Over a week before the launch of Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM-CARES Fund), several corporate groups were mulling over ways in which to do their bit towards relief measures for the Covid-19 pandemic with their corporate social responsibility (CSR) funds. Although the same would have qualified as CSR spend under Point xii (that covers disaster management and relief) of Schedule VII of Companies Act 2013, a few companies sought clarification from the Ministry of Corporate Affairs (MCA).
Here’s a chronology of the statements and circulars that followed, with a couple of confusions too.
The Ministry of Corporate Affairs clarified that funds directed towards support for Covid-19 activities would qualify as CSR spending.
‘Keeping in view the spread of the novel coronavirus (Covid-19) in India, its declaration as a pandemic by the World Health Organization (WHO), and the decision of the Government of India to treat this as a notified disaster, it is hereby clarified that spending of CSR funds for Covid-19 is eligible CSR activity,’ read the statement from the ministry.
The ministry stated that funds spent on promotion of healthcare, including preventive healthcare and sanitation, and on disaster management would be within the definition of a company’s CSR obligations.
The circular also clarified that the broad-based items as per Schedule VII of the CSR policy, which deals with the subjects that constitute CSR activity, may be interpreted liberally for this purpose.
Team CauseBecause reached out to MCA to find out if there was any specific area/fund/department to which companies might contribute their CSR funds.
The ministry was quick to revert: ‘There is no exclusive fund set up for Covid-19 as of now. However, expenditure towards fighting the same will qualify as CSR expenditure. The latest clarification issued by the MCA may be referred to. Contributions can also be made to the PM’s National Relief Fund specifically for this purpose. You can also contribute to state disaster management authorities.’
Several state governments had created a separate fund for Covid-19 and were reaching out to companies for donations. Letters from chief ministers’ offices, state government secretaries and other officials were sent to CEOs of some large corporate groups.
On the face of it, though it seemed to be fine to support the state government’s funds – the MCA clarification had no mention of the same – most corporate leaders seemed unsure about this falling within the ambit of government-defined CSR. (Nevertheless, some companies reported to have supported state governments’ initiatives. Read the CauseBecause report here: https://causebecause.com/corporate-india-coming-together-coronavirus/7197)
The PM-CARES Fund was created. The Prime Minister, who is the chairman of the trust that will manage the fund, stated that the fund would be used for combating, containment and relief efforts against the coronavirus outbreak and similar pandemic-like situations in the future. Other members of the trust include the defence, home and finance ministers.
The donations to the fund are exempted from taxes and donations to the same qualify as CSR expenditure.
Seeking more funds for the fight against coronavirus pandemic, the MCA appealed to top corporates to make contributions to the PM-CARES Fund.
Injeti Srinivas, secretary, Ministry of Corporate Affairs, made an appeal for contributions to decision-makers at the top 1,000 companies in terms of market capitalisation.
‘Your contribution to the fund would complement and supplement government efforts towards upscaling the public healthcare infrastructure in the country to meet this unprecedented challenge,’ Srinivas said in a letter.
‘As you are the chief executive of a highly successful company, I would like to appeal to your company to contribute generously to the PM-CARES Fund, which may also include any unspent CSR amount, if applicable,’ the letter, dated March 30, said.
Even if the prescribed amount of CSR contribution was already made, companies were allowed to contribute more which would be offset against the CSR obligation arising in subsequent years, if desired, the letter clarified.
The aforementioned statement in the March 30 letter, implying that any additional amount over and above the required CSR spending would be adjusted against the CSR obligation arising in subsequent years, if desired, created a couple of confusions (more so because this was towards the end of the financial year):
1. The amount reserved for Covid-19 this year can be offset from ‘how many’ subsequent years? For example, if a company spends X amount, which is beyond its 2% prescribed limit, does it have to offset the same in the next FY or can it be offset in parts over the next few years? If yes, is there a limit to the number of years?
2. Also, as a major part of CSR funds is usually reserved for ongoing programmes, is there a set limit on how much (percentage) of total CSR fund from subsequent years can/may be utilised towards Covid-19?
CauseBecause again reached out to the MCA for clarification on the two confusions stated above, along with a few other simple queries that were being discussed amongst CSR decision makers.
The ministry acknowledged CauseBecause’s request and stated that they would be coming out with answers to such frequently asked questions (FAQs).
FAQs were formally issued by the MCA. Here’s the link to the same on the ministry’s website: http://www.mca.gov.in/Ministry/pdf/Notification_10042020.pdf
However, the two key queries related to the spends on the subsequent years were not included in the FAQs and thus remain unanswered.
Interestingly, an official at the MCA, on condition of anonymity, told this writer that whenever in confusion with regard to CSR spends, one can always refer to General Circular No. 21/2014: https://www.mca.gov.in/Ministry/pdf/General_Circular_21_2014.pdf which states: .
..The statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule.
Yes, ‘interpreted liberally’ are the only two words in clear bold letters in the circular. The same has been highlighted in the explanation to Question 4 in the recent FAQs.
At the end of the day, it is fundamentally on the corporate to justify its decisions when it comes to spending just about two per cent of their annual profits for the welfare and development of the country and its people.