New Delhi: Lok Sabha Tuesday passed the Companies Bill, with the government saying the aim is to protect interest of employees and small investors while encouraging firms to undertake social welfare voluntarily instead of imposing that through "inspector raj".
Replying to a debate before the bill was passed by a voice vote, Corporate Affairs Minister Sachin Pilot said through this new legislation, the government intends to make India an attractive and safe investment destination.
He said special courts would be set up for speedy trials, as an assurance to investors that cases will not linger on.
Underlining the need for such a law, Pilot said India will be become the first country to mandate corporate social responsibility (CSR) through a statutary provision.
He also said that while framing rules for the legislation, the government will take in confidence MPs and other stakeholders, like NGOs.
"It's an evolving idea...We will make compliance easy," he said.
Pilot said that companies should volunatarily engage in CSR and not fear that the legislation amounts to return of "inspector raj".
Pilot said that under the new legislation, companies will be encouraged to create employees welfare fund.
"Severity of law is not deterrent, it is surety which is deterrent," the Minister said, adding the companies may engage in promoting education, reducing child mortality and any other matter they feel can contribute for social welfare.
Disapproving of "vulgar display of wealth", Pilot said the law provides that remuneration of a director of a company should not be more than 5 percent of the net profit.
Under the new law, the CSR spending would be the responsibility of companies like their tax liabilities.
The bill, with 470 clauses, seeks to make CSR spending compulsory for companies that meet certain criteria. Firms having Rs 5 crore or more profits in the last three years have to spend on CSR activities.
One of the major proposals is that companies have to mandatorily spend two percent of their average net profit for CSR activities.
The changes, once in place, would amend the Companies Law that has been in force since 1956.
If companies are unable to meet CSR norms, they will have to give explanations. In case, the companies are not able to do the same, they have to disclose reasons in their books. Otherwise, they would face action, including penalty.
The amended legislation also limits the number of companies an auditor can serve to 20 besides bringing more clarity on criminal liability of auditors.
There are proposals for annual ratification of appointment of auditors for five years and introduction of a new clause related to offence of falsely inducing banks for obtaining credit.
The legislation mandates payment of two years' salary to employees in companies which wind up. This liability would be overriding.
First introduced in August 2008, the bill was withdrawn as Lok Sabha was dissolved. It was again introduced in Parliament in 2009 and sent to the Standing Committee, which presented its report in August 2010.
The debate on the bill saw Abhijit Mukherjee (Cong), son of President Pranab Mukherjee, making his maiden speech in which he wanted clarification on the definition of 'net profit' along with the formula for calculating for the purpose of CSR.
M Thambidurai (AIADMK) suggested that the share of Corporate Social Responsibility (CSR) for a company should be increased from 2 percent as mentioned in the bill to 5 percent of the profits.
B Mahtab (BJD) suggested that the post of chairman of a company and the CEO should be separated and strengthening of Serious Frauds Investigation Office (SFIO).
Nishikant Dubey (BJP) expressed happiness that the Companies Bill has come up for consideration and passage after a delay of several years. He lauded the inclusion of e-governance and enhanced accountability in the bill.
Ajay Kumar (JVM-P) said there is a need to audit CSR to check that it is implemented properly. NBFCs and diffused ownership of companies should be monitored, he said.
First Published: Tuesday, December 18, 2012, 23:07