2012 1:11 PM GMT
A Parliamentary panel has suggested that 2 per cent spending by corporates on CSR activities in the new Companies Bill should be made mandatory to prevent them from escaping the liability by citing one reason or the other.
‘The clause seems to provide a security valve for companies by stating... that if a company fails to meet the desired standard, it may get away by providing the reason. Such a statement may, in practice, defeat the very purpose of clause 135,’ the Parliamentary Standing Committee on Finance said.
Clause 135 of the Bill prescribes that every company with a networth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore and above in a fiscal will have to spend 2 per cent of three years' average profit towards CSR activities.
However, the ministry of corporate affairs [MCA] seemed in no mood to make the clause mandatory and said it would only discourage companies. ‘Keeping in view the need for balancing of various interests involved, the provisions on CSR as provided in clause 135 of the Bill... appear to be reasonable... The broad objective is to instill the spirit of CSR amongst corporate sector. The provisions, therefore, may be retained as proposed,’ the MCA said.
It added that the provisions would be reviewed after enactment of the legislation and watching the experience of companies covered under the clause. Also, to make sure that there are not loose ends in the clause, the Committee has suggested that ‘Clause 135[5] of the Bill mandating Corporate Social Responsibility [CSR] be modified by substituting the words ‘shall make every endeavour to ensure’ with the words ‘shall ensure’.
In his dissent note, Member of Parliament Gurudas Kamat said: ‘It is a well-perpetuated fallacy that corporate are run on the promoters’ or shareholders’ funds alone. The fact of the matter is that most of the capital required by corporate – both long-term and medium-term is provided by the banking/financial system, which is operated out of the public funds’.
‘The clause seems to provide a security valve for companies by stating... that if a company fails to meet the desired standard, it may get away by providing the reason. Such a statement may, in practice, defeat the very purpose of clause 135,’ the Parliamentary Standing Committee on Finance said.
Clause 135 of the Bill prescribes that every company with a networth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore and above in a fiscal will have to spend 2 per cent of three years' average profit towards CSR activities.
However, the ministry of corporate affairs [MCA] seemed in no mood to make the clause mandatory and said it would only discourage companies. ‘Keeping in view the need for balancing of various interests involved, the provisions on CSR as provided in clause 135 of the Bill... appear to be reasonable... The broad objective is to instill the spirit of CSR amongst corporate sector. The provisions, therefore, may be retained as proposed,’ the MCA said.
It added that the provisions would be reviewed after enactment of the legislation and watching the experience of companies covered under the clause. Also, to make sure that there are not loose ends in the clause, the Committee has suggested that ‘Clause 135[5] of the Bill mandating Corporate Social Responsibility [CSR] be modified by substituting the words ‘shall make every endeavour to ensure’ with the words ‘shall ensure’.
In his dissent note, Member of Parliament Gurudas Kamat said: ‘It is a well-perpetuated fallacy that corporate are run on the promoters’ or shareholders’ funds alone. The fact of the matter is that most of the capital required by corporate – both long-term and medium-term is provided by the banking/financial system, which is operated out of the public funds’.
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