With an aim to improve corporate governance, the government Thursday approved various amendments to Companies Act, including mandatory earmarking of funds by companies for Corporate Social Responsibility (CSR) spending.
As per the amendments approved by the Union Cabinet this evening, the companies would also have to give preference to the local areas of their operation for such spending.
The companies would have to either implement mandatory CSR spending or “cite reasons for non- implementation” or any short-fall, as per the proposed amendments.
Previously, the Bill had called for the companies to “make every endeavour to” spend two percent of their 3-year average profit towards CSR activities — thus leaving the matter voluntary for the companies.
Among other major proposals, which would now go to the Parliament for approval, a new provision has been made for punishing those falsely inducing a person to enter into any agreement with banks or financial institutions with a view to obtain credit facilities.
The revised Companies Bill, 2011, which is expected to be introduced in the winter session of Parliament, has also limited the number of companies for one auditor to 20, while brining in more clarity on criminal liability of the auditors.
An official release about the Cabinet decision said the amendments help serve “better the interests of the corporates, investors and other stakeholders”.
“The proposed legislation will bring the law on the subject of corporate functioning and regulation in tune with the global best practices so that there is further improvement in corporate governance in the country through enhanced accountability and transparency,” the release said.
According to the release, the new proposals include annual ratification of appointment of auditors for five years.
Regarding the provision requiring separate persons holding the posts of Chairman and Managing Director at a company, the amendments have been made to allow those companies having multiple business and separate divisional MDs to appoint same person as CMD (Chairman and MD).
Other amendments include bringing ‘whole-time directors’ within the purview of ‘key managerial personnel’, pegging the rate of interest on inter-corporate loans with government dated securities instead of the RBI bank rate.
The provisions have also been made for damages imposed on the auditors by the courts to be expeditiously defrayed among affected parties, further clarification on issues relating to ‘private placement’ and removal of criminal liability in cases of technical defaults.
Besides, there are other amendments of clarificatory and procedural nature.
The Bill was introduced in Lok Sabha in December 2011 and was then referred to the Parliamentary Standing Committee on Finance, which had suggested various changes.
These recommendations were examined fresh amendments have been introduced after due consultations with the concerned ministries and departments.
“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 would be able to comply with the requirements of the proposed Companies Act in a better and more effective manner,” the release said.
Welcoming the Cabinet decision, consultancy giant Ernst & Young’s Tax Partner Narendra Rohira said that the changes would boost investor confidence.
“Increased mandatory disclosures will strengthen corporate governance at the same time would increase compliances for companies. However, it would be interesting to see whether this bill finally becomes an Act in the Winter session of Parliament. The fine print of the bill passed by the Cabinet is still awaited,” he said.
[Content Source: Press Trust of India]
