MCA ISSUES CLARIFICATION ON SPENDING CSR FUNDS FOR COVID-19

INTRODUCTION:

Recently, after the declaration of novel Corona virus as a “Global Pandemic” by World Health Organisation (WHO), there has been various changes made by the government of India in its policies, in relation to corporate sector. The Government of India treated Covid-19 as a Notified Disaster, keeping which in mind; the Ministry of Corporate Affairs has elucidated the spending of CSR funds for Covid-19 related activities.


The Ministry of Corporate Affairs is responsible for the administration of the companies in India. The Companies Act 2013, the Limited Liability Partnership Act 2008, and the other acts and regulations which are enacted, for the sole purpose of regulating the administration of corporate sectors, comes under the purview of this ministry. The Ministry not only looks after the functioning of the corporate sector but is also responsible for carrying out various functions on the part of Central Government related to the administration of this sector.

On the other hand, a Company has a moral duty to discharge and fulfil the social obligations, keeping in view, its financial status. This responsibility is called as Corporate Social Responsibility[1], i.e. CSR. It is an approach leading to sustainable development. The CSR, falls under section 135 with schedule VII, of the Companies Act 2013. The concept of CSR is majorly based on the view that, with the contribution in the economy, a company should also indulge itself, in the social obligations. It improves Goodwill as well as shows the respect towards values, by the company.

Under section 135[2], Companies Act, 2013, it is mandatory for a company who has:

· Net worth of Rs. 500cr or more; or

· Turnover of Rs. 1000cr or more; or

· Net profit of Rs. 5cr or more

To abide by the Corporate Social Responsibilities and make contribution to it, and form a CSR committee which may formulate the CSR policies. There are several other provisions which provide duties and role of directors, relating to the corporate social responsibility. A company has to indulge itself in the CSR activities and have to submit report, on the funds spent on such activity.

The Ministry of Corporate Affairs, on 23rd March 2020, issued clarification on spending of CSR fund for covid-19. The circular included, that a company can spend its CSR funds on various activities falling under item no. (i) and (xii)[3] of Schedule VII, which basically relates to promotion of health Care, including preventive healthcare, and sanitation and disaster management, etc. related to COVID-19.

Later, MCA explicated the circular, and gave a detailed explanation for the same in the form of FAQs.

CONTRIBUTION OF CSR FUNDS TO ‘PM CARE FUNDS’ AND STATE RELIEF FUNDS:

The MCA clearly specified, that the contributions made to the "PM cares funds"[4] will be qualified as a contribution made in CSR expenditure under the provided item no. (viii) of Schedule VII, of the Companies Act, 2013. The item no. (viii) consists of the social business project activities to be included in CSR policies by the company. On the other hand, a contribution made to the 'State Relief Funds for Covid-19' or ‘Chief Minister's Relief Fund’ shall not qualify as an expenditure in CSR, because it is not included in Schedule VII of Companies Act, 2013.

But to battle Covid-19, a contribution made to State Disaster Management Authority will be qualified as CSR expenditure. It will fall under item no. (xii)[5] which includes, disaster management and including relief, rehabilitation, and reconstruction activities. The ministry has made it clear in the circular, that the items in schedule VII must be interpreted liberally, i.e. in wide scope, so that it may include all the activities related to COVID-19 which will qualify as CSR expenditure by the company.

PAYMENTS AND EX-GRATIA TO EMPLOYEE, WORKERS, LABOUR, etc., DURING LOCKDOWN:

The obligation to pay salary or wages to the employees, workers (which includes contract labour),and other labors, is described as a moral obligation of the company. Where there is no other source of employment, payment of salary and wages becomes necessary for sustenance. That is why it should be a humanitarian obligation of a company, to look after the payments. Thus, the payments of salaries/ wages to the employees and the workers shall not qualify as CSR expenditure even during the lock-down period. The payment to casual and daily wage workers also will not be counted as contribution to CSR expenditure.

But if the company is making an ex-gratia payment for its worker, to combat with covid-19 it shall be admissible as a CSR expenditure as an exception, with condition that a declaration has to be made with that effect, duly certified by statutory auditor, by the Board of the company.

CONCLUSION:

The efforts made by the Central Government with respect to the present economic crisis, is laudable. But even after all these efforts; there are lesser ways to fight with poverty, hunger, shelter and the basic amenities of day-to-day life. In the present lockdown situation, the daily wage labors and workers are suffering from a wealth crisis and are dying from lack of basic necessities. The above efforts are good, but not fully adequate. The need of the hour (along with the prevention from corona virus) is to look upon the lower sections of society. In my suggestion, the CSR funds could be used , not only for Covid-19, but also for the economic help and fulfillment of other social needs of the people, which may include their different health treatments, poverty (because of no earnings), etc. Therefore, the guidelines issued by Central govt. are partially correct, but still they need a few more additions, to be implemented.

[1] Section 135- Corporate Social Responsibility, Companies Act, 2013 [2] Supra [3] General circular no. 15/2020

[4] Á fund made by govt. of India to provide facilities to battle against covid-19 [5] inserted by notification dated 30th may,2019

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