Recommendation to Make Formulation of a CSR Policy Mandatory for Big Companies

Recommendation to Make Formulation of a CSR Policy Mandatory for Big Companies

In response to the overwhelming concerns shown by the Standing Committee of Parliament on Finance (SCF), which thoroughly examined The Companies Bill, 2009, on the extent of Corporate Social Responsibility (CSR) being undertaken by corporates and the need for a comprehensive CSR policy, the Ministry of Corporate Affairs have agreed that the Bill may now include provisions to mandate that every company having [(net worth of Rs.500 crore or more, or turnover of Rs.1000 crore or more)] or [a net profit of Rs.5 crore or more during a year] shall be required to formulate a CSR Policy to ensure that every year at least 2% of its average net profits during the three immediately preceding financial years shall be spent on CSR activities as may be approved and specified by the company. The Directors shall be required to make suitable disclosures in this regard in their report to members.

In case any such company does not have adequate profits or is not in a position to spend prescribed amount on CSR activities, the directors would be required to give suitable disclosure/reasons in their report to the members.

While welcoming the Ministry’s acceptance of the Committee’s suggestion to bring Corporate Social Responsibility (CSR) in the statue itself, the Committee feels that separate disclosures required to be made by companies in their Annual Report by way of CSR statement indicating the company policy as well as the specific steps taken thereunder will be a sufficient check on non-compliance.