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No CSR spend yoke in Companies Bill

Firms will not have to spend 2% profit on philanthropy; govt feared clause would deter foreign investors

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The central government has dropped provisions in Companies Bill to make it mandatory for companies to spend and report its corporate social responsibility initiatives.

Companies will not have to spend 2% of average net profit of last three years as mandated nor will they have to pay penalty for not spending the amount.

The Companies Act (Amendment) Bill that was passed in the Lok Sabha on Wednesday does not have the provisions.

Corporate affairs ministry sources said stiff opposition from the multinational companies led the government to soften its stand on the matter.

"Oppressive provisions have been removed from the Companies Act 2013 as nobody will come here to set up business if such an environment persists," Arun Jaitley, finance minister, said on the Bill.

"There were some provisions which was oversight and there were some which were left out," he said. A total of 14 amendments have been approved.

The amendments, however, propose a severe penalty for the companies running chit funds and illegal deposits.

The passing of the Bill comes as a relief for the corporate sector, which has been looking up to the government to bring about mega reforms through the other Bills such as the Insurance Amendment Bill, which is stuck in the Rajya Sabha as the Congress party is opposing it.

A source close to the development told dna, "The government has not introduced any clause to make it mandatory or introduce penal provisions for not adhering to the corporate social responsibility obligations. Earlier also there were talks about the imminent penal provisions. But actually it just made obligatory on the part of the corporates to report why no CSR activity could be taken up in the Directors report. But penalty could still have been slapped invoking the Residual clause, which spooked the corporate houses."

The Congress maintained its confrontist stance on the Bill as well and created an uproar demanding the legislation to be sent to the Standing Committee. The Chair, however, rejected the demand.

As per the Companies Act, 2013, CSR disclosure was made mandatory on companies having turnover of Rs 1,000 crore, net worth of Rs 500 crore or net profit of Rs 5 crore or more.

Section 135 (5) of the Act made it a responsibility of the Board of Directors to spend at 2% of the average net profit earned during the last three financial years. The Act had made it formal to do CSR mandatorily with proper implementation framework and compliance norms.

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