India's New Corporate Laws: Completing the Circle
AS India’s Upper House passes The Companies Bill 2012, 50 years of corporate legislation IS REPLACED BY AN ENABLING AGENDA FOR BUSINESS FOR THE NEXT 50
Whilst improving corporate governance strictures, enhancing protection for investors, combating fraud and facilitating greater entrepreneurship are some of the declared aims of the new BILL it is the requirements for companies to deliver upon Corporate Social Responsibility (CSR) that may be the jewel in the corporate crown for many. Patton Boggs’ Washington, DC office and lawyers based in Australia have significant experience in developing CSR projects throughout India, particularly in the areas of carbon offsetting and health and environmental project work with a range of international consultancies which will now be given even greater effect by the passing of the 2012 Companies Bill last week.
The main elements of the new legislation include the following.
Stricter Rules on Corporate Governance
- Simplified company structures;
- One third of a board must be independent;
- Greater director accountability, and
- At least one director of a company must be female.
Greater Investor Protection
These provisions allow aggrieved parties to now petition the new National Company Law Tribunal which, together with a revised appeals process, significantly advances the 13-year-old Investor Education and Protection Fund and, in line with global peers, recourse to a raft of new remedies as well as class action processes.
The legislation contains a new mechanism for mergers with international companies which it is hoped will facilitate greater opportunities. This will now be facilitated through an approval process managed by the Reserve Bank of India.
Corporate Social Responsibility
Companies with a net worth of RS 500 Crore (US$7.9 million) or more, a turnover of RS 1,000 Crore (US$158 million) or more, and a net profit of RS 5 Crore (US$790, 000) or more during any financial year (from April 1 each year) are now required to:
- Establish a CSR Committee with at least 1 independent director
- Have a CSR spend of 2 percent of the average net profits for the preceding three financial years
The legislation recognizes several such activities and include (but are not limited to):
- Ensuring environmental sustainability
- Eradicating extreme hunger and poverty
- Combating disease
- Social business projects
- Promoting gender equality and empowering women.
It is anticipated that we will see a range of the new carbon offset projects which will seek to bring innovative practices and technologies into play, coupling several of these key areas into a range of holistic projects which, whilst being met by the companies initially through their CSR requirements, would also seek to attract revenues for the communities they are operating in through such new project designs. For example, an environmental sustainability offset could generate new skill sets and regional employment which could be coupled with a food security element.