When PM CARES Fund Is Given CSR Benefit, Can CM Relief Fund Be Excluded? Supreme Court To Hear Rajasthan's Suit

In a significant legal development, the Supreme Court highlighted the issues for consideration in an original suit filed under Article 131 of the Constitution by the State of Rajasthan alleging discrimination in the treatment of the Chief Minister's Relief Fund for COVID-19 (CM Relief Fund) as compared to the Prime Minister's Citizen Assistance and Relief in Emergency Situation Fund (PM CARES Fund) in the context of Corporate Social Responsibility (CSR) activities.

The State had raised concerns over excluding the CM Cares Fund as a CSR activity under Schedule 7 of the Companies Act, 2013, while the PM Cares Fund enjoys such recognition.

It is pertinent to note that the Supreme Court bench led by CJI S.A. Bobde on 16th June 2020 issued a notice in this matter.

The Court today noted that the following issues have arisen-

• Maintainability of the Suit: Whether the suit is maintainable?
• Arbitrary and Discriminatory Exclusion: Whether the plaintiff proves that the exclusion of CM Relief fund for COVID-19 from Schedule 7 of the Companies Act, 2013 is arbitrary and discriminatory on the ground that Schedule 7 allows PM Cares Fund as CSR?
• Extension of CSR Benefit to CM Fund: Whether the plaintiff proves that due to the effect of circular 23rd March 2020, CM Fund also gets the benefit of CSR along with PM Cares Fund?
• The legality of FAQ 2: Whether the plaintiff proves that the answer to FAQ 2- 10th April 2020 is ultra vires constitution of india and the companies act?
• Discriminatory Nature of OM(Office Memorandum) by Corporate Ministry: Whether he proves that the OM 28th March 2020 by Min of Corporate Affairs is discriminatory being violative of Art. 14?

The Court ordered “the suit shall be listed before registrar for recording admission and denial of documents. File documents relied upon within 1 week. Registrar to complete the exercise by the end of November 2023. List on 5th December”

The Supreme Court bench comprising Justices Abhay S Oka and Justice Pankaj Mithal was hearing an original suit filed by the State of Rajasthan under Art 131 of the Constitution against the Union of India challenging the exclusion of CM Relief Fund from CSR Activity.

The present case dates back to when COVID-19 marked its presence in India. On 23rd March, 2020, the Ministry of Corporate Affairs issued a circular stating that spending of CSR funds is eligible for CSR activity. Notably, a 21-day lockdown was imposed on 24th March 2020. On 28th March,2020,  the Central Government cam up with a circular categorically stating that contributions made to the PM CARES fund shall qualify as CSR under the Companies Act.

It stated “The PM-CARES Fund has been set up to provide relief to those affected by any kind of emergency or distress situation. Accordingly, it is clarified that any contribution made to the PM CARES Fund shall qualify as CSR expenditure under the Companies Act, 2013.”

On 29th March 2020, the plaintiff, the State of Rajasthan had established a separate "Rajasthan CMRF COVID-19 Mitigation Fund (CMRF)," which operated as a dedicated account under the Chief Minister Relief Fund. This fund was specifically designed to counter the adverse impacts of COVID-19 and had a separate account for funds.

But on 10 April 2020, the Ministry of Corporate Affairs noted that:

1. The contribution made to the 'PMCARES Fund shall qualify as CSR expenditure under item no. (viii) of Schedule VII of the Companies Act, 2013.
2. 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.”

In a bid to address the concern post this clarification by the Ministry and to affirm that the CMRF qualifies as CSR expenditure, the State of Rajasthan invoked Article 131 of the Indian Constitution to initiate the present legal suit.

The plaintiff in his petition states “The object of this dedicated account (CMRF) squarely falls within the purview of enumerated clauses of the Schedule VII of Companies Act, 2013 ("the Act") to qualify as CSR Expenditure. The General Circular No. 15 of 2020 dated 10.04.2020 issued by the Ministry of Corporate Affairs has created an apprehension that the said CMRF won't qualify as CSR Expenditure. In order to ally such apprehension and to declare and hold that CMRF shall fall within the CSR Funds, the present suit under Article 131, Constitution of India, is preferred.”

The plaintiff sought a mandatory permanent injunction against Circular No. 15 of 2020 dated April 10, 2020, issued by the Ministry of Corporate Affairs, on the grounds that it is ultra vires Schedule VII of the Companies Act, 2013, and unconstitutional due to a violation of constitutional principles of equality as enshrined in Article 14 of the Constitution of India.

Furthermore, the plaintiff sought a direction that contributions made to the CMRF be included as eligible activities enumerated under Schedule VII of the Companies Act, qualifying as Corporate Social Responsibility.

The plaintiff highlighted that COVID-19 is also notified under the National Disaster Management Act, 2005, and that Schedule VII of the Companies Act includes provisions related to public and preventive healthcare as well as disaster management and relief, both of which they argue should encompass the CMRF.

Case title: State of Rajasthan v. Union of India

Citation: ORIGINAL SUIT No. 3/2020

For petitioner: Sr Adv. Dr Manish Singhvi along with AOR Sandeep Jha

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