Last week, the Union Cabinet cleared the Companies Bill, 2011 . Ironically, the electronic media welcomed the Bill as a step in the right direction even before its text was released to the media. It has become an unfortunate obsession with the Ministry of Corporate Affairs to repeatedly try and replace the existing Companies Act, 1956, in the hope that a new Bill will be a cure for the ills that plague the corporate sector. The tragic feature of our economy is the attempt to solve problems by merely enacting new laws. The pathetic attempt to cure industrial sickness by Sick Industries (Special Provisions) Act, 1986, is perhaps the best example. Industrial sickness was never cured and the manner in which the Board of Industrial and Finance Reconstruction functioned became a matter of serious concern. In the end, the provisions of that Act were widely misused.
The Companies Bill, 2008, lapsed with the dissolution of the 14th Lok Sabha. It simply became Companies Bill, 2009, but was not enacted by Parliament. The latest Companies Bill, 2011, is perhaps based on the 2009 draft with a few changes.
Govt to sort out issues in companies Bill
The changes that were touted as major reforms in 2009 Bill could have been simply incorporated in the Companies Act, 1956, with a few amendments. According to media reports, the Companies Bill, 2011 now seeks to impose an obligation on all companies to contribute two per cent of their average profit of the preceding three years towards Corporate Social Responsibility, or CSR. This provision is unworkable and once again bound to be abused by the vast majority of companies that do not obey the law, and will only make life more miserable for companies that are managed well. Will the mandatory two per cent contribution be eligible for tax deduction? Can a company decide what its CSR is? For many successful companies, a significant part of their profit is already eroded in meeting the requirements of "deferred tax liability". In addition, it is now proposed to burden companies with a two per cent obligation. It will be far better to promote CSR through tax incentives than to make it compulsory under the Companies Act.