CORPORATE SOCIAL RESPONSIBILITY IN COVID-19

A Project Submitted to

ARMY INSTITUTE OF LAW, MOHALI

By
Yashvardhan Singh (1922)
Under the Guidance of
Dr. Bhupinder Kaur

In partial fulfilment of the requirements for the award of degree of

BA.LLB.
PANJABI UNIVERSITY, PATIALA (PUNJAB)
 DECLARATION

It is certified that the project work presented in the report entitled “CORPORATE SOCIAL
RESPONSIBILITY IN COVID-19” is the result of my original research work. All the ideas
and references have been duly acknowledged.

Name: Yashvardhan Singh

Roll No.: 1922
 ACKNOWLEDGEMENT

The success and outcome of this project required a lot of guidance and assistance from many
people and I am extremely privileged to have got this all along the completion of my project.
All that I have done is only due to such supervision and assistance and I would not forget to
thank them all.
I respect and thank Dr. Bhupinder Kaur, for providing me an opportunity to do the project
work and giving us all support and guidance, which made me complete the project duly. I am
extremely thankful to her for providing such a nice support, although she had busy schedule
managing in the other affairs.
I am thankful and fortunate enough to get constant encouragement and guidance from all the
teaching staff which helped me in successfully completing the project work. I would like to
extend my sincere esteems to all for their timely support.
CONTENTS

Introduction................................................................................................................................5

CSR History in India..................................................................................................................5

CSR trends in India....................................................................................................................6

CSR in COVID-19.....................................................................................................................7

Does salary paid during lockdown qualify as CSR spend?....................................................9

Donation of money to a trust or an NGO...............................................................................9

Expenses incurred to provide free resources........................................................................10

Administrative expenditure..................................................................................................10

R&D spend on vaccines, medicines and medical equipment..............................................11

Conclusion................................................................................................................................12
INTRODUCTION

Corporate social responsibility (CSR) is procuring significant importance day by day.

Majority of the organizations are presenting their commitments towards CSR either to be in
competition or for enhancing their corporate image. Globalizations and changing market
situations are imperative factors in adding heat to the CSR thought. Emergence of different
marketing innovations demands has the direct linkage of corporate social responsibility
practices with the business corporate strategies. Also, Indian companies in this relation have
gone ahead of their legal and economic obligations to establish mutual trust and accept
responsibilities coupled with the betterment of society.

CSR is a self-regulating business model that helps a company to be socially accountable — to

itself, its stakeholders and the public. By practicing corporate social responsibility, also called
corporate citizenship, companies can be conscious of the kind of impact they are having on
all aspects of society, including economic, social and environmental. To engage in CSR
means that, in the ordinary course of business, a company is operating in ways that enhances
the society and environment instead of contributing negatively to them.1

CSR is a broad concept that can take many forms, depending on a company and its industry.
Through CSR programmes, philanthropy and volunteer efforts, businesses can benefit the
society while boosting their brands. As important as CSR is for the community, it is equally
valuable for a company. CSR activities can help forge a strong bond between employees and
corporations; boost morale and help both employees and employers feel more connected with
the world around them.2

CSR HISTORY IN INDIA

India has a long, rich history of close business involvement in social causes for national
development.

1
Chen, J. (2020, February 22). Part of the Dotdash publishing family. Retrieved August 28, 2020, from
Investopedia: https://www.investopedia.com/terms/c/corp-social-responsibility.asp
2
Edmondson, B. (2020, July 7). DotDash Publishing Company. Retrieved August 31, 2020, from The Balance:
https://www.thebalance.com/corporate-social-responsibility-csr-4772443
In the initial years, there was little documentation of social-responsibility initiatives. After
Independence, JRD Tata — who always laid a great deal of emphasis to go beyond
conducting themselves as honest citizens — pointed out that there were many ways in which
industrial and business enterprises can contribute to public welfare beyond the scope of their
normal activities.

