MCA has vide its circular dated 22nd April, 2021 clarified that CSR spend on setting up makeshift hospitals and temporary covid facilities is an eligible CSR activity.
Companies can therefore do their CSR spend on these activities i.e. setting up makeshift hospitals and temporary covid facilities in collaboration with other parties or with the municipal corporations or health departments of the state.
Copy of the circular can be found at the MCA site.
Few sections of the companies amendment act 2020 has been notified from 22nd January, 2021. Given below some important amendments likely to affect corporates.
Section 129A – being introduced into the companies act, 2013 to provide for financial statements on periodical basis for unlisted companies. The provision for audit or limited review of such financial statement and their filings with the ROC will be notified in the Rules.
This pre-supposes that certain unlisted public limited companies or big private companies based upon turnover criteria would be required to submit their quarterly or half yearly accounts also. What purpose it serves to have such micro management of small companies, it is not clear.
Section 135 – Corporate Social Responsibility – some major amendments here
A proviso is added to section 135(5) that if a company spends in excess of the requirements under the Act, then such excess can be set off against future years. How many number of financial years it can be carried forward and the manner of doing so, will be notified in the Rules.
Sec 135(7) is amended which provides that if the company is in contravention of sub-sections (5) or (6) then the company is laible to penalty of twice the amount required to be transferred by the company to a Fund specified in Schedule VII or Unspent Corporate Social Responsibility account or Rs.1 crore whichever is less. Every officer in default shall be liable to a penalty of 1/10th of the above two amounts or Rs.2 lakhs whichever is less. Section 135(5) pertains to spending of the CSR amount in a year i.e. two % of the average net profits during the immediately preceding 3 financial years. Sec 135(6) pertains to the CSR amount to be transferred to Unspent CSR a/c or to the fund specified in Schedule VI. But the changes specified in section 135(6) is not notified yet.
Further a new sub-section (9) has been added in section 135 which specifies that where the amount of CSR to be spent does not exceed Rs.50 lakhs, then there is no need to constitute a separate CSR Committee in such case and the Board of Directors shall perform the functions of the CSR Committee.
MCA has clarified vide its circular no. 1/2021 dated 13th January, 2021 that any expenditure going towards awareness campaign / public outreach campaign on the covid vaccination program will be considered as CSR activity and the expenses can accordingly be taken under that head by the companies.
Earlier it was clarified that expenditure on covid related activity be considered as a CSR spend.
Copy of the MCA circular can be found at its site.
MCA has vide its notification dated 24th August, 2020 amended Schedule VII of the Companies Act, 2013 to include the following .
The amendment has been carried out in Rule 2(1)(e) – the rule presently reads as under:
e) “CSR Policy” relates to the activities to be undertaken by the 3[company in areas or subjects] specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company;
Now vide this amendment, a proviso has been added to this rule, as follows:
“Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22 and 2022-23 subject to the conditions that- (i) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act. (ii) details of such activity shall be disclosed separately in the Annual Report on CSR included in the Board’s Report”.
So basically companies in pharma business undertaking research and development into covid drugs, trials etc. can take that expenditure as CSR expenditure provided they are collaborating with one of the institutes or organisations mentioned in item (ix) of the said schedule. And details of such activity has to be disclosed separately in the annual report in the item on CSR.
These institutes are : public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies (established under the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO), [Department of Biotechnology (DBT)], Department of Science and Technology (DST), Ministry of Electronics and Information Technology).
MCA has released a FAQs on what all contributions to covid donations are covered as CSR expenditure and it has stirred a hornets nest of protest. MCA has excluded contributions to state CM Relief Fund from the ambit of csr expenditure for corporates. That means if companies have to do CSR expenditure as per the requirements of the Act and the Rules, then they cannot contribute to the state CM relief fund, because it is out of purview of what constitutes CSR expenditure. Centre is playing dirty politics at this time of the severe crisis. All they have to do is include CM Relief fund in the Schedule VII of the CSR Rules. MCA should immediately withdraw this FAQ and bring in amendment to the Schedule VII of the CSR Rules. Otherwise it will sound patently unfair.
COVID-19 related Frequently Asked Questions (FAQs) on
Corporate Social Responsibility (CSR)
The Ministry has been receiving several references/ representations from various
stakeholders seeking clarifications on eligibility of CSR expenditure related to COVID-19
activities. In this regard, a set of FAQs along with clarifications are provided below for better
understanding of the stakeholders:
1 Whether contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure? MCA: 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? MCA: ‘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 Contribution made to State Disaster
Management Authority to combat COVID-19 Management Authority shall qualify as CSR
expenditure? MCA: It 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? MCA: 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? MCA: 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 (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? MCA: 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 exgratia to temporary /casual/daily wage workers shall
qualify as CSR expenditure? MCA: 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.
MCA has issued a notification dated 23/3/2020 that spending of CSR funds for Covid is eligible CSR activity. They have said that funds may be spent for various activities relating to Covid 19 under item nos. (i) and (xii) of schedule VII pertaining to CSR activities. These items pertain to promotion of health care, including preventive health care and sanitation and disaster management. Further they have reiterated that items in Schedule VII are broad based and may be interpreted liberally for this purpose.
This was a much needed move by the government, which will prod companies into spending for Covid disaster management activities.