The government today clarified that the new Companies Bill is not going to make spending on Corporate Social Responsibility (CSR) activities mandatory for companies.
"There is some misconception among the public that CSR will be mandatory...I would like to make it clear that it is not at all correct," Corporate Affairs Minister Veerappa Moily told reporters at the National CSR Conclave here.
According to Clause 135 of the Companies Bill, 2011, every company with a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more in a financial year, will have to form a CSR committee consisting of three or more directors, of which at least one director should be an independent director.
Moily further said the government's initiatives on CSR are strong enough and this is the first time in the world that companies have been mandated to constitute a board for formulating CSR policies.
"So this should show that we are serious enough. If for some reason the company fails to do so, the board will prepare a report explaining the reasons for doing so and give it to the shareholders," he said.
In addition, he said the government is continuously updating the CSR guidelines for companies across all sectors.
"We are trying to build up a CSR culture in the country like in the West and all companies are on board with us on this issue," Moily said.
On being asked why there is no provision for penalising companies that do not comply with the CSR provisions, he said, "The CSR is a rule of law and not a rule by law. So we are confident that the companies will come up with new avenues to execute CSR... So there is no question of penalising them."
Unlike the provisions stipulated for private companies in the new corporate law, spending on CSR activities is mandatory for PSUs and non-adherence to the guidelines attracts penal action.
Under the CSR provisions for PSUs, a company with a net profit of less than 100 crore will have to spend 3-5% of it on the CSR.
Those PSUs with a net profit of Rs 100-500 crore a year will have to earmark 2-3% of it for CSR. A company with a bottomline of Rs 500 crore and above will have to set aside 0.5-2% for CSR activities, which should preferably be related to its business as a natural corollary.
According to the norms, investment in CSR should be project-based and mere donations to philanthropic/charity bodies would not be treated as this activity. Furthermore, expenditure related to staff benefits will not be counted as CSR.
