FAQs on CSR: Bad News for Indian Inc. if donation made to CM Relief Fund

FAQs on CSR:

The Ministry of Corporate Affairs (MCA) has recently released FAQs on Corporate Social Responsibility (CSR) vide General Circular No. 15/2020 dated April 10, 2020 wherein the MCA has somehow relaxed the norms of CSR for corporates which are stood up in such a tough time and showing generosity towards their employees and society during the lockdown period. Amongst other, the relaxation includes where Indian Inc. pays remuneration to their workers (incl. temporary and casual workers) but other than managerial personnel over and above the contractual and legal obligation will form part of the CSR expenditure, which is a good and welcome step which encourage other corporates. However, as per para 2 of FAQs, Companies can’t claim contributions made to the Chief Minister’s Relief Fund or the State Relief Fund for Covid-19 as corporate social responsibility (CSR) spending since this fund does not form part of schedule VII of the Companies Act and, in this regard, I wish to draw your attention towards the below facts, other circulars and provisions of the Laws:

Circulars of MCA

–        On March 28, 2020 MCA clarified that any contribution made to the PM CARES Fund shall qualify as CSR expenditure under the Act.

–        On March 23, 2020, MCA clarified that spending of CSR funds for COVID-19 is eligible for CSR since it falls under schedule VII of the Act.

–        There is a general circular issued by MCA on June 18, 2014 which says Schedule VII must be interpreted liberally so as to capture the essence of the subjects.

Provisions of the Companies Act

–        Activities eligible for CSR includes disaster management, including relief, rehabilitation and reconstruction activities.

–        Preference be given to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities.

Government actions Under Epidemic Act and Disaster Management Act

–        On 14 March, the Home Ministry declared the Coronavirus outbreak as a “notified disaster”, thus bringing into play the provisions of the Disaster Management Act.

–        The Centre has invoked the Disaster Management Act to direct states to enforce a lockdown and restrict public movement.

–        Various Guidelines, Circulars, Advisories, etc have been issuing by the Authority anc committees formed under Disaster Management Act.

–        Few State Governments has established relief funds specifically for the purpose of Covid-19 like Haryana, Karnataka, MP, Odisha, Punjab, Rajasthan while other state governments have been accepting the donation for Covid-19 in their existing CM relief funds.

If you look at the current scenario hovering amid the lockdown period caused by the coronavirus and contribution being made by the big corporate houses, one can say that the big corporates are doing their bid to support the government (incl. state govt.) and people of the country in this testing time period where the corporates are equally affected due to closure of factories, negligible revenue, etc. Many Indian Inc. (incl. MNCs) have contributed towards PM Cares Funds and CM Relief Funds of respective states where they operate such as Reliance Industries, Tata group, TVS, Asian Paints and so on. In spite of these generous acts of the corporates, the MCA by its FAQs has made all the contribution made to CM Relief Funds (incl. State Relief Fund for Covid-19) ineligible for CSR Expenditure. Such move may affect the morale of these corporates and discourage them.

Conclusion:

On the legal front, the MCA has not rightly held that the contribution made towards CM Relief Funds is not qualify as CSR expenditure since entry no. xii in schedule VII of the Act includes ‘disaster management’ as eligible activity for CSR and Covid-19 is a declared disaster under Disaster Management Act and Epidemic Diseases Act. Thus, providing relief and rehabilitation should form part of CSR expenditure whether it is made towards CM Relief Fund or PM cares fund. Further, in terms of the CSR provisions, the corporates are required to give preference to the area from where they operate so their primarily responsibility is towards their respective states’ CM Relief Fund. Moreover, in light of the circular issued by the MCA dated March 23, 2020, it has clarified that every spending towards Covid-19 is eligible for CSR and there was no distinction made between PM Relief Fund and CM Relief Fund in that circular. 

On the basis of foregoing facts and discussion read with the provisions of the law in force, the MCA should interpret the law liberally in the light of the current situation and extant CSR provisions of the Act and thus, further clarification be made to include CM Relief Fund as eligible for CSR Expenditure.