Introduction
The Corporate Social Responsibility Rules are dealt with in Section 135 of the Companies Act, 2013. Schedule VII of the act lists the activities for Companies to choose from to fulfil their Corporate Social Responsibility (CSR). Companies have to contribute at least two percent of their annual average net profit of the past three years in the activities listed in Companies Act as a part of their CSR.
CSR Funds amid COVID-19
The spread of the Covid-19 virus is speedily increasing, as a measure, the country is under a lockdown. The Companies have an opportunity to come out and contribute and add finances to fight the novel coronavirus using their CSR Funds. They can either go for the activities that can help fight the virus as listed those in item (i) or they can contribute to relief funds run by the government listed under item (viii) and (xii) of Schedule VII.
Ministry of Corporate Affairs came out with a circular on March 23 that gave State Disaster Management Authority funds the status of CSR Activity under Schedule VII, item no. (xii).[1] Further, the ministry clarified that any contribution towards Prime Minister’s Citizen’s Assistance and Relief in Emergency Situations Fund (PM CARES fund) will be considered a CSR Activity under item (viii)[2] of Schedule VII. [3] However, it notified that any contribution made towards CM Relief Fund will not be considered as a part of the CSR Activity.[4]
This controversy is gaining fathom as most of the projects run by Companies under the CSR scheme have come to a standstill owing to the nation-wide lockdown and thus companies and corporate house are willing to transfer the amount to Covid-19 funds.
A centralized funding will not be worthwhile, when the situation is changing quickly and decisions are to be made rapidly. It is more appropriate to have a decentralized funding system handled by the states. Various states are presenting their resentment as all the funds created are going to be utilized for fighting the virus then why is there any differentiation given to the treatment between the centre and the state when their aims and objectives are identical. Government has given no explanation why the CM Relief Fund has not been included in CSR Activity and State Disaster Management Relief Fund (SDMRF) has been included.
One argument posed is that SDMRF is incorporated under Disaster Management Act, 2005 which is a Centre’s legislation and Centre contributes 25 percent of its funding whereas the CM Relief Fund is generally incorporated under State Legislations on public trusts. However, if this was the rationale SDMRF should have been included under the item (viii) where all centre funds are included and there was no need of creation of novel item (xii) for special inclusion of SDMRF.
Various states are questioning the central government’s action under Cooperate federalism and how it has been brutally ignored by the centre. This inequality in treatment will add to the fiscal stress in the emergency for the states. The Centre has also acted unfairly while allocating funds to Kerala, one of the worst affected states, before the Nizamuddin Markaz fiasco, received only Rs 157 crore. According to a PTI report, Maharashtra received Rs 1,611 crore, and Uttar Pradesh Rs 966 crore. [5] Though, funding was given to Kerala through revenue deficit grant that fund could not be immediately utilised to take measures against the spread of the virus.
Ministry of Corporate Affairs has come out with Draft Companies (Corporate Social Responsibility Policy) Amendment Rules, 2020 [6]. The draft suggests the performance of CSR through a company incorporated under Section 8, an international organization or an entity established under an act of parliament or state legislature. However, a grave problem is that it does not include registered trusts or foundations. In this interpretation, CM Relief Fund which is incorporated under a trust will not be considered an instrument through which CSR Activity can be performed. A doubtful and risky understanding to include them would be through considering them formed through an act of state and thus they being valid instruments. However, there is no legal clarity on this.
Conclusion
All in all, the companies should be given due opportunity to invest their CSR funds in the fund they consider most appropriate. The centre should delve into the issue and create provisions to ensure the same.
References:
[1] Refer General Circular No. 10/2020, http://www.mca.gov.in/Ministry/pdf/Covid_23032020.pdf.
[2] Schedule VII, item (viii)-contribution to the prime minister’s national relief fund or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women.
[3]Refer to – http://www.mca.gov.in/Ministry/pdf/Circular_29032020.pdf.
[4]Refer General Circular No. 15 /2020, http://www.mca.gov.in/Ministry/pdf/Notification_10042020.pdf.
[5] Web Desk, COVID-19: Was Kerala, one of the worst-affected states, treated unfairly by Centre?, The Week(April 04, 2020 19:15 IST), https://www.theweek.in/news/india/2020/04/04/covid-19-was-kerala-one-of-the-worst-affected-states-treated-unfairly-by-centre.html.
[6] Refer to – http://feedapp.mca.gov.in/csr/pdf/draftrules.pdf.
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