A Critique Of MCA Circular Excluding Donations To State COVID-19 Funds From CSR Expenditure

Introduction Section 135 of the Companies Act, 2013, mandates all companies, having net worth of 500 crore, or turnover of 1000 crore or more or a net profit of 500 crore or more during a financial year to constitute a Corporate Social Responsibility ("CSR") Committee Board. The responsibilities of the Board are enumerated thereunder, with the object of ensuring that every company spends, in each financial year, at least 2% of the average net profits of the company, in pursuance of its CSR policy.[1] Simply put, it is the responsibility of all companies, which have a net worth of 500 crore or more, turnover of 100 crore or more, or net profit of 500 crore, to : a)Constitute a CSR Company Board ; b)Ensure that 2% of annual net profit is invested in activities enumerated under clauses (i) to (xii) of Schedule VII of the Companies Act, 2013. The Central Government, vide General Circular dated 23.03.2020, bearing No. 10/2020, informed all stakeholders that GOI in consultation with WHO, has notified COVID-19 as a pandemic (notified disaster). Further, spending of CSR funds for Covid-19 is permissible form of CSR activity.[2] It was informed that funds may be spent on activities enumerated under clauses (i) and (xii) of Schedule VII of the Companies Act, 2013. Pertinently paragraph 2 of the said circular expressly states that items in Schedule VII are broad based and may be interpreted liberally for this purpose.[3] On 28.03.2020, an Office Memorandum was issued by the MCA notifying that all donations made to the PM Cares fund are eligible to be qualified as CSR expenditure under clause (viii) of Schedule VII.[4] On 10.04.2020, the MCA issued yet another General Circular bearing No.15/2020, vide which the MCA clarified itsposition vis-à-vis various FAQ's, presumably, put forth by companies which made contributions to State Covid-19 Relief Funds and not to the PM National Relief Fund or PM Cares Fund.[5] The MCA in FAQ 2 has clarified that '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". FAQ 3, on the other hand, states that contributions made to State Disaster Management Authority will form part of CSR expenditure. Strangely, FAQ 4 clarifies that funds spent on Covid-19 related activities will fall within the ambit of Schedule VII. Herein lies the contradiction and incongruity in law. The Circular is devoid of any rationale basis which such distinctions have been drawn between funds, which otherwise seek to serve the same purpose – containment of the Corona virus and flattening the curve of positive cases. Before we examine the legalities of this aforementioned exclusion, it is pertinent to understand the object behind CSR. Brief background Corporate Social Responsibility (CSR) can be defined as the 'ethical behaviour of a company (or say business) towards society'. It means engaging directly with local communities, identifying their basic needs, and integrating their needs with business goals and strategic intent. The government perceives CSR as the business contribution to the nation's sustainable development goals. Simply stated, CSR is a concept which suggests that commercial corporations must fulfil their duty of providing care of the society.[6] It is the continuing commitment by corporations to behave ethically and contribute to economic development, improving the quality of life of the community and society at large.[7] Inherent in CSR is the socio-economic policy of the government to ensure Corporations, which often play a huge role in environmental degradation and excessive wastage of resources, constitute a Board in order to form a policy which would cater to the overall upliftment of the area where the Corporation operates, and of the country at large. It may be looked at as a quid pro quo arrangement between the society and the corporations, which cater to each other's interests though this mechanism. While industry provides employment opportunities and thus facilitates socio-economic progress, it also displaces people, and the onus is, therefore, on the industry to ensure proper infrastructure facilities are in place. The need for CSR has increased due to recent rapid increase in the operation of MNC's on the soil of India. Such corporations have often perturbed the lives of the locals. Bhopal Gas Disaster[8], POSCO plant in Odisha, Unilever case of Kodaikanal and many other such instances depicting the negative intrusion of the corporations into the lives of the people. This is a strong factor that has made Government turn its head towards CSR. The tribal, villagers and other socially disadvantaged groups of the population often find themselves at the mercy of government.[9] CSR is extremely...

A Critique Of MCA Circular Excluding Donations To State COVID-19 Funds From CSR Expenditure

The screen of VC hearing again encounters glitches.
CJI to Solicitor General Tushar Mehta, seemingly perturbed by the technical glitches in the Videoconferencing hearings
- "We faced lots of problem today. Who is incharge of these things? Is it IT minister or who?"

CJI: Indeed, there can be transportation but by maintaining #SocialDistancing

Senior Advocate Colin Gonsalves for National Forum for Prison Reforms now on screen before the Bench.
"The health authorities are keeping an eye on them.
There is no issue of transportation, no problem at all", Gonsalves.

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A Critique Of MCA Circular Excluding Donations To State COVID-19 Funds From CSR Expenditure

The screen of VC hearing again encounters glitches.CJI to Solicitor General Tushar Mehta, seemingly perturbed by the technical glitches in the Videoconferencing hearings - "We faced lots of problem today. Who is incharge of these things? Is it IT minister or who?"

CJI: Indeed, there can be transportation but by maintaining #SocialDistancing

Senior Advocate Colin Gonsalves for National Forum for Prison Reforms now on screen before the Bench."The health authorities are keeping an eye on them. There is no issue of transportation, no problem at all", Gonsalves.

Similar News

The screen of VC hearing again encounters glitches.
CJI to Solicitor General Tushar Mehta, seemingly perturbed by the technical glitches in the Videoconferencing hearings
- "We faced lots of problem today. Who is incharge of these things? Is it IT minister or who?"

Senior Advocate Colin Gonsalves for National Forum for Prison Reforms now on screen before the Bench.
"The health authorities are keeping an eye on them.
There is no issue of transportation, no problem at all", Gonsalves.