COVID-19 Donations and CSR

Section 135 of the Companies Act, 2013, requires all businesses with a net value of 500 crore or a turnover of 1000 crore or more or a net income of 500 crore or more within a financial year to establish a board of the Committee on Corporate Social Responsibility (“CSR”). The Board’s obligations are cited below, with the goal of making sure that each company spends at least 2 percent of the company’s average net profits in each financial year having regard to its CSR policy.

In other words, it is the duty of all companies that have a net value of 500 crore or more, a turnover of 100 crore or more or a net profit of 50 crore or more:

  1. Establish a CSR Board of Company;
  2. Ensure that 2 percent of the annual net income is invested in activities specified under clauses I to (xii) of Schedule VII of the Companies Act 2013.

The Central Government, through General Circular of 23.03.2020, bearing No. 10/2020, has notified all stakeholders that GOI has notified COVID-19 as a pandemic (notified disaster) in consultation with the WHO. Consequently, the expenditure of CSR funds for Covid-19 is a type of CSR. It was informed that funds may be spent on activities specified in clauses (i) and (xii) of Schedule VII of Companies Act 2013. Paragraph 2 of that circular explicitly specifies that objects in Schedule VII are broadly based and can be perceived liberally for this mere purpose.

On 28.03.2020 the MCA released an Official Memorandum notifying that all contributions made to the PM Cares Fund qualify as CSR expenditure under Schedule VII clause (viii). On 10.04.2020, the MCA released another General Circular No.15/2020, where the MCA explained its stance on various FAQs, probably through companies that contributed to State Covid-19 Relief Funds and not to the PM National Relief Fund or PM Cares Fund.

The MCA has explained through FAQ 2 that the contributions made to ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ will not be considered a part of CSR as these are not mentioned in the Schedule VII of the Companies Act, 2013 and only contributions towards the PM National Relief Fund or PM Cares Fund are the part of CSR. FAQ 3, on the other hand, states that contributions made to the State Disaster Management Authority would be a valid CSR expenditure.

FAQ 4 clarifies that funds spent on activities related to Covid-19 will fall within the scope of Schedule VII. This is the logical inconsistency and absurdity of the law.

The Circular is incapable of any explanation for drawing these distinctions between funds that otherwise aim to serve the same task-controlling the Corona virus and flattening the positive case curve.

It is important to consider the purpose behind CSR before we discuss the legalities of this aforementioned exclusion.

CSR: A brief background

Corporate Social Responsibility (CSR) can be interpreted as a company’s ethical conduct towards society. It means actively interacting with local communities, understanding their basic needs and balancing their needs with business priorities and strategic plan. CSR is considered as the business contribution to the objectives of sustainable development of the country. Simply put, CSR is a philosophy that implies that business companies have to perform their obligation to care for society. This is the ongoing effort of businesses to act ethically and contribute to economic growth, enhancing the standard of living of the community and society as a whole.

Socio-economic strategy of Government is essential in CSR to ensure that companies, which often play an enormous role in environmental destruction and unnecessary wasting of resources, establish a board to shape a strategy that would resolve the overall empowerment of the region of the Company and of the country as a whole. This can be interpreted as a mutual relationship between society and companies that, through this system, serves each other’s interests. Thereby industry offers opportunities for jobs and thus promotes socio-economic growth, it also displaces people, and thus it is the industry’s duty to ensure proper infrastructure facilities are in place.

Due to the recent rapid rise in the activity of MNC’s on Indian soil, the need for CSR has increased. These businesses also disrupted the lives of the local people. Bhopal Gas Disaster, POSCO plant in Odisha, Unilever case of Kodaikanal and many other instances depicting the corporations’ negative intrusion into people’s lives. This is a powerful factor that has led government to turn its head toward CSR. The rural community, farmers, and other economically vulnerable communities are still at the hands of government.