Since then, there has been a growing realisation towards contribution to social activities
globally with a desire to improve the immediate environment. Slowly, it began to be
accepted, at least in theory, that business had to share a part of social overhead costs.3

The last decade of the 20th century witnessed a swing away from charity and traditional
philanthropy towards more direct engagement of business in mainstream development and
concern for disadvantaged groups in the society. This has been driven both internally by
corporate will and externally by increased governmental and public expectations.

An ideal CSR has both ethical and philosophical dimensions, particularly in India where there
exists a wide gap between sections of people in terms of income and standards. India is the
first country in the world to make CSR mandatory, following an amendment to the
Companies Act, 2012 in April 2014.

CSR TRENDS IN INDIA

Since the applicability of mandatory CSR provision in 2014, CSR spending by corporate
India has increased significantly. According to a survey, companies spent 47 per cent higher
in 2018 than in 2014-15, contributing $1 billion (around Rs 7,400 crore) to CSR initiatives.4

A regulation, only five-years-old, required companies to step outside their comfort zone onto
a steep learning curve.

On an average, the reporting rate among eligible companies in the last four years has been 64
per cent. Companies spent 68 per cent of the prescribed CSR amount in the last four years,
totalling Rs 52,000 crore.5
3
Singh, R. G. (2010). Corporate Social Responsibility Practices in India - A study of top 500 companies. Global
Business and Management Research, 45-46.
4
Associates, D. S. (2020, March 23). Dezan Shira and Associates. Retrieved August 29, 2020, from India
Briefing: https://www.india-briefing.com/news/corporate-social-responsibility-india-5511.html/
5
Ventures, S. S. (2020, March 24). Samhita - A Better Normal. Retrieved December 5, 2020, from samhita.org:
https://www.samhita.org/decoding-csr-trend-in-india-looking-back-to-look-forward/
Listed companies in India spent Rs 10,000 crore in various programmes — ranging from
educational programmes, skill development, social welfare, healthcare and environment
conservation.

The Prime Minister’s Relief Fund saw an increase of 139 per cent in CSR contribution over
last one year (2019-20). The education sector received the maximum funding (38 per cent of
the total), followed by hunger, poverty and healthcare (25 per cent), environmental
sustainability (12 per cent) and rural development (11 per cent).

Programmes such as technology incubators, sports, armed forces, inequality-reduction saw

negligible spends.6

CSR IN COVID-19

The COVID-19 pandemic has upended life as we know it. It has now become the moral
responsibility of corporates to come forward and contribute to rebuilding India in this hour of
need.

Covid-19 related expenses that qualify as CSR spend under the Indian corporate law are as
follows:

 Contribution to PM CARES FUND

 Contribution to State Disaster Management Authority to combat COVID 19
 Creation of health infrastructure for Covid care
 Establishment of medical oxygen generation and storage plants
 Manufacturing and supply of oxygen concentrators, ventilators, cylinders, and other
medical equipment for countering Covid-19
 Setting up of a makeshift hospital or temporary Covid care facility
 Eradicating hunger, poverty and malnutrition, promoting healthcare including
preventive healthcare and sanitation via also contribution to the Swach Bharat Kosh
set-up by the Central Government for the promotion of sanitation and for making
available safe drinking water
 Disaster management, including relief, rehabilitation, and reconstruction activities

6
Associates, D. S. (2020, March 23). Dezan Shira and Associates. Retrieved August 29, 2020, from India
Briefing: https://www.india-briefing.com/news/corporate-social-responsibility-india-5511.html/
he Ministry of Corporate Affairs circular dated June 18, 2014 stated that items in Schedule
VII are broad-based and may be interpreted liberally.

According to Section 135 of Companies (CSR) Rules, 2014 and Schedule VII of Companies
Act 2013:

Every company with a net worth of Rs 500 crore or more or turnover of Rs 1,000 crore or
more or net profit of Rs 5 crore or more during the immediate preceding financial year, must
have a CSR committee and spend at least 2 per cent of average net profits earned during
three immediate preceding financial years to CSR activities

In the present era of COVID-19, the Government of India is inspiring companies to provide
social support. According to a March 23, 2020 Ministry of Corporate Affairs circular, all
expenditures incurred on activities related to COVID-19 would be added as permissible
avenues for CSR expenditure.

