CSR Section & Rules Notified – What has changed & What remains the same

1. Foriegn Companies and Subsidiaries also need to do CSR activities if they have a branch or project office in Inda.

2. Hunger need not be extreme; Ordinary hunger also is fine....

3. Private Companies and unlisted Public companies are exempt from appointing Independent Director in CSR Committee

4. Private Companies also need to comply with CSR and the can have 2 Directors in its committee (if there are only 2 Directors in its Board)

Please read.............

CSR Section & Rules Notified – What has changed & What remains the same

By : CS. Mohan Kumar Company Secretary, Chennai 

1. Sec. 135 of the Companies Act dealing with CSR is notified vide Notification dated 27th Feb, 2014. It will be effective from 1st April 2014.



2. Every Company having networth of 500 crores or Turnover of 1000 crores or Net profit of 5 crores need to constitute a CSR committee. It shall have minimum of 3 Directors and one of them shall be independent Director.

3. Unlisted Public Company or a private Company which needs to comply with CSR provisions shall have CSR committee without the Independent Director

4. A private Company having 2 Directors alone can constitute CSR committee with 2 such Directors alone.

5. CSR Committee shall have a transparent monitoring mechanism for implementation of CSR projects.

6. 2 % of average annual net profits of last 3 years are to be spent on CSR activities.

7. CSR Rules are effective from 1st April 2014. 31st March 2014 will be the date for the purpose of “Block of 3 calendar years”.

8. CSR activities should not include the activities undertaken by the Company in its normal course of business.

9. CSR policy as approved by the committee and Board shall be displayed in the Company’s website, if any.

10. CSR activities can be done through a trust or registered society or Company established by the Company – or its Holding or subsidiary Company. If such trust is not established by the Company or its Holding or subsidiary Company, it shall have a track record of 3 years in undertaking similar projects.

11. Schedule VII of the Companies Act 2013 (remember, it was in the Act not in the Rules) - which lists out the activities that may be undertaken by the Company is modified. The first point on it earlier stated that “ To eradicate extreme hunger”, which many of the speakers at various forums (including me) used to criticize. Now the word “extreme” is removed and now companies can do CSR activities for eradicating hunger. It need not be extreme hunger.

12. Three important additions that I could see in the list of activities are:

a. Measures for the benefit of armed force Veterans, war widows and dependents.

b. Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government.

c. Rural development projects.

There was an item is Schedule VII “Combat HIV, Malaria or other diseases”, which has been removed.

13. Projects or programs relating to activities undertaken by Board based on the recommendations of the CSR committee or Board will also be included (Subject to one condition – CSR Policy to state that it will cover subjects mentioned in Schedule VII )

14. For calculating Net profit of the Company, the following shall be omitted/ need not be included:

a. Any profit arising from overseas branch – whether operated as a separate Company or otherwise

b. Any dividend received from other Companies in India

15. A Foreign Company or Holding or Subsidiary Company having a branch office or project office in India shall also comply with Sec. 135 and related Rules. Turnover, Netprofit or Networth of such Company for the purpose of this calculation shall be made as per Sec. 198 and Sec. 381 of Companies Act 2013.

16. An annual report on CSR activities is to be included in Board’s report; the format of the same has been provided by MCA.

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This is a very quick analysis; any comments, observations or errors in this analysis/ interpretation may be kindly informed to us & we shall stand corrected. Thanks

Whistle Blowing Mechanism under Companies Act Vs Listing Agreement

WHISTLE BLOWING/VIGIL MECHANISM UNDER SEC.177 OF THE COMPANIES ACT,2013

                       By      :  CS M.Kurthalanathan 

Introduction:

The term “whistle-blowing” originates from the practice of British policemen who blew their whistles whenever they observed commission of a crime. Whistle blowing means calling the attention of the top management to some wrongdoing occurring within an organization.

A whistleblower may be an employee, former employee or member of an organisation, a government agency, who have willingness to take corrective action on the misconduct.

The Companies Act,2013 has mandated certain companies to establish Vigil/Whistle-blowing mechanism to report any unethical behaviour or other concerns to the management.

Types of Whistle Blower:

1.     