CSR is highly necessary for all stakeholders’ sustainable development (all the people on whom the company has an influence, including society as a whole). CSR supporters claim that firms make longer-term gains by working from a viewpoint, while critics claim that CSR distracts companies from the economic position. The value of CSR can not be overlooked. An epidemic [later identified as a pandemic] that resulted into the nation’s complete lockdown, the pressure on those capable of assisting and reducing stress on other industries, such as health care and food industry, has never been higher.

Issue in way of Validity of Circular

Now we are proceeding to discuss the legal status of the legislative guidelines as set out in the Companies Act, 2013. The scope of Section 135 Scope a has been discussed above. Section 135 of the Act is to be read in accordance with Schedule VII. This is where the operations were enumerated, which would come under CSR. Clauses I – (xii) set out the key sectors that could be targeted by contributions to the CSR. This covers healthcare, socio-economic policies, environmental and ecological protection, gender equality, and education among others.

We are primarily concerned with the said Schedule in clause I and clause (xii). The clauses are explained below:-

  1. Eliminating hunger, poverty and malnutrition, facilitating health care including preventive health care and sanitation, including contribution to the Central Government’s Swachh Bharat Kosh set-up to promote sanitation and make clean drinking water accessible.
  2. Disaster management and initiatives for relief, rehabilitation and restoration.

On a perusal of Clause I of Schedule VII, it is clear that practices supporting health care, including preventive health care, will constitute activities relevant to CSR. In addition, the criteria found therein are descriptive and not exhaustive. The donations made to State Relief funds will come under this provision to help prevent the spread of Covid-19. This clause is an inclusive clause which must be read in the light of the target that CSR is working for.

Clause (xii) of Schedule VII provides for disaster management, relief, rehabilitation and others related activities. Moreover, interpreting the said clause liberally would entail that contributions made to any fund, central or state, according to any policy of rehabilitation or for the purposes of mitigating the effects of Covid-19 will come under clause (xii) by the required inference.

It is also important to take into account the provisional mandate set out in sub-section 5 of Section 135. Any company qua CSR related investment has the immediate concern of giving priority to the local area in which it works. By donating to a State fund, these requirements are best taken care of, thus ensuring that the donation is used without any delay or irregularity. It also reduces the time taken to finance the program and hit the States concerned where the requirement is most demanding.

Without discrimination to the foregoing submissions, let us say that the impugned circular sets out the correct legal stance. This would lead to an unusual situation in which the Act discriminates between Central and State Funds which otherwise seek to serve the same purpose- to minimize viral spread. Several states have established funds dedicated to Covid-19, which is essentially what the PM Cares Fund was created for. Including the PM Cares Fund within Schedule VII, and excluding all other State funds intended for the same intent, would be evidently subjective and would risk exposing the Act (in particular Schedule VII) to an assault on the grounds of violation of Article 14 of the Constitution.

Therefore, if any expenditure is related to any of the activities falling under Schedule VII of the Companies Act according to the principles of purposive and harmonious construction of the statutes, such contribution should be taken as CSR expenditure. Contributions to State aid funds also allow the State to fulfill its responsibilities with regard to the security and promotion of health and the marginalizing the damage anticipated to be inflicted by an infection like Covid-19. This perception will also be consistent with the principles of federalism, frequently quoted but rarely fully adhered to, which is that an interpretation should be avoided that whittles down the State’s powers. The Justify and the State must work together to defeat this common enemy.


Thus, the General Circular of 10.04.2020, bearing No.15/2020, does not provide for the correct legal position. It is argued that, pursuant to Entry 85/96 of List I of the Indian Constitution, the power to legislate on any matter relating to corporate tax falls within the Union’s legislative domain, but that authority does not enable the Central Government, on the basis of an executive order issued by MCA, to circumvent the legislative requirement of the Companies Act, 2013. This would be Colourable exercise of power. Such exclusion may only come into force by law by Parliament.

It really is up to the various state governments, or maybe even the major companies, to challenge the General Circular No.15/2020 released by the MCA on 10.04.2020 and get adequate remedy in the form of a clarification or guidance from the High Courts or the Supreme Court.

Leave a Reply