To

Smt Nirmala Sitharaman
Minister for Corporate Affairs
Govt of India

Dear Smt Sitharaman,

I write this letter in connection with the way your Ministry has interpreted Schedule VII under Section 135 of the Companies Act to arrive at the conclusion that the funds contributed by corporates to any Chief Minister’s Relief Fund (CMRF) do not come within the ambit of Corporate Social Responsibility (CSR) as defined in that Schedule. Such an interpretation communicated by your Ministry has adversely affected the flow of CSR funds to CMRF. Since Central funds (including PM CARES Fund) has been specifically mentioned in that Schedule, the corporates instead are routing their contributions to that fund.

I am grateful to Shri I Srinivas, Secretary (Corporate Affairs) for having responded promptly to my letters and conveyed the Ministry’s view in the matter. Copies of the letters are enclosed.

In my view, the intent of Schedule VII is to ensure that CSR funds are put to the specific end-uses listed in the Schedule, irrespective of how they are channeled. Nowhere in that Schedule is any provision that precludes CMRF receiving CSR funds. However, when your Ministry, which administers the Companies Act, issues a “clarification”, it dis-incentivises the corporates from contributing to CMRF. In my view, your Ministry could have avoided issuing such a clarification.

During the recent video conference that was taken by the Prime Minister with the State CMs, several CMs had raised their concerns on this issue. I feel that the clarification issued by your Ministry tends to obfuscate the legal position and amounts to discriminating against the States.

There is a much larger issue that arises in this case regarding the Centre-State relations and the federal structure of the Constitution. I recall that the PM had time and again stressed on the importance of “cooperative federalism” to guide the national policies. In that context, whether it is the Companies Act or any other Central law, it is imperative that the spirit of cooperative federalism is upheld to the maximum extent possible. There should be no room whatsoever for narrow legal interpretations that run counter to this basic approach. If any statute runs counter to it, the Centre should, on its own, take the initiative and amend it in such a way that the important role that the States play in governance is respected.

In the ongoing war against COVID19, the States are at the forefront and, they are resolutely moving forward, despite financial constraints, shortage of medical infrastructure and the human crisis surrounding the migrants and the other marginal workers, who have been abruptly rendered helpless as a result of the ongoing lockdown. This is the time when the Centre should do everything possible to assist the States and allow them to receive help, financial or otherwise, from any source, in any manner. The Centre should appreciate that the States have risen to the occasion and are about to win the war against COVID19. It is not the time for legal quibbling that hurts the interests of the States.

I feel that your Ministry should revisit the way Schedule VII is being interpreted vis-a-vis the eligibility of CMRF to receive CSR funds. If the Ministry still feels that the clarification issued by it is legally valid, the best course of action would be to amend Schedule VII to align it fully in favour of State’s CMRF.

I sincerely hope that the term “cooperative federalism”, so eloquently announced from every forum, continues to have some meaning and it influence every policy that is put in place by the Centre.

Regards,

Yours sincerely,

E A S Sarma
Former Secretary to GOI
Visakhapatnam


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