As govt considers demand for change, relook at CSR unlikely

Corporates have argued that the Code of Conduct under Schedule IV of the act is draconian.

The government is considering the demands of corporates to dilute the responsibility of independent directors and auditors along with the provisions of evaluation of company board in the new Companies Act, 2013.

The move follows the meetings held by the corporate affairs ministry with stakeholders and India Inc on the issues pertaining to the new Act. However, their demand to relook at the provisions of mandatory corporate social responsibility (CSR) may not be entertained by the government, a government source told The Indian Express.

The official said that the corporates have argued that the Code of Conduct under Schedule IV of the act is draconian and ?puts too much responsibility on the independent directors.?

Industry bodies like CII, in representation to the ministry had said that code appeared to be mandatory leading to concerns that the sound ethical behaviour expected out of these directors is not defined in the Act. It had argued that this, among other things, would dissuade individuals from taking up appointment as independent directors.

?There is a concern among the corporates and we have taken note of that. The issues will be addressed in a holistic manner after they have been compiled. Also there are certain structural changes too which are required. This should be final soon,? the source said. The schedule details the expected professional conduct of independent directors to promote confidence of the investment community, especially minority shareholders, regulators and companies.

The ministry of corporate affairs has already identified 77 issues including ?the issue of ?and? and ?or?, lack of clarity on which has changed meanings and given unintended colour to the provisions,? the source said.

However, the government will not consider the demand of changing the formula for calculating CSR, the source said.

?This is something which parliamentary standing committee had also asked us to incorporate. As such, we have already clarified the issue through a notification after we received references and representation from stakeholders seeking clarifications on the provisions under Section 135,? the source said. The MCA has clarified that money spent on one-off events such as marathons, charitable contributions or advertisements, fulfillment of any act, will not qualify as CSR expenditure. Though, the salaries paid to regular CSR staff will count as CSR.

Another issue which has raised the heckles of corporates is section 178 which mandates evaluation of board?s performance in listed companies. The board has to make a statement indicating the manner in which it has formally evaluation itself and its committees and individual directors. The Nomination and Remuneration Committee is tasked with the evaluation. Corporates want that the methodology of evaluation should be left on to them. ?They say that the format is not prescribed and want their own format. We are open to that,? the source said.

The ministry is also considering the demand of the chartered accountants community of exemption from reporting fraud. The Institute of Chartered Accountants of India (ICAI) has been asking for the exemption saying that the CAs can be held responsible only for the financial statements. However, this argument has not gone down well with the ministry.

?The frauds stem from the fact that financial statements are not probed deeply and the ministry is of the firm view that the auditors have to take responsibility,? the source said. The ICAI has also asked for removal of cap from the number of firms which can be audited to make it unlimited. Currently the cap is of 20 firms. The ministry is likely to enhance the cap to 30.

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First published on: 09-07-2014 at 08:24 IST