Is contribution to PM CARES fund by corporates a CSR activity?

Introduction

COVID-19 virus has hit our country hard. The government is running out of funds to provide necessary supplies to the healthcare organisations to treat people affected by this virus, in recent times when people are suffering from Covid-19 epidemic. The government is making every effort to treat the infected people and save them who are not affected. In the present, the corporate social responsibility done by corporate bodies in India can help a lot. Any business organisation is a part of society. The business organisation depends upon the society in many ways like they get the raw material from society, consumers of the product are part of society, etc. Some businesses produce pollution in the environment. Therefore all the corporate bodies in India is mandatorily required to fulfil their social responsibility. This article will discuss the meaning of CSR. This article will also discuss the details of PM CARES FUND and whether the contribution to PM CARES FUND by the companies in India is a CSR or not.

Meaning of Corporate Social Responsibility

Corporate social responsibility refers to the activity of a company in which they contribute to the society something good. CSR activity is done without the aim of earning any profit to the company. Every company is a part of society and depends on the society for its existence. For example suppliers of a manufacturing company comes from society itself, the consumer of a business who purchase their goods or services is also a member of society. Thus, the corporate bodies have a moral duty to do the welfare of the society.Corporate Social responsibility is also valuable for the company because it creates goodwill and enhance the bond between the company and the consumers. Often, CSR is done by large businesses-organisation who have enough money to perform welfare of the society.

Corporate Social Responsibility is concerned with social and environmental impacts of the company. As per United Nations Industrial Development Organisation major CSR issues are environmental management, eco-efficiency, responsible sourcing, stakeholder engagement, labour standards and working conditions, employee and community relations, social equity, gender balance, human rights, good governance, and anti-corruption measures.[1]

Legal Provision for CSR

Section 135 of the Indian Companies Act 2013 provides that every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

The duties of Corporate Social Responsibility Committee are:[2]

1. CSR Committee formulates a Corporate Social Responsibility Policy which includes the activities to be undertaken by the company as specified in Schedule VII. The committee then recommend the policy to the Board.
2. CSR Committee also estimates the budget of the policy. It recommends the amount of expenditure to be incurred on the activities included in the CSR policy.
3. It also monitors the Corporate Social Responsibility Policy of the company from time to time.

As per subsection 5 of section 135 of the act the Board of every company shall ensure that in every financial year the company spends at least two percentof the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. The company shall give preference to the local area and areas around it where it operates, for spending the amount allocated for Corporate Social Responsibility activities. If the company fails to spend such amount then the Board shall, in its report,specify the reasons for not spending the amount.[3]

As per section 5 of section 135 of the act the Board of every companyshall:[4]

1. The board shall consider the recommendations made by the Corporate Social Responsibility Committee. Then approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report. The company has to publish the policy on the company’s websitein such manner as may be prescribed.
2. The board have to ensure that the activities which are included in Corporate Social Responsibility Policy of the company are undertaken and implemented by the company.

Activities considered as CSR

So, section 135 of the act mandates the company to do CSR. The Companies Act in its Schedule VII states activities which can be incorporated in the corporate social responsibilities policies of the company. This schedule consists of the following things:[5]

1. Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swachh Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.
2. Promoting education. Employment enhancing vocational skills especially among children, women, elderly and the differently abled. Livelihood enhancement projects.
3. Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
4. Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.
5. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts.
6. Measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows.
7. Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports
8. Contribution to the prime minister’s national relief fund or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)] or any other fund set up by the central govt. for socio-economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women.
9. Contribution to incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government, and contributions to public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies established under the auspices of Indian Council of Agricultural Research (ICAR).
10. Rural development projects.
11. Slum area development.
12. Disaster management, including relief, rehabilitation and reconstruction activities.

We saw that the Schedule VII of the act provides for the activities which can be included in the CSR policies of any company in India. The Ministry OF Corporate Affairs can amend this list and add other kinds of activity in this schedule.

PM CARES Fund and CSR

In the present times, when the country is hit badly by the COVID-19 virus, the Ministry of Corporate Affairs has amended this Schedule and has added the PM CARES FUND in it. Now, the contribution done by the companies in India to the PM CARES FUND is also considered as the Corporate social responsibility. After the Ministry of corporate affairs has included the contribution to the PM CARES FUND in the Schedule VII, there has been huge amount of contribution in PM CARES FUND by the companies in India.

