Demystification of CSR Related Issues – Clarification On Spending Of Corporate Social Responsibility (CSR) Fund For COVID-19
Ministry of Corporate Affairs vide its general circular no. 10/2020 dated March 23, 2020 clarified that in view of the spread of Novel Corona Virus (COVID 19) in India and Government of India’s decision to treat this as a national disaster, the spending of CSR funds on COVID 19 is an eligible CSR Activity.
Accordingly, companies can spend for various activities related to COVID 19 under item no. (i) and (xii) of schedule VII (Activities which may be included by companies in their Corporate Social Responsibility Policies Activities) relating to the promotion of health care including preventive health care and sanitization and disaster management.
In the above general circular, it was clarified that the companies can spend for various activities related to COVID 19 under item no. (i) and (xii) of schedule VII, which if read with the General Circular no. 21/2014 dated June 18, 2014 issued by the Ministry of Corporate Affairs wherein it was clarified that the mentioned in items in schedule VII are broad based and should be interpreted liberally.
In continuation to the above mentioned circular dated March 23, 2020 Ministry of Corporate Affairs vide its office memorandum dated March 28, 2020 clarified that any contribution made to the PM CARES Fund will also qualify as CSR expenditure under the Companies Act 2013.
However, on April 10, 2020, Ministry of Corporate Affairs released another General Circular no. 15/2020 dated April 10, 2020 in the form of answers/clarification/replies to the frequently asked questions (FAQs) to respond several references/ representations and to quell various confusions on the issue. Above referred FAQs are placed herein below:
| S. No.
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Frequently Asked Questions (FAQs) | Reply
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| 1 | Whether contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure? | Contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure under item no (viii) of Schedule VII of the Companies Act, 2013 and it has been further clarified vide Office memorandum F. No. CSR-05/1/2020-CSR-MCA dated 28th March, 2020. |
| 2 | Whether contribution made to ‘Chief Minister’s Relief Funds’ or ‘State Relief Fund for COVID-19’ shall qualify as CSR expenditure? | ‘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. |
| 3 | Whether contribution made to State Disaster to combat COVID-19 Management Authority shall qualify as CSR expenditure? | Contribution made to State Disaster Management Authority shall qualify as CSR expenditure under item no (xii) of Schedule VII of the 2013 and clarified vide general circular No. 10/2020 dated 23rd March 2020. |
| 4 | Whether spending of CSR funds for COVID-19 related activities shall qualify as CSR expenditure? | Ministry vide general circular No. 10/2020 dated 23rd March 2020 has clarified that spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure. It is further clarified that funds may be spent for various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII relating to promotion of health care including preventive health care and sanitation, and disaster management. Further, as per general circular No. 21/2014 dated 18.06.2014, items in Schedule VII are broad based and may be interpreted liberally for this purpose. |
| 5 | Whether payment of salary/wages to employees and workers, including contract labour, during the lockdown period can be adjusted against the CSR expenditure of the companies? | Payment of salary/ wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary/ 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/ wages to employees and workers during the lockdown period (including imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure. |
| 6 | Whether payment of wages made to casual /daily wage workers during the lockdown period can be adjusted against the CSR expenditure of the companies? | Payment of wages to temporary or casual or daily wage workers during the lockdown period is part of the moral/ humanitarian/ contractual obligations of the company and is applicable 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. |
| 7 | Whether payment of ex-gratia to temporary /casual /daily wage workers shall qualify as CSR expenditure? | If any ex-gratia payment is made to temporary / casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as a 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. |
SCHEDULE VII –SECTION 135
Activities which may be included by companies in their CSR Policies:
(i) Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water………..
(xii) disaster management, including relief, rehabilitation and reconstruction activities.
CONCLUSION:
Basis above mentioned general circulars and clarifications issued by the Ministry of Corporate Affairs, we may note that the funds remitted to Chief Minister’s Relief Funds’ or ‘State Relief Fund for COVID-19’ have been specifically excluded from the CSR parameter and instead ‘PM Cares Fund’ have been included in the same. In this regard, we are of the view that the intention behind the same is that the PM Fund is regulated by the central government and is utilized for the nation as a whole and the Chief Minister’s Relief Funds’ or ‘State Relief Fund for COVID-19’ are governed by the respective state government and accordingly there may not be any uniformity in the receipt and utilization of such state funds.
This General Circular dated April 10, 2020 opened an unconventional avenue i.e. ex-gratia payment to temporary / casual workers/ daily wage workers, over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, for use of CSR fund subject to directors’ explicit declaration (format not provided yet) and statutory auditors certification. Accordingly, we are of the view that, a company may spend its CSR funds on COVID-19 only in accordance with the activities listed at item no. (i) and (xii) of Schedule VII read with above referred general circulars.
Please feel free to contact the undersigned in case you require any further information/ clarification on the above article.
| CS Jaya Yadav | CS Atul Singh | Ms. Anishi Sharda |
| jayayadav@whitespan.in | atul@whitespan.in | anishi@whitespan.in |
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Thanks for the article.
will COVID-19 expenses incurred for the company, be included as CSR exp? ie., sanitation cost and preventive cost for the employees of the Company…?