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India Inc may get relief on CSR spending

India Inc is set to get relief on the implementation of the mandatory CSR norm as outlined in the new Companies Bill, 2012, which is set to be taken up by Rajya Sabha on Monday for consideration and passing.

India Inc is set to get relief on the implementation of the mandatory CSR norm as outlined in the new Companies Bill, 2012, which is set to be taken up by Rajya Sabha on Monday for consideration and passing. The draft rules, currently under works for Clause 135 dealing with CSR, will allow companies to fund other trusts, societies, NGOs and pool resources with other companies to undertake the CSR activities, subject to riders.

All such funding of trusts and NGOs will need the mandatory approval of the CSR Board to be constituted by every company that is qualified for CSR activities.

These measures were not part of the initial discussions between the corporate affairs ministry and India Inc. In fact, the corporate affairs ministry was against making donations to religious trusts or NGOs and qualifying the same as CSR spending. In fact, MCA had discussed the idea of forming a special purpose vehicle (SPV) for transparent and full use of CSR funds, a move which was opposed by the India Inc in their meeting with the MCA minister Sachin Pilot on December 4, 2012.

Clause 135 on CSR in the new Bill makes it mandatory for profitable government and private companies to allocate 2% of their average profits accrued in the preceding three financial years on CSR programmes. It calls for CSR spend for every company having net worth of R500 crore or more, or turnover of R1,000 crore or more or a net profit of R5 crore or more during a financial year.

Under the proposed rules, which are currently being fine-tuned by MCA, promotion of sports, welfare measures for differently-abled persons, and adoption of villages may also qualify as genuine CSR activities under the new Bill which is set to replace the Companies Act, 1956. These activities are currently being undertaken by corporates like Bharti, Hero Group, Reliance, Tata Group, among others.

Subsidiaries, associates and joint ventures of the promoting company may also make contributions to such organisation towards their CSR spending, sources involved with the formulation of draft rules said. Amongst the exhaustive list of rules on CSR clause in the new Bill, funds provided to technology incubators located within academic institutions and approved by the ministry of science and technology or ministry of MSME will qualify as CSR expenditure.

Sources said these rules have been framed after taking inputs from the corporates and industry associations, including the CII, Ficci, Assocham, among others.

?All the CSR measures will require the mandatory approval from a CSR Board. The CSR committee of the Board, constituted under section 135 of the Act, will have to specify

the sectors along with specific activities to be undertaken during the financial year in pursuance of such CSR Policy along with expected outcome,? a senior official said.

As per the draft rules, the CSR committee will have to prepare a comprehensive monitoring mechanism for ensuring implementation of the projects.

India Inc had earlier cautioned the government against any ?interventionist? measures on corporate social responsibility spends. Corporate India had said any CSR spend should be viewed from a group perspective, including trusts and foundations, rather than individual companies within a group. However, mandatory reporting on CSR activities has been retained in the draft rules. ?If companies do not spend 2%, they will have to report about it. If they fail to do so, then they will have to face action under Section 134 as enshrined in the Bill,? MCA minister had said earlier this year.

According to Section 134, any company that contravenes the CSR spend provision, and also fails to explain the reason for the same in its reporting, shall be punishable with a fine not less than R25,000 but which may extend to R25 lakh. Also, every officer of the company in default shall be punishable with imprisonment for a term which may extend to three years or with a fine not less than R25,000 but extendable up to R25 lakh, or with both.

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First published on: 05-08-2013 at 05:34 IST
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