The Lok Sabha recently approved the Companies (Amendment) Bill, 2019. The legislation is designed to tighten Corporate Social Responsibility (CSR) compliance and reduce the burden of cases on the National Company Law Tribunal (NCLT).
Salient Features of the Bill
This bill seeks to introduce measures for greater accountability and better enforcement of corporate governance norms. A prominent change in the Bill relates to CSR spending. Under the new conditions, companies are required to transfer unused funds into a special account. Following the establishment of a CSR proposal, companies have one year to confirm the plan and an additional three years to distribute the funds. If after this period, funds remain unspent, they must be transferred to an escrow account, which could even be the Prime Minister’s Relief Fund.
Understanding Corporate Social Responsibility
Corporate Social Responsibility (CSR) is a management approach where businesses integrate social and environmental concerns into their operations and interactions with stakeholders. Generally, CSR is seen as the means through which businesses strike a balance between economic, environmental, and social imperatives, while also meeting shareholder and stakeholder expectations.
India has become the first country to legally mandate CSR spending, under Section 135 of the Companies Act, 2013. Key features of this provision include:
| Feature | Description |
|---|---|
| Applicability | Companies with profits exceeding Rs 5 crore, turnover of Rs 1000 crore, or net worth over Rs 500 crore |
| CSR Requirement | Required to contribute at least two percent of their three-year annual average net profit towards CSR activities |
| CSR Committee | A CSR committee of the board must be established |
| CSR Policy | The company’s board must formulate and monitor the implementation of the CSR policy |
| Implementation | Companies may implement their CSR Policy through trusts, societies, or Section 8 companies, etc. |
Powers and Changes Proposing by the Bill
The Bill proposes to empower the Registrar of Companies with the ability to remove a company’s name from the Register of Companies if it is found to be non-compliant with Company Law.
This legislation also introduces a re-categorization of 16 minor offenses as purely civil defaults. This includes the transfer of functions related to applications for change of financial year to the Central government and the shifting of powers relating to conversion from public to private companies from NCLT to the Central government.
Additionally, the Bill provides more clarity with regards to certain powers held by the National Financial Reporting Authority (NFRA).
