Why coronavirus donations to CMs Relief Funds are excluded from CSR

Why coronavirus donations to CMs Relief Funds are excluded from CSR

The exclusion of CM Relief Fund from the CSR list has evoked sharp reaction from many quarters, especially from non-BJP ruled states

Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) continues to be in the controversy. This time after a Ministry of Corporate Affairs (MCA) clarification mentioned that the amount contributed towards the PM CARES Fund will qualify as CSR expenditure but not if donated to Chief Minister's Relief Funds.

This has evoked sharp reaction from many quarters especially from non-BJP ruled states, which see it as a clear bias and politics of opportunism by the BJP-led Union government.

Key highlights:

  • Donations to PM CARES Fund and State Disaster Management Authorities (SDMAs) qualify as CSR, but not to CM's Relief Fund
  • PM CARES and SDMAs are governed by central laws, while CM's Relief Funds are governed by state laws
  • Lack of clarity around PM CARES continues to invite criticism from many quarters
  • Unlike PM National Relief Fund, PM CARES, CM's Relief Funds and SDMAs are not dependent on donations
  • SDMAs are funded through a joint corpus of the Centre and sates. Centre's contribution to the corpus is 75%.
  • Annual CSR spending over the last three-four years has been around Rs 13,000-15,000 crore

Mohua Moitra, a Trinamool Congress Member of Parliament, criticised the move to allow CSR donations in PM CARES. In a tweet she said: "Opaque PM CARES is CSR but not CM Relief Fund."

Further, the MCA circular clarifies that contributions made to State Disaster Management Authorities (SDMAs) will qualify as CSR expenditure. However, it seems like an afterthought as it's only on March 23 that the MCA issued a circular, allowing contributions to SDMAs for fighting COVID-19 as CSR expenditure under item no (xii) of Schedule VII of the Companies Act 2013.

So, why do donations or contributions made in PM CARES and SDMAs qualify as CSR, but not CM Relief Fund?

The Schedule VII of the Act lists the activities and areas, which qualify as CSR spending. Initially, there were 10 items in the Schedule VII. Expenditure on coronavirus-related activities, the 12th Item, was added to the list by a circular on March 23. Slum development is the 11th item.

Exclusion of CM Relief Funds

Although there is no explanation from the government as to why CM Relief Funds are excluded but SDMAs are not, one possible explanation is that SDMAs have been constituted under the Disaster Management Act, 2005, a Central government Act. The CM's Relief Funds are public charitable trusts governed by the public trust Act of that state and the Indian Trusts Act, 1882. Most CM Relief Funds are governed by state trust acts, for example, Maharashtra CM's Relief Fund is governed by Bombay Public Trust Act, 1950.

Gyaneshwar Kumar Singh, joint secretary, MCA, while talking to Business Today said that CM Relief Funds were never (in the CSR law) eligible for CSR donations. "Only PM National Relief Fund was eligible earlier, and now we have allowed PM CARES and SDMAs," he says.

Pavan Kumar Vijay, founder and CEO, Corporate Professional, a corporate advisory firm, echoes Gyaneshwar Singh's views. He says donations under CSR were only allowed in centralised funds not in CM relief fund.

Item number 8 of the Schedule VII specially mentions contributions made to PM National Relief Fund will be eligible as CSR expenditure. Item number 8 also mentions contribution to 'any other fund set up by the Central government for socio-economic development and relief and welfare of the scheduled castes, scheduled tribes, other backward classes, minorities and women' will also qualify for CSR.

The MCA clarification uses this provision (Item number 8) to justify contributions towards PM CARES Fund as CSR expenditure.

Preeti Malhotra, who is currently chairing the ASSOCHAM National Council on Corporate Affairs, corporate governance and CSR, says that SDMAs are governed by Central government rules unlike CM Relief Funds, which are charitable trusts run by handpicked office-bearers with little or no government scrutiny.

SDMAs, a special case

As mentioned earlier donations to the State Disaster Management Authorities were allowed as CSR spending only through a circular issued on March 23. Unlike PM National Relief Fund, PM CARES and CM Relief Funds, SDMAs are not dependent on donations. SDMAs draw their funds from State Disaster Mitigation Fund in accordance with the Disaster Management Act.

The Union and state governments both contribute to the SDRMF corpus, with Centre contributing 75 per cent and states 25 per cent towards the fund for general states. For North-East and Himalayan states, the ration is 90:10.

However, there are instances where some SDMAs have sought permission from the Centre to use CSR funds in the past. For example, in May 2019, the central government allowed Odisha State Disaster Management Authority (OSDMA) to receive CSR funds and act as an implementing agency.

Rules allow a corporate entity to undertake CSR activities through 'a company established under section 8 of the Companies Act or a registered trust or a registered society, established by the Central government or state government or any entity established under an Act of Parliament or a State legislature'.

But can't this rule be used in favour of allowing CM Relief Funds to use CSR funds?

Parul Soni, Global Managing Director, Think Through Consulting, an advisory firm providing support to sustainable development, says if CM Relief Funds are allowed to take CSR donations, corporate will be under pressure from the state government to divert the CSR funds to state funds.

Some experts, on the condition of anonymity, said that the same argument can be made against PM CARES Fund, which has suddenly seen a spurt in CSR contributions.

PM CARES Fund has invited criticism for the lack of transparency around it. There is no clarity as to under which law or act the fund has been created and the amount of money has been collected. There is no dedicated website either.

Besides, questions are being raised on the need to have a separate fund when PM National Relief fund is already there. On this, MCA Joint Secretary Gyaneshwar Kumar Singh says that several representations were made to have a special fund (to fight the coronavirus pandemic).

Much ado about nothing

Though the controversy around CSR donations to PM CARES is getting a lot of attention, it remains a fact that the total annual CSR spending is barely Rs 14,000-15,000 crore.

Pavan Kumar Vijay says that CSR spending every year is only around Rs 15,000 crore and it would take lakhs and crores of funds to fight the ill effects of coronavirus.

Besides, companies have their own running CSR projects, and they cannot suddenly divert full CSR amount to PM CARES or SDMAs to fight against Coronavirus. Therefore, the controversy is for a small pie of the CSR fund.

Anil Sharma, head, corporate communication and CSR, Havells India, says: "Since all our projects are closed now, we are diverting some of our existing resources and infrastructure to the fight against coronavirus. We offer mid-day meal to 60,000 kids every day. We have offered the district administration of Alwar, where we have our kitchen, to provide 60,000 meals. The district administration has asked for 2000 meals, which we are providing."

But Sharma says that Havells has so far not made any contribution to PM CARES or PM's National Relief Fund. Last year, Havells' CSR budget stood at Rs 20 crore.

The Companies Act, 2013 requires companies with net worth of at least Rs 500 crore, turnover of Rs 1,000 crore or more, or a minimum net profit of Rs 5 crore during the immediately preceding financial year, to mandatorily spend 2 per cent of their previous year's net profit on social cause.

The law - Schedule VII -- clearly mentions the areas and activities eligible for CSR spending. The law came into effect in 2014-15.

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