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India's Lower House passes Companies Bill

Dec 19, 2012

Indian Parliment's Lower House (Lok Sabha) passes the Companies Bill which would make CSR spending mandatory for companies.

On 18th December, 2012, the Lok Sabha (Lower House) finally passed the Companies Bill 2011, which has been under much discussion in all factions of the business community for some time now. The Bill will usher in norms that will be in line with global practices for corporates.The Bill looks at introducing aspects like self-regulation, compulsory reporting, and increased shareholder participation.

During the debate before the Bill was passed Sachin Pilot, Minister of Corporate Affairs said, "It's an evolving idea...We will make compliance easy," he said. Pilot said that companies should voluntarily engage in CSR and not fear that the legislation amounts to return of "inspector raj". The Minister's statement allaying the fears of companies was needed, as many in India saw this as excessive government intervention in the company affairs.

Pilot said that under the new legislation, companies will be encouraged to create employees welfare fund. "Severity of law is not deterrent, it is surety which is deterrent," the Minister said, adding that companies should engage in promoting education, reducing child mortality, and any other matter they feel can contribute for social welfare.

The Bill, with 470 clauses, looks at making CSR spending compulsory for companies. Organisations having Rs 5 crore or more in profits in the last three years, have to spend on CSR activities. Since its inception in 2008, the Bill has gone through many versions and much debate. Many in the business community thought that restricting the amount to 2 per cent would defeat the purpose of corporate social responsibility. On the other hand, many NGOs and civil society members hail the Bill as a landmark decision to ensure corporates are reigned in.

Taking lessons from the famed Satyam case, the government has also introduced the concept of class action suit wherein depositors or a unit of shareholders can collectively sue the company committing fraud. The Bill will also make provisions for serious fraud investigation office (SFIO) with powers to conduct searches and seizures on the premise of a fraudulent company. The Bill has been passed on to the Rajya Sabha (Upper House) for further debate.

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