To

Shri I Srinivas
Secretary
Ministry of Corporate Affairs
Govt of India

Dear Shri Srinivas,

I am grateful to you for so promptly responding to my letter issued today on the apparent injustice meted out to the States by your Ministry in issuing a clarification to the effect that the Chief Minister’s Relief Fund (CMRF) does not qualify for receiving Corporate Social Responsibility (CSR) funds in terms of Schedule VII under Section 135 of the Companies Act.

I thank you for clarifying that Schedule VII under Section 135 of the Companies Act was subsequently amended vide G.S.R 130(E) dated 27-2-2014 and, through that amendment, funds set up by State Governments ware “omitted” in the amended Schedule VII. This in itself was a questionable amendment as it went against the interests of the States. It certainly went against the federal spirit of the Constitution. I wonder whether the States were ever taken into confidence prior to such a regressive amendment being issued!

Still, even the amended version of Schedule VII does not in anyway preclude the Chief Minister’s Relief Fund (CMRF) in so far as its eligibility for receiving corporate contributions under CSR is concerned. It should be noted that Schedule VII deals more with the purposes for which CSR funds could be utilised than the name of the “Fund” to which it gets credited. As long as the CSR funds are utilised for the purposes for which they are intended as defined in Schedule VII, it conforms to the letter and the spirit of the Companies Act.

As I understand, Schedule VII relating to CSR activities was amended four times since the beginning of 2014. The relevant notifications which are enclosed here are

GSR 130(E) dated 27-2-14
GSR 390(E) dated 30-5-2019
GSR 568(E) dated 6-8-2019
GSR 776 (E) dated 11-10-2019

The latest amended version of Schedule VII is as follows.

Amended schedule VII

Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:—

(i) Eradicating hunger, poverty and malnutrition, promoting health care including preventinve health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.

(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

(iii) 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.

(iv) 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.

(v) 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;

(vi) measures for the benefit of armed forces veterans, war widows and their dependents;

(vii) training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports

(viii) contribution to the prime minister’s national relief 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;

ix) 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), 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) engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs);

(x) rural development projects

(xi) slum area development.

Explanation.- For the purposes of this item, the term `slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.

(xii) disaster management, including relief, rehabilitation and reconstruction activities.

Item (xii) above clearly mentions that CSR funds can be provided for “disaster management, including relief, rehabilitation and reconstruction activities”, irrespective of the “fund” through which they are to be routed. I therefore feel that the clarification, if any, issued by your Ministry that CMRF does not qualify for CSR funds is patently erroneous and inconsistent even with the amended version of Schedule VII.

For your information, I have enclosed here an extract of the objectives of one CMRF, that is, the West Bengal CMRF, which, among others, states that the CMRF of that State is for providing relief for “loss of properties and sources of livelihood due to unforeseen incidents, natural calamities, road & fire accidents etc.”. After all, COVID 19 is a calamity and the lockdown ordered by the Centre has led to loss of lakhs of livelihoods.

Even otherwise, Schedule VII defines only the purposes and not the name of the fund, except to the extent of those funds instituted by the Centre. It does not, in any way, preclude any CMRF from receiving CSR funds.

Coming back to the rationale of the amendments, I am surprised that Item Item (viii) should restrict CSR funds only to a Central fund meant for “socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women”, as all these activities fall within the States’ List under the Seventh Schedule to the Constitution. Except to corner CSR funds for the Centre and deprive the States of that benefit, there is no other apparent justification for such a regressive amendment. I am surprised that none of the States had objected to it. This amendment runs counter to the spirit of cooperative federalism.

In any case, in view of the unambiguous provision in Item (xii) above, it is patently wrong on the part of your Ministry to have issued a written clarification that CSR funds cannot go to CMRFs. As a result of such a clarification, funds which would have otherwise gone to CMRF are now going to PM CERS Fund. This does not do justice to the States who are bearing the brunt of the COVID19 burden.

Please revisit the clarification and revoke it urgently. This is not the time to hurt the interests of the States.

I am marking copies of these letters to all the states.

Regards,

Yours sincerely,

E A S Sarma
Former Secretary to GOi
Visakhapatnam


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