      Internal:

A Whistle Blower may be within the organization who discloses any illegal, immoral or illegitimate practices to the employer. He/she may be;

·         Employee

·         Superior officer or

·         Any designated officer

2.     External :

A whistle Blower may be outside the organization who discloses any illegal, immoral or illegitimate practices  to the company. He/She may be;

·         Lawyers

·         Media

·         Law enforcement

·         Watchdog agencies

Sarbanes-Oxley Act,2002(SOX):

This is an Act enacted by U.S. congress in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures.

It is a set of standards that all U.S public companies and public accounting firms must comply and adhere with good quality reporting.

SOX is an essential law which has brought discipline in financial reporting process. The transparency brought by this Act is boosting investor’s confidence which further helps building a strong capital market in the economy

Clause 49 of the listing agreement is pretty much on the lines of Sarbanes Oxley Act of 2002. According to Clause 49, the top management becomes directly accountable for all financial statements and internal controls of the organization, which is also the bottom line in case of Section 302 of Sarbanes Oxley Act of 2002

Applicability:

Whether SOX is applicable in India? 

Yes, all companies, including Indian, which are listed on US stock exchanges, are required to comply with the requirements of the Act.

Corporate governance in India too has taken a clue from provisions of Sec. 404 of the SOX Act.

Provisions of SOX for whistle-blowers:

• Make it illegal to "discharge, demote, suspend, threaten, harass or in any manner discriminate against" whistleblowers
• Establish criminal penalties of up to 10 years for executives who retaliate against whistleblowers
• Require board audit committees to establish procedures for hearing whistleblower complaints
• Allow the secretary of labour to order a company to rehire a terminated employee with no court hearing.
• Give a whistleblower the right to a jury trial, bypassing months or years of administrative hearings

Objectives of whistle-blowing:

• To encourage employees to bring ethical and legal violations they are aware of to an internal authority so that action can be taken immediately to resolve the problem
• To minimize the organization's exposure to the damage that can occur when employees circumvent internal mechanisms
• To let employees know the organization is serious about adherence to codes of conduct

Whistle Blowing Mechanism

 Barriers to Whistle-Blowing:

• A lack of trust in the internal system
• Unwillingness of employees to be "snitches"
• Belief that management is not held to the same standard
• Fear of retaliation
• Fear of alienation from peers

Steps for Creating a Whistle-blowing Culture

o    Create a Policy

o    Get Endorsement From Top Management

o    Publicize the Organization's Commitment

o    Investigate and Follow Up

o    Assess the Organization's Internal Whistle-blowing System

Provisions related to whistle-Blowing mechanism:

As per Listing Agreement

As per Companies Act,2013

It is a non-mandatory requirement under clause 49 of  the listing agreement . The company may establish a mechanism for employees to report to the management concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy. It provide for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairman of the Audit committee in exceptional cases. Once established, the existence of the mechanism may be appropriately communicated within the organization.

It is mandatory for ·         All the listed companies ·         Companies which accept deposits from the public and ·         Companies which borrow money from Banks and PFI in excess of Rs.50 crores under section 177(9) read with Rule 12.5. Companies which are required to constitute an audit committee shall operate the vigil mechanism through the audit committee. For other companies, the Board of directors shall nominate a director to play the role of audit committee for the purpose of vigil mechanism to whom other directors and employees may report their concerns.     It provide adequate safeguards against victimization of employees and directors who avail of the mechanism and also provide for direct access to the chairperson of the Audit committee or the director nominated to play the role of audit committee, as the case may be, in exceptional cases.                                                                        Once established, the existence of the mechanism may be appropriately communicated within the organization

SAMPLE FORMAT FOR WHISTLE BLOWING

        

            Date                                                        :

            Name of the Employee/Director              :              

            E- mail id of the employee/Director        :                

            Communication Address                         :

          

           Contact No                                               :

             Subject matter which is reported           :                                                                

           

             (Name of the person/ event focused at) :

 

              Brief about the concern                        :   

              

            

             Evidence (enclose, if any)                      

                                                                                                                            Signature

             

                 Note:  The whistle blowing shall be submitted at least within 30 days of the   

                          Occurrence of the concern/event (or) before occurrence

Conclusion

Once Companies Act 2013 comes into place, the Corporate(s) will have to institute rigorous policy to allow employees to bring unethical and illegal practices to the forefront and also train managers and executives on how to encourage openness. Some of the companies already have a Whistle-Blower policy as a good corporate governance practice and now most of the companies start to frame this policy to comply with section 177 of the Companies Act 2013 &Corresponding Rules, which will be notified shortly.

