The 2009 Companies Bill and its 2011 counterpart represent the first major effort at comprehensively overhauling corporate law in India since 1956.
The original proposal required moderate-sized and large companies to set aside two percent of their profit margin averaged over the past three years on socially responsible expenditures.
The proposal gave no guidance as to what “corporate social responsibility” meant in the context of the Bill, and provided no enforcement mechanism other than mandated reporting
In response to the Committee‘s overwhelming concerns on the extent of Corporate Social Responsibility (CSR) being undertaken by corporates and the need for a comprehensive CSR policy, the Ministry of Corporate Affairs have included following provisions
- Every company having net worth of rupees 500 crore or more, or turnover of rupees 1000 crore or more or a net profit of rupees 5 crore or more during a year shall be required to formulate a CSR Policy to ensure that every year at least 2% of its average net profits during the three immediately preceding financial years shall be spent on CSR activities as may be approved and specified by the company.
- The directors shall be required to make suitable disclosures in this regard in their report to members.
- Corporates have to function as economic persons within the Union of India in a manner that contributes to the social and economic wellbeing of the country as a whole, and as such must be subject to the laws pronounced by the Parliament for the welfare of its citizens
- This was done to assure that corporations would be held legally accountable for contributing to communities and spreading their wealth
- The mandatory expenditure to be monitored via public disclosure
- The boards of moderate-sized and large companies should convene a Corporate Social Responsibility Committee and to approve a Corporate Social Responsibility Policy. This policy must be disclosed and posted on the company’s website.
- Schedule VII of the Bill lists several possible genres of CSR expenditure, ranging from “eradicating extreme hunger and poverty” to “promotion of education” to “ensuring environmental sustainability.