(The following post has been contributed by Satvik Varma, who is an Advocate and Corporate Counsel based in New Delhi. He holds an LL.M. from Harvard Law School and is licensed to practice in India and in New York. He can be contacted at [email protected])
Enclosed below is the link to my latest article titled “Coercive Social Responsibility” published in the Economic Times. This article analyses the mandatory CSR spend being proposed in The Companies Bill 2009 and questions whether any kind of social responsibility can be enforced with an iron hand.
I would like to highlight that the Ministry of Corporate Affairs, along with the National Foundation for Corporate Governance, had organised an “Interactive Session With Corporate India” in New Delhi yesterday. This session was chaired by Cabinet Minister Murli Deora, along with Minister for State RPN Singh and D K Mittal, Secretary Corporate Affairs, was leading the discussion. I was present at this session, which was attended by all the Industry Chambers and also had select practitioners.
The hand out from the session included 2 broad categories under which the discussion was divided.
A. Comprehensive Revision of the Companies Act, 1956; and
B. Convergence of Indian Accounting Standard with International Reporting Standards.
Under the category of Comprehensive Revision of the Companies Act, 1956, the issues highlighted for discussion were:
“1. Keeping in view the developments taking place nationally as well as internationally and with a view to modernize the structure for corporate regulation in India and represent a major reform statement by the Government to promote the development of the Indian corporate sector through enlightened regulation, a decision was taken to revise the existing Companies Act, 1956 comprehensively.
2. Accordingly, the Companies Bill, 2009 was introduced in the Lok Sabha on 3rd August, 2009 and was referred to Hon’ble Parliamentary Standing Committee on Finance for examination and report. The Hon’ble Committee consulted various Experts and stakeholders on the provisions of the Bill and received a large number of suggestions. The Committee also heard the Ministry of Corporate Affairs on a number of occasions.
3. After examination of such suggestions and consultation with various stakeholders, the Committee submitted its Report to the Parliament on 31st August, 2010.
4 . Subsequent to the submission of the Report by the Parliamentary Committee, some of the Industry Chambers and Experts have drawn attention towards some of the issues like:-
· Norms (Numbers/Attributes/Tenure/Liability/Renumeration) relating to Independent Directors
· Rotation of auditors/audit firms
· Corporate Social Responsibility
· Restrictions on Layers of Subsidiaries
· Issues of Equity Shares with Differential Voting Rights
· Number of maximum directorships
· Managerial remuneration limits
5. Various recommendations made by Hon’ble Committee in its Report and the view of the Stakeholders thereof are under examination in the Ministry. The revised Bill is proposed to be introduced in the Parliament in the ensuing Budget Session. The intention is to move forward and bring the long pending legislative reforms on the comprehensive revisions of the Companies Act, 1956. This interaction will give useful inputs to take a decision on various matters relating to the Companies Bill”.
With particular reference to the Corporate Social Responsibility, the pointed question from D K Mittal, Secretary Corporate Affairs was whether CSR is a good business proposition? The unequivocal response from across the participants was that CSR makes good business sense, but based on the responses it was clear that there exists ambiguity on what constitutes CSR and a lot of the delegates still seem to confuse CSR with charity or philanthropy. The consensus from the delegates was that CSR is desirable and should be encouraged but doubts were expressed on whether it is wise to mandate an arithmetical spend. Concerns were also voiced that more needs to be done to incentivise CSR and create greater awareness about it. Some participants also expressed concern that nothing should be done which will make CSR a check-the-box provision and results in being counter productive to what is hoped to be achieved.
– Satvik Varma