Register of Contracts - Companies Act 2013 Vs 1956 - A Comparison

Register of Contracts under Companies Act 2013 Vs 1956 - An analysis

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One of the register to be maintained through out the life time of the Company !!

Entries of the Register to be authenticated by CS or person authorized by Board....

Within how many days the Contracts need to be entered?

Please read ...

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Section 189 of the Companies Act 2013 requires every company to maintain a register of contracts or arrangements. This section 189 is in the place of section 301 of the Companies Act 1956.

	Section 189 – 2013 Act	Section 301 – 1956 Act
Maintenance of Register Applicability	To all contracts or arrangements to which sub section 2 of section 184 or section 188 applies.	To all contracts or arrangements to which section 297 or section 299 applies.
Sub section 2 of section 184 of 2013 Act
i) Any director of a company who has interest directly or indirectly in any contract or arrangement a)      with any body corporate in which such director in association with any other director, holds more than two percent of shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or b)     with a firm or other entity in which, such director is a partner, owner or member, as the case may be.
Section 188 of 2013 Act  Related party transactions
Section 297 of 1956 Act
i) If a director of the company or his relative, a firm in which such director or relative is a partner, any other partner in such a firm, or a private company of which the director is a member or director,  enters into any contract with the company a)      for the sale, purchase or supply of any goods, materials or services; or b)     for underwriting the subscription of any shares in, or debentures of, the company
Section 299 of 1956 Act Any director, who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into, by or on behalf of the company, shall disclose the nature of his concern or interest.

   

	Section 189 – 2013 Act	Section 301 – 1956 Act
Particulars to be entered	Prescribed in Form No.12.4	Particulars as spelt in section 301(1)
Time period within which the entries to be made	Section silent	i) Within 7 days of the Board Meeting in case of a contract or arrangement which requires board’s approval. ii) In any other case, within 30 days of the receipt of the details of such contract or arrangement at the registered office.
Authentication	Entries shall be made in chronological order and shall be authenticated by the Company Secretary or by any other person authorized by the Board.	No provision
Board’s consent	Register shall be placed before the next meeting of the Board and signed by all the directors present at the meeting.	Register shall be placed before the next meeting of the Board and signed by all the directors present at the meeting.
Preservation of Register	The Register shall be preserved permanently and shall be kept in the custody of the Company Secretary or any other person authorized by the Board.	No provision
Registered to be maintained `	At the Register office	At the Registered office
Inspection	Open for inspection at such office during business hours and extracts may be taken therefrom, and copies thereof as may be required by any member shall be furnished by the company to such extent, in such manner, and on payment of such fees as may be prescribed.	Open for inspection at such office, and extracts may be taken therefrom and copies thereof may be required, by any member of the company to the same extent, in the same manner, and on payment of the same fee, as in the case of register of members of the company and the provisions of section 163 shall apply accordingly.

	Section 189 – 2013 Act	Section 301 – 1956 Act
Placing before AGM	The Register of Contracts or Arrangements should be produced at the commencement of every AGM and shall remain open and accessible during the continuance of the meeting to any person having the right to attend the meeting.	No provision.
Non Applicability	i) To any contract or arrangement for the sale, purchase or supply of any goods and materials or the cost of such services does not exceed Rs. 5 lacs in the aggregate in any year; or ii) to any contract or arrangement by a banking company for the collection of bills in the ordinary course of its business.	i) To any contract  or arrangement for the sale, purchase or supply of any goods, materials or services, if the value  does not exceed Rs.1000/- in the aggregate in any year; or ii) to any contract or arrangement by a banking company for the collection of bills in the ordinary course of its business.
Penalty	Every director who fails to comply with the provisions shall be punishable with a penalty of Rs.25000/-	Every officer of the company who is in default shall be punishable with fine which may extend to Rs.5000/-

CS Balaji G

Company Secretary