Corporate affairs minister proposes SPV for transparent & full use of funds
NEW DELHI: According to a media report, Central Government is planning to have a Special Purpose Vehicle to monitor spending of CSR Fund and Projects. To discuss with corporate on the issue related full and effective utilization of CSR fund Newly appointed corporate affairs minister Sachin Pilot has called a meeting on 4 December in New Delhi.
The Companies Bill, 2011, slated for consideration and passing by Parliament in the current session, makes it mandatory for profitable government and private companies to allocate 2% of their average profits accrued in the preceding three financial years on CSR programmes. According to estimates, the annual CSR funds corpus could be around Rs. 10,000 crore (around $2 billion) or more.
As per the ministry’ plan, there would also be a national-level CSR body to monitor the activities of the proposed SPV/financial entity. Its mandate will be to ensure that the funds earmarked for CSR projects are fully used up on the designated activities.
The minister said the proposed body would be independent of government intervention and run by corporates/industry bodies, with a wide representation to ensure its neutrality. Pilot has invited industry bodies like the Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry and top corporate executives to discuss the matter on December 4.
In has reported that an independent mechanism may be put in place to ensure fair, transparent and full use of the funds earmarked by India Inc for corporate social responsibility (CSR) activities. New corporate affairs minister Sachin Pilot has proposed creation of an entity — likely a special purpose vehicle (SPV) — for monitoring CSR funds use besides ensuring that corporates don’t fail in timely execution of CSR projects.
Sources said the proposed SPV/financial entity would have legal status and won’t aim to make profits. It will need to maintain record books and financial statements and will have to furnish audited financial statements to the Registrar of Companies. Among others, there is also a proposal to allow the corporate sector to work with a corporate partner or a non-governmental organisation to execute their CSR initiatives with the approval of the national-level CSR body.
Pilot clarified that the government has no intention of controlling the proposed SPV or the financial entity. “The idea is to keep the CSR funds outside of the government’s intervention. Right now, it is a proposal and we are meeting companies and various industry bodies for their feedback and suggestions. The idea is to ensure that the funds are spent on substantial CSR activities,” Pilot said.
Stating that his first priority was to get the Companies Bill passed by Parliament, the minister said: “We can always make amendments in the law once it is passed. Of course, this will be done with the active participation and feedback of the corporate sector.”
The move to float an SPV for use of CSR funds takes its cue from similar mechanisms in countries like France, Mauritius and Indonesia, among others.
In Mauritius, for example, a company or a group of companies with CSR contribution above a threshold value can use an SPV for the implementation of its CSR initiatives provided it meets certain laid-down riders. As per the norms, the administrative costs of the SPV should not exceed 15% of the total expenditure on projects for a CSR fund of up to 20 million Mauritian rupees. Then the SPV has to work and report to a national CSR committee.
Based on the financial results posted by listed companies in 2010-11, a report by SMC Global Securities had said that India Inc would need to collectively shell out around R9,000 crore as around 1,230 companies had collectively posted profits of R4.38 lakh crore.
In FY12, state-owned oil companies, led by ONGC and Indian Oil Corporation, hired over 4,200 people and spent around Rs 385 crore on CSR initiatives, according to a statement from the oil ministry in October.
The move to float an SPV comes from the fact that there has been a mismatch between the CSR funds generated and used up every year. An analysis of CSR funds of leading PSUs shows this mismatch. Sample this: In the last three financial years – 2009-10, 2010-11 and 2011-12 – Coal India allocated Rs 860 crore towards CSR activities but used only Rs 230 crore. Similarly, ONGC allocated Rs 1,036 crore but used only around half (Rs 510 crore). NTPC allocated a total of Rs 135 crore on CSR activities but managed to use Rs 100 crore only.
