3 recommendation: Modifying CSR to fight pandemic

  • Article
  • May 12, 2021

3 Recommendation:  Modifying CSR to fight pandemic

- Rajnish Pal, Partner

The second wave of COVID-19 is creating havoc on the already stretched healthcare system in India and news and social media is presenting very disturbing images of overcrowding in hospitals, lack of oxygen facilities, people succumbing to COVID 19 due to lack of medical facilities etc.

Companies Act, 2013 and its Rules/Regulations[1] prescribe the necessary conditions for fulfilling the Corporate Social Responsibility by Corporates of certain size and scale (through Net worth or Turnover or Net profit criteria). Under the Regulations, any corporate can fulfil its CSR obligation by undertaking any CSR Activity through a Section 8 Company or a Regd. Public trust or Registered Society either set up by the Company or along with other companies. Further, there is another option available to the Corporates whereby they can undertake CSR Activities through any Implementing Agency who should be a not-for-profit Company (i.e. Section 8 Company) OR a Regd. Public Trust OR Registered Society, registered under section 12A and 80G of the Income Tax Act, 1961 and having a track record of at least 3 years in similar activities which is limiting the corporate philanthropy to a large extent.

The present grave healthcare situation warrants that Companies (irrespective of their size and scale) should be able to take up such activities on need basis and specially in their desired areas of operations.  E.g., Corporates can be interested to help out local/district authorities where there is an immediate need of help e.g., setting up oxygen equipped stabilisation covid care centres, free ambulance facilities, pre and post-hospitalisation support, augmenting existing healthcare facilities etc.. In such immediate need, its becomes a challenge to locate a suitable implementation agency, creating the necessary CSR project at the desired location, Implementation Agency’s bandwidth to liaise with local authorities and implement the Project etc.

To overcome one of the biggest health crises faced by the Country, the Government shall also shed its inhibitions on Corporate Philanthropy and this Article is to recommend 3 additional options which can bring much more corporates to join CSR activities:

I.        Allow Industry Associations to pool funds and implement CSR activities with local/state authorities

India has few nation-wide large Industry Associations like CII, FICCI, ASSOCHAM and innumerable local Industry Associations catering to interests and benefits of their respective Industries. These Industry Bodies are set up Associations, Registered Societies but what they lack is probably the necessary Income Tax registrations and more than that lack of at-least 3 year track record in undertaking similar activities. These Industry Associations have a ready pool of members and such members would be more inclined to come forward for such a cause. But due to the restrictions, these Industry Associations are not qualified to undertake CSR activities on behalf of their members.

In the present times, Government can think of allowing such Industry Bodies to undertake CSR Activities. It is also important to note that such Association/Bodies are run by people who are also running successful enterprises and they can quickly develop and implement necessary checks and balances in place to undertake such CSR Activities. Members would also be more encouraged to support their respective Industry Bodies.

II.      Allow “project wise approval” mechanism similar to approval based foreign contribution under FCRA

Government may allow creating an “approval mechanism” for CSR activities undertaken by such Implementing Agencies who either do not fulfil the 3-year track record requirement or when the activity to be undertaken in not a similar activities. This will help nascent philanthropic institutions to undertake CSR funding from Corporates and will create in long term a large pool of Implementing Agencies. Government can draw parallel from FCRA law where people not meeting the eligibility criteria of FCRA registrations are permitted one time approval.

Corporates also will help create/develop/grow Implementing Agencies in their respective local communities/areas who can help in achieving the desired social change.

III.    Create CSR Credit Certificates for future usage

The Government should encourage Corporates of every size and scale to come forward and contribute in overcoming this crisis. All Corporates who are not statutorily required to make CSR expenditure should be encouraged to undertake CSR Projects directly or through Implementing Agencies and with the necessary MCA filing, Government should reward them with the “CSR Certificates” reflecting the expenditure incurred by such Corporate.

These CSR Certificates should be allowed to be set off against any mandatory CSR Expenditure necessary for such Corporate once it had grown in size and scale and come under the ambit the Statute. This will encourage corporates to come forward and undertake CSR activities with more openness.

 

Finally, in the words of Plato - “At night, especially, it is beautiful to believe in the light”.



[1] Section 135, Schedule VII read with The Companies (Corporate Social Responsibility Policy) Rules, 2014