Issues around CSR funding for Kerala flood relief

The recent floods in Kerala have caused incalculable misery and destruction. 

Three important question that several companies are asking us is:

1) Whether disaster relief is covered under Schedule VII of the Indian Companies Act 2013?

2) Whether CSR funds can be contributed to the Chief Minister’s Relief Fund (CMRF)?

3) Can a company contribute its own products like bottled water, medicines, toiletries, tea, coffee, biscuits etc., as part of it’s CSR activities?

1) Disaster relief is covered under Schedule VII

Ministry of Corporate Affairs (MCA) has under point No. 7 in the Annexure to General Circular dated: 18^th June 2014 (21 of 2014) clarified that:  Disaster relief can cover wide range of activities that can be appropriately shown under various items listed in Schedule VII. 

For example:
i. medical aid can be covered under ‘promoting health care including preventive health care.’
ii. food supply can be covered under eradicating hunger, poverty and malnutrition.
iii. supply of clean water can be covered under ‘sanitation and making available safe drinking water’.

To read full text of MCA’s circular please go to: http://www.mca.gov.in/Ministry/pdf/General_Circular_21_2014.pdf

2) Chief Minister’s Relief Fund

Clause viii of Schedule VII of the Indian Companies Act 2013 cites: “Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.”

Unfortunately, only the Prime Minister’s National Relief Fund or any other fund set up by the Central Government is cited under Schedule VII of the Indian Companies Act 2013 and thus contributing CSR funds to the Kerala Chief Minister's Relief Fund would not qualify as a specified CSR activity.

Recently, West Bengal Chief Minister, Ms. Mamata Banerjee and Odhisha Chief Minister, Mr. Naveen Patnaik have written letters to Prime Minister Narendra Modi urging him to consider the contribution of business houses to the Chief Minister’s Relief Fund (CMRF) as money spent on corporate social responsibility (CSR) activities.

On 25^th July 2018, the Trinamool Congress also demanded an amendment to the Companies Act 2013 to make corporate social responsibility funds available to the Chief Minister's Relief Fund.

Interim options for companies

However, in the meantime, companies are at liberty to contribute non-CSR funds to Kerala CMRF and even enjoy 100% tax deduction for the same.

Companies may also contribute to Kerala CMRF if they wish to, through their corporate foundation.

Finally, companies could also partner with and contribute their CSR funds to credible NGOs with track record of at least three years of service in the field of disaster management. 

3) Contributing company products

Ministry of Corporate Affairs (MCA) has clarified in one of its FAQ that gift of articles or company products is not CSR. CSR has to be money spent.

MCA’s Answer to FAQ No. 18 is: “Section 135 prescribes ‘… shall ensure that company spends …’ The company has to spend the amount.”

To read the FAQ please go to http://www.mca.gov.in/MinistryV2/faq+on+csr+cell.html

Thus, once again, companies may voluntarily contribute their own products like bottled water, medicines, toiletries, tea, coffee, biscuits etc., but, it cannot be accounted for as "amount spent" under CSR activity as per Section 135 of the Indian Companies Act 2013.

Noshir H. Dadrawala