India Inc set to get concessions on CSR norms

Jan 31 2014, 13:19 IST
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SummaryMCA likely to accept key demand of restricting ‘2% of net profit’ clause to group level

After intense discussions with the government, India Inc is set to get some concessions in the implementation of mandatory corporate social responsibility (CSR) norms as laid down in the new Companies Act, 2013.

Sources said the corporate affairs ministry (MCA) is likely to accommodate a number of India Inc's demands, including one restricting the applicability of the '2% of net profit' clause to the group level as opposed to every individual company in a group meeting the CSR criteria of either net worth, turnover or net profit. MCA may also give the CSR Board of companies powers to revise CSR activity in the event of a natural calamity or an unforeseen event in the course of the year. This is not spelled out clearly in the CSR norms currently.

Sources said the MCA is expected to formalise the rules to Section 135 of the new law on CSR within this week. The formalised rules are expected to bring clarity on computing the average net profit when a company may have reported losses for one or two of the three yea-rs in question, sources said.

As per Section 135 on CSR, all companies having either a net worth of R500 crore or more, turnover of R1,000 crore or more, or a net profit of R5 crore or more will need to set aside a minimum of 2% of their average net profit for the three preceding years for CSR activities. This may be diluted if CSR spends are being executed at the group level, sources said. "Individual companies (within a group) should not be taken to task for not setting aside their share of 2% of the net profit if the group is already spending the required amount on CSR (assuming both group and the individual company qualify on the CSR parameters)," said a senior executive of a leading corporate house.

MCA is also set to give India Inc the power to decide on the CSR activity, and it may not restrict the list of activities as spelled out in Schedule VII of the 2013 Act. "Companies may get to decide what they feel is genuine CSR work. Then, the CSR board of that company will have to vet the plans instead of following what government thinks is CSR," said a person familiar with the matter.

Sources said that even private limited companies may get relief on CSR norms as the government may not stress on the inclusion of an independent director in the three-member CSR board. Sources added the government is also working out the modalities of factoring in the man-hours spent by company executives on social projects as legitimate work done for CSR, among others.

According to legal experts who have batted for clarifications on CSR norms, MCA has been accommodative in its approach while dealing with thousands of queries related to CSR implementation. "Overall, MCA may have received over 30,000 comments, suggestions and clarifications for various sections in the new law. But Section 135 on CSR has intrigued a large number of corporates. We get a sense that MCA may include a number of our suggestions," said a senior lawyer in a leading law firm representing a number of companies.

MCA is also expected to include the man-hours spent on voluntary social activity such as teaching and free consultations for social projects as genuine CSR activity. "In many companies, senior executives take up teaching assignments on company's time. The man-hours spent on such voluntary work may soon get counted as genuine CSR activity by assigning a value to the man-hours," said another lawyer.

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