Corporate Social Responsibility in light of COVID-19

Corporate Social Responsibility (hereinafter referred to as CSR) infers a concept, whereby companies wilfully decide to contribute to the betterment of society. It is an idea, whereby the organizations incorporate social and other valuable concerns in their business activities for the improvement of the society in a voluntary manner. It is like a payback to the society by making their bit for its welfare.

CSR, as defined under Section 135 of the Companies Act, 2013, includes all the activities as specified in Schedule VII of the Act and applies to companies having net worth of more than  5 billion or more, turnover of 10 billion or more and net profit of  50 million or more during preceding financial year and shall constitute a CSR Committee of Board consisting of three or more directors out of which one should be an independent director. The Board of every company should make sure that the company spends at least 2% of their average net profit made during the three immediately preceding financial years.

India reported its first case of COVID 19 on January 30th, 2020, and the World Health Organisation (hereinafter referred to as WHO) on March 11th, 2020 declared it as a public health emergency of international concern. At present, India records more than 25,000 million active cases and 20.000  and more deaths. The crippling effects of COVID 19 led to all the sectors being upended across the globe. Thus, government and regulatory authorities are trying to help the citizens and companies by giving them various liberalizations and relaxations for various compliances and requirements.[1]

The Ministry of Corporate Affairs (hereby referred as MCA) on March 23rd, 2020 thus released a circular stating  that  due to the spread of novel Coronavirus in India, its declaration as a pandemic by WHO  and treating this as notified disaster by Government of India, “any funds spent to curb COVID 19 spread in India will be counted under CSR activities of the Companies.”

MCA further stated that funds spent on activities relating to the promotion of health care, including preventive health care and sanitation and on disaster management as given under item no (i) and (xii) of Schedule VI of the Act would be within the definition of company’s CSR activities. [2]

Eligibility of CSR funds related to COVID 19 Activities

After the release of the above notification by the MCA, there was a lot of ambiguity as to which funds will and will not be considered as a CSR expenditure under COVID 19 contributions. Thus,  a clarification was released by the MCA on March 28th, 2020 that “The contributions to Prime Minister’s Citizen Assistance and Relief in Emergency Situation’s Fund (PM CARES Fund) will be eligible as CSR activities”, as it has the primary objective of dealing with any kind of emergency or distress situation as that posed by COVID 19 situation.  Further, it has been stated that PM CARES Fund is eligible for CSR activities under item no (viii) of Schedule VII of the Companies Act, 2013.

Further, it was made clear that the ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID 19’ is not included in Schedule VII of the Companies Act, 2013 and therefore any contribution to such funds shall not qualify as admissible CSR expenditure. While contributions made to State Disaster Management Authority to combat COVID 19 shall qualify as CSR expenditure under item no (xii) of Schedule VII of the 2013Act.

However as the economy is crashing all over the country due to the Coronavirus outbreak,  the employers had other concerns as to whether the salary or wages of employees or laborers during the lockdown period be adjusted against the CSR expenditure. Answering to which the MCA made it clear that payment of salary or wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary or wages to employees and workers even during the lockdown period is a moral obligation of the employers, as they have no alternative source of employment or livelihood during this period. Thus, payment of salary or wages to employees and workers during the lockdown period (including the imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure.

While Payment of wages to temporary or casual or daily wage workers during the lockdown period applies to all companies irrespective of whether they have any legal obligation for CSR contribution under section 135 of the Companies Act 2013. Hence, payment of wages to temporary or casual or daily wage workers during the lockdown period shall not count towards CSR expenditure.

It was further clarified that if any ex-gratia payment is made to temporary or casual workers or daily wage workers over and above the disbursement of wages, specifically to fight COVID 19, the same shall be admissible towards CSR expenditure as an onetime exception provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.

Response of CSR Community to tackle COVID 19 crisis in India

 A lot of the companies are earmarked towards relief work (health, nutrition, or shelter) like Tata Trusts committed  5 billion for personal protective equipment for medical personnel on the frontline,  respiratory systems, testing kits, etc   Reliance Foundation is conducting Mission Anna Seva, meal distribution program and Fujifilm India extended Healthcare support to PGIMER, Chandigarh. A few percent is directed towards PM CARES  Funds like Indus Towers contributed  350 million to PM CARES Fund while the remainder is directed by corporate foundations towards their work or that of their partners.

There have also been a few in-kind donation announcements, including for counseling helplines or e-learning resources, drones, and food supply by Parle, L&T, Nippon. Availability for free or discounted testing kits or services by Practo, Thyrocare, Mylab.

Some corporates like Pernod Ricard India and Marico have come forward to support innovation and entrepreneurship initiatives, which can serve as a much-needed catalyst for med-tech entrepreneurs to ramp up testing and production of COVID 19 related products. Others have started employee campaigns with online crowdfunding platforms such as Give India and Milaap, to support specific nonprofits and causes.

As it is said, in times of crisis it is critical to direct the right kind of resources to the right people, at the right time and place and thus CSR in the light of COVID 19 is providing a helping hand in fighting against the virus outbreak in India.

References:

[1] https://www.mygov.in/covid-19

[2]http://www.mca.gov.in/