India: tender causes 'CSR obligation' query

The Companies Act that came into force from this year has mandated that companies have to set aside at least two per cent from their net profit for expenditure on corporate social responsibility (CSR). But the rules issued by the Ministry of Corporate Affairs note that CSR cannot be interpreted as the main business activity of a company. The expenditure has to be over and above it, but this tender shows the companies can potentially claim a part of their business expenditure as CSR.

State-run AP State Housing Corporation Ltd (APSHC) has floated tenders for supply of 10Mt of cement for its 'weaker section' housing programme from cement manufacturers "under their corporate social responsibility" obligations.

The corporation, however, did not explain how it intended to prevent a supplier from claiming the same as CSR. B Venkatesham, managing director of APSHC, wrote that the mention of the words 'corporate social responsibility' in the tender were to highlight that the supply of cement would be used exclusively for weaker section housing, "hence the quote may be suitably offered by the companies".

In response to a query, APSHC claimed that the procurement does not entitle them to use this supply of cement to show as CSR obligation.

Officials at Ministry of Corporate Affairs say the CSR lolly was being offered as a sweetener to reduce the quoted price of the cement, so the claim by APSHC and the circular offering use of the same did present problems.

Since the CSR bill has become a law in August this year, many companies are looking for ways to meet their annual obligations. Companies with a net worth of INR50bn (US$79.9m) or more and running a net profit of INR50m or more during the financial year are required to form a CSR committee with at least one independent director.