Funds may be spent for various activities related to COVID-19, under the following items of
Schedule VII:

 Eradicating hunger
 Poverty
 Malnutrition
 promoting healthcare, including preventive healthcare
 Sanitation, including contribution to the Swachh Bharat Kosh set up by the Centre for
promoting sanitation and making available safe drinking water
 Disaster management, including relief, rehabilitation and reconstruction activities

Further, A general circular (No. 21/2014, dated June 18, 2014) mentioned that the items in
Schedule VII are broad-based and may be interpreted liberally for the purpose of donations
being made with respect to COVID 19.

This announcement from the ministry was welcomed by Corporate India. It created a win-win
situation for companies with existing CSR obligation and funds at disposal who wanted to
contribute to relief and meet statutory requirements of The Companies Act at the same time.
The response to the government’s call to support COVID-19 efforts has been overwhelming.
Crores have been donated to various government funds.

Considering the huge sum of funds at stake for the relief efforts, corporates are struggling not
just in finding a reliable implementing partner but also in figuring out a way to monitor and
track the use of the donated funds and assessing their impact.

With the announcement by the government that any amount donated by companies in support
of the fight against COVID-19 will qualify as CSR, a majority of the companies either
contributed to the PM CARES Fund or for various other purposes that contributed to
protecting health and preventing hunger of the affected.

Does salary paid during lockdown qualify as CSR spend?

During the pandemic, a lot of people have lost their jobs leading to high unemployment.
Also, where the jobs aren't lost, they are facing salary deductions. The Ministry of Corporate
Affairs has specifically stated that payment of salary or wages is a contractual obligation of
the company. Similarly, payment of salary or wages to employees and workers even during
the lockdown period is a moral obligation of the employers that will not qualify as
permissible CSR expenditure.

However, to incentivise employers to retain their workforce at the same pay scale, the
government may come up with special packages for select industries like tourism, aviation,
etc. Payment of emoluments in these industries could be counted as CSR expenses. The
government may build proper checks and balances around the same.

Donation of money to a trust or an NGO

The Companies Act has been amended to include a few entities to whom payments made will
be categorized as a CSR expenditure. The entities include companies registered under Section
8 of the Companies Act, a registered public trust, a registered society, or any entity
established under an Act of Parliament or State legislature. However, any donations made to
unregistered NGOs or trusts will not be considered as a CSR activity under the legislation.

Thereby, it is suggested that before making any donation under CSR to a trust or an NGO,
one needs to confirm its registrations under the various specified legislations.
Expenses incurred to provide free resources

As we know, the Companies Act obligates certain companies to spend money on CSR
activities. Now with the introduction of new provisions, there was ambiguity on whether the
company needs to spend the amount in cash or kind. There is no restriction on spending in
cash or kind, but the prime importance is given to the word 'spend'.

The government clarified that any donation made by the company out of free company
resources already held by them cannot be termed as a CSR expenditure. Actual spending is
required for it to qualify as CSR expenditure.

Let's take an example to understand it better. A company is donating clothes to poor people.
The clothes were obtained free of cost by the company through some other means. Here, as
the clothes have been obtained free of cost by the company, it cannot be termed a CSR
expenditure under corporate laws.

However, if the company is incurring some incidental expenses on the distribution of clothes,
it might claim this up to 5% of their total CSR expenditure.

The legislation allows manufacturing and supply of specified medical equipments as a CSR
activity in the recent amendments. Thereby, if the supply of such products is made, it would
be construed as a CSR activity.

Administrative expenditure

Under the amended rules, administrative expenses are only allowed to the extent of 5% of the
total CSR expenditure of the company for the financial year.