INDIACSR News Network
The Companies Bill, 2011, which was passed by the Lok Sabha yesterday (18 December 2012), on its enactment will allow the country to have a modern legislation for growth and regulation of corporate sector in India. The existing statute for regulation of companies in the country, viz. the Companies Act, 1956 had been under consideration for quite long for comprehensive revision in view of the changing economic and commercial environment nationally as well as internationally. In view of various reformatory and contemporary provisions proposed in the Companies Bill, 2011, together with omission of existing unwanted and obsolete compliance requirements, the companies in the country will be able to comply with the requirements of the proposed Companies Act in a better and more effective manner.
The Salient features of the Companies Bill 2011 are as follows:
1. (Amendment in Clause 135): In the Section on Corporate Social Responsibility (Section135), which is being introduced as a statutory provision for the first time, the words ‘make every endeavour to’ have been omitted from its Sub-clause (5). So that the first para of Sub-clause (5) of Clause 135 now reads as follows: “The Board of every company referred to in sub-section (1), shall ensure that the company spends in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.”
Such clause is also amended to provide that the company shall give preference to local areas where it operates, for spending amount earmarked for Corporate Social Responsibility (CSR) activities. The approach to ‘implement or cite reasons for non implementation’ retained.
2. (Amendment in Clause 36): To help in curbing a major source of corporate delinquency, Clause 36 (c) amended, to also include punishment for falsely inducing a person to enter into any agreement with bank or financial institution, with a view to obtaining credit facilities.
3. (Amendment in Clause 143): Provisions relating to audit of Government Companies by Comptroller and Auditor General of India (C&AG) modified to enable C&AG to perform such audit more effectively.
4. (Amendment in Clause 186): Clause 186 amended to provide that the rate of interest on inter corporate loans will be the prevailing rate of interest on dated Government Securities.
5. (Amendment in Clause 144): Provisions relating to restrictions on non audit services modified to provide that such restrictions shall not apply to associate companies and further to provide for transitional period for complying with such provisions.
6. (Amendment in Clause 203): Provisions relating to separation of office of Chairman and Managing Director (MD) modified to allow, in certain cases, a class of companies having multiple business and separate divisional MDs to appoint same person as chairman as well as MD.
7. (Amendments in Clause 147 and 245): Provisions relating to extent of criminal liability of auditors – particularly in case of partners of an audit firm – reviewed to bring clarity. Further, to ensure that the liability in respect of damages paid by auditor, as per the order of the Court, (in case of conviction under Clause 147) is promptly used for payment to affected parties including tax authorities, Central Government has been empowered to specify any statutory body/authority for such purpose.
8. (Amendment in Clause 141): The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as twenty companies.
9. (Amendment in Clause 139): Appointment of auditors for five years shall be subject to ratification by members at every Annual General Meeting.
10. (Amendment in Clause 139): Provisions relating to voluntary rotation of auditing partner (in case of an audit firm) modified to provide that members may rotate the partner ‘at such interval as may be resolved by members’ instead of ‘every year’ proposed in the clause earlier.
11. (Amendment in Clause 2): ‘Whole-time director’ has been included in the definition of the term ‘key managerial personnel’.
12. (Amendment in Clause 42): The term ‘private placement’ has been defined to bring clarity.
13. (Amendment in Clause 61): Approval of the Tribunal shall be required for consolidation and division of share capital only if the voting percentage of shareholders changes consequent on such consolidation.
14. (Amendment in Clause 152): Clarification included in the Bill to provide that ‘Independent Directors’ shall be excluded for the purpose of computing ‘one third of retiring Directors’. This would bring harmonisation between provisions of Clause 149(12) and rotational norms provided in Clause 152.
15. (Amendment in Clause 470): Provisions in respect of removal of difficulty modified to provide that the power to remove difficulties may be exercised by the Central Government up to ‘five years’ (after enactment of the legislation) instead of earlier up to ‘three years’. This is considered necessary to avoid serious hardship and dislocation since many provisions of the Bill involve transition from pre-existing arrangements to new systems.