MCA has notified vide Notification No. G.S.R. 313(E) 26/05/2020 that contribution to Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) will fall under CSR Activities w.e.f. 28th March 2020.[6]The amendment would comeinto effect retrospectively from 28th March, 2020.

There are numerous ways in which a company can use theirCSR funds to help the country fight Covid-19. Activities related to COVID-19 like promotion of healthcare, preventive healthcare, sanitation, disaster management would qualify for treatment asCSR, as per general circular No. 10/2020 dated 23rd March 2020 by the ministry of corporate affairs.[7]

If any company allocates fund for and performs following COVID-19 related activity then it will be considered the CSR:

1. Conducting scientific research for the development of drugs for COVID-19.
2. Manufacture or distribution of kits for testing the disease.
3. Creating quarantine facilities to the affected population.
4. Mass training of nurses and paramedical staff.
5. Distribution of food and arrangement of shelter for doctors and paramedical staff.
6. Launching of sanitation facilities whether mobile or stationary. Training of the staffs for rendering those facilities.
7. Distribution of food or medicine or financial support to the poor and daily wage workers who are forced to stay at home during the lockdown.
8. Where needed, the arrangement of ambulance and corpse carriers.
9. Supplying of protective gear like gloves, caps, masks, etc.
10. Transport facilities for medical and paramedical staff and other supporting staff.

By exercising the power conferred upon the central government by the section 467 of the Indian Companies Act, 2013, the central government has amended the Schedule VII of the Companies Act, 2013 by notification number G.S.R. 313(E) dated 26th May 2020. Now, the item no. VIII of the Schedule VII includes the words Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund).

PM CARES Fund

Now let us understand what is PM CARES FUND. It is a dedicated national fund created with an objective to deal with emergency and distressed situation of COVID-19 pandemic. This fund aims at providing relief to the affected people. It is a public charitable trust.

The objectives of this fund are as following:[8]

1. To undertake and support relief or assistance of any kind relating to a public health emergency or any other kind of emergency, calamity or distress, either man-made or natural, including the creation or upgradation of healthcare or pharmaceutical facilities, other necessary infrastructure, funding relevant research or any other type of support.
2. Providing financial assistance or grants of payments of money or take such other steps as may be deemed necessary by the Board of Trustees to the affected population.
3. To undertake any other activity, which is not inconsistent with the above Objects.

The structure of PM CARES Fund:[9]

1. Prime Minister is the ex-officio Chairman of the PM CARES Fund.The ex-officio trustees of the Fund are Minister of Defence, Minister of Home Affairs and Minister of Finance, Government of India.
2. The Prime Minister who is the chairperson of the Board of Trustees has the power to nominate three trustees to the Board of Trustees. These trustees must be eminent persons in the field of social work, law, health, research, science,public administration and philanthropy.
3. All the persons appointed as a Trustee have to act in a pro-bono capacity.

Conclusion

PM CARES Fund is a charitable trust created to fight with the COVID-19 pandemic. This fund is included in the schedule VII of the Companies Act 2013 by the Ministry of Corporate Affairs using the power conferred upon it by section 467 of the Companies Act, 20013. Thus it is an activity for which corporate social responsibility can be done. The business organisations in India are contributing to this trust. This scheme of government has two-fold benefit. On one hand the companies are able to discharge their CSR while on the other hand the contribution made by such companies can be big help in fighting this pandemic. We know that government alone cannot fight this pandemic. It has limited fund available for the distress situations. Therefore if companies can provide their help even in the form of CSR, it will be huge help in fighting this pandemic.

References:

[1] https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr

[2] Section 135 (3) of Indian Companies Act 2013.

[3] Sub-section 5 of Section 135 of Indian Companies Act 2013.

[4] Sub-section 4 of section 135 of Indian Companies Act 2013.

[5] Schedule VII of the Companies Act, 2013 http://ebook.mca.gov.in/default.aspx

[6] PM Cares Fund is part of CSR Schedule VII | Companies Act 2013, https://taxguru.in/company-law/pm-cares-fund-part-csr-schedule-vii-companies-act-2013.html

[7] https://www.businessinsider.in/business/corporates/news/not-just-pm-cares-fund-all-these-covid-19-activities-can-be-treated-as-csr-expense/articleshow/74927140.cms

[8] https://www.pmindia.gov.in/en/about-pm-cares-fund/

[9] Ibid.