Provisions of CSR under Companies Act, 2013

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The new Companies Act, 2013 makes it obligatory for-profit-making companies reporting Rs.5 crore or more profits in the last three years to spend at least two percent of their average profits towards CSR activities.
Also, the CSR activities must be commenced with respect to certain areas which are listed under Schedule VII of the 2013 Act, some of which include:

⇒ Actions to eradicate Hunger, insecurity, and malnutrition-related practices.

⇒ Preventive healthcare, education, and gender equality are all promoted.

⇒ Creating homes for women, orphans, and the elderly.

⇒ Take steps to address social and economic inequality.

⇒ Ensure environmental sustainability, ecological harmony, and animal welfare.

⇒ National heritage, art, and culture are all protected.

⇒ Taking steps to help veterans of the armed forces, war widows, and their dependents.

⇒ Provide instruction to promote rural sports that are nationally recognised, such as the Paralympics or the Olympics.

⇒ Contribute to the Prime Minister’s National Relief Fund or any other Central Government-created fund for SC, ST, OBCs, minorities, and women’s socioeconomic progress, relief, and welfare.

High-Level Committee on Corporate Social Responsibility:

Injeti Srinivas, Secretary (Corporate Affairs), presented Nirmala Sitharaman, Union Minister of Corporate Affairs, with the report of the High-Level Committee on Corporate Social Responsibility (CSR).

Historical Context: Injeti Srinivas, Secretary, chaired the High-Level Committee on CSR, which was formed in October of 2018. (Corporate Affairs)
Mission: To assess the current CSR framework and make recommendations for improving the CSR ecosystem, including tracking and evaluating outcomes.

Recommendations of the Committee:

Allowing CSR expenses to be deducted from taxes.
A provision for carrying forward unspent balances for a duration of three to five years.
To integrate Schedule 7 with the SDGs, an SDG plus system will be implemented (which will include sports promotion, senior citizen welfare, differently-abled individual welfare, disaster management, and heritage protection).
For CSR commitments of $5 million or more, impact assessment studies will be required.
Trying to strike a balance between local preferences and national interests.
Implementing organisations must register on the MCA registry.
Creating a CSR exchange site that connects donors, beneficiaries, and organisations.
Including CSR in social benefit bonds.
Promoting social impact firms and thirdparty evaluations of major CSR projects.
Companies with a CSR budget of less than Rs. 50 lakhs may be spared from having to form a CSR Committee.
Noncompliance with CSR regulations could be declared a civil offence punishable by a monetary fine.

Corporate Governance Committee of Uday Kotak:

Background:

The committee was constituted in June 2017. It submitted its report to SEBI in October 2017.
In March 2018, The Securities and Exchange Board of India (SEBI) accepted some of the recommendations made by the Uday Kotak Committee on Corporate Governance.
In March 2018, out of the 80 odd recommendations:

⇒ 40 were accepted without modification by SEBI,

⇒ 15 were accepted with modifications, 8 were referred to government and other departments and

⇒ About 18 suggestions were rejected.

Recommendations Accepted without Modification by SEBI:

By April 1, 2019, the total number of listed company directorships will be decreased from 10 to eight, and by April 1, 2020, to seven.
Increasing the number of directors who are eligible to serve as independent directors.
New tasks have been assigned to the Audit Committee, the Nomination and Remuneration Committee, and the Risk Management Committee.
The use of money from a QIP/preferential issue must be disclosed.
Auditor credentials, audit fee, grounds for the auditor’s resignation, and so on.
The experience and talents of the directors must be disclosed.
Linked party transactions (RPTs) will be held to a greater standard of accountability, with related parties having the ability to vote against RPTs.
Beginning in FY 2019-20, consolidated quarterly reports will be required to be disclosed.
Increased responsibilities for listed organisations in relation to subsidiaries.
Under the SEBI LODR Regulations, listed companies and its information unlisted subsidiaries would be required to undergo a secretarial audit.

Recommendations Accepted with Changes:

By April 1, 2019, at least six directors must be among the top 1000 publicly traded companies by market capitalization, and by April 1, 2020, at least six directors must be among the top 2000 publicly traded companies.
At least one female independent director must be present in the top 500 publicly traded companies by market capitalization by April 1, 2019, and at least one female independent director must be present in the top 1000 publicly traded companies by April 1, 2020.
There is a difference between the Chairman and the CEO/MD (to be initially made applicable to the top 500 listed entities by market capitalization w.e.f. April 1, 2020) Quorum for Board meetings in the top 1000 listed organisations by market capitalization by April 1st, 2019, and in the top 2000 listed entities by April 1st, 2020 (1/3rd of the Board’s size or 3 members, whichever is higher) by April 1st, 2019.
Annual General Meetings (AGMs) for the top 100 organisations must be held within 5 months after the end of FY 2018-19, i.e., by August 31, 2019.
The top 100 firms by market capitalization will be expected to livestream their annual general meetings beginning in FY 2018-19.
Royalties/brand fees to connected parties that exceed 2% of consolidated turnover require shareholder approval (instead of the proposed 5 percent).

Recommendations Under Consideration:

Because the issues raised are applicable to other authorities (e.g., the government, other regulators, professional bodies, etc.), SEBI has agreed to transmit such recommendations to them.
Strengthening the ICAI’s attitude, internal financial controls, adoption of the Indian Accounting Standard (Indo-AS), treasury stock, governance difficulties of PSEs, and others are among the proposals.

Comment:

The committee report came in the aftermath of several major scandals that rocked India Inc., which were marked by inattention or other oversight failures from boards.
By and large, the regulator has accepted the recommendations of the Kotak panel which is an important step towards improving the structure and functioning of corporate boards in India.
The committee had also made recommendations about the supervision of unlisted firms, which, however, SEBI could not act on it due to objections from the corporate affairs ministry. The government should seek out a way to implement those sensible suggestions as well.