Administrative overheads have been defined as expenses directly incurred by the company on
'general management and administration' of CSR functions in the company. Also, the
expenses incurred by the company on designing, implementation, monitoring, and evaluation
of a particular Corporate Social Responsibility project will not be included as part of the
administrative overheads but as a CSR expenditure.

Let's understand the issue with a few examples.

A company used its factory premises to build a temporary Covid care facility. During this
period, it incurs overhead expenses like rent, electricity, water expenses, etc. Such payments
fall in the nature of general management and administration.

A company can utilize up to 5% of the total expenditure in CSR (other than the overheads) as
administrative expenses. Although 5% expenditure is allowed, authorities might still disagree
on the fixed expenses as CSR expense as it is not a CSR specific expense but a regular
business expense.

Salary paid to employees and directors on duty at the care facilities is also a contractual and
statutory obligation. As the employees are dependent on the company for their day-to-day
expenses, it becomes a moral responsibility as well. Thereby payment of such salaries too
may not be construed as a CSR expenditure even when the salary is paid for the care facility.

The company hires new doctors, consultants and other medical staff in order to take care of
the patients. If emoluments to these employees are being exclusively paid for the
implementation and monitoring of the CSR project; it would be allowed as a CSR
expenditure.

R&D spend on vaccines, medicines and medical equipment

Expenditures in the normal course of businesses are excluded from the scope of CSR
activities.

However, any company engaged in research and development activity of new vaccine, drugs
and medical devices in their normal course of business may undertake research and
development activity of new vaccine, drugs and medical devices related to Covid-19 for
financial years 2020-21, 2021-22, 2022-23 provided such research is carried out in
collaboration with any institute or organization mentioned in Schedule VII and separately
disclosed in the Board's Report.

But now, research and development of vaccines, etc., have almost come to the completion
stage, and not much expenditure will be incurred in FY 2021-22 and 2022-23. It is suggested
that government should allow a weighted deduction for FY 2020-21 in order to benefit the
companies already in business.
Many corporates have already risen to the occasion and are helping the country in these
desperate times of need. Thereby, the amendments in the rules are a welcome move. This will
allow the companies to invest in healthcare and other related areas while complying with
corporate social responsibility requirements.

However, the government can be a little more liberal and permit the above activities as part
of CSR. Government clarifications of all doubts on CSR spending will be a great initiative,
and it can encourage many more corporates to join the movement.

CONCLUSION

Business houses all over the world are realising their stakes in the society and engaging in
various social and environmental activities. The need of the hour is to formulate effective
strategic policies and adopt various instruments, according to a company’s history, its content
and peculiarity in relationship with its different stakeholders so that CSR can be best
implemented towards its goals — sustained environmental, social and economic growth.

Most companies use CSR practices as a marketing tool and many are only making token
efforts towards CSR in tangential ways such as donation to charitable trusts, NGOs,
sponsorship of events etc. Few have a clearly defined CSR philosophy.

There are several companies in India involved in diverse issues such as healthcare, education,
rural development, sanitation, micro-credit and women’s empowerment. Analysis of several
surveys in India suggests that though many companies in India have taken on board the
universal language of CSR, it seems to be in a confused state.

Individual companies define CSR in their own limited ways and contexts. The end result
being all activities undertaken in the name of CSR are mainly philanthropy or an extension of
philanthropy. It seems that CSR in India has been evolving in domain of profit distribution.
There is a need to increase the understanding and active participation of business in equitable
social development as an integral part of good business practice.7

7
Singh, R. G. (2010). Corporate Social Responsibility Practices in India - A study of top 500 companies. Global
Business and Management Research, 45-46.
From the above findings, it can be concluded that companies in the sector play an outstanding
role to bring out the relationship between the organisation and the society. Companies are
striving to benefit the society in every manner.

It can also be concluded that there’s more media coverage of events but actual
implementation of activities is somehow lacking. Most companies are building customer
loyalty, reputation, employee motivation, brand value and employee-retention by CSR
activities.

It will be wise if the companies focus on areas the society need by understanding them. This
will, in turn, ensure universal advancement of the country.