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Mainstream, VOL LVIII No 18 New Delhi, April 18, 2020

Mutilation of CSR is bad in law

Saturday 18 April 2020

by Sankar Ray

Two recent decisions on the allocation of funds, earmarked under the ‘corporate social responsibility [CSR] by the Ministry of Corporate Affairs (MCA), on 10 April 2020 are tantamount to an illegal drive through a mere notification which has been drawn outside the ambit of law and also on such a point. The MCA is strangely (if not deliberately forgotten that it trespassed into a State subject as per the Constitution of India. “Public health and sanitation; hospitals and dispensaries” come clearly under Schedule VII - List II [State List]. The urgent need for combating COVID 19 is apparent and understandable. But it is interesting that though at the time of induction of provisions relating to CSR – Chief Minister Relief Fund was an eligible option but thereafter, the Central Government has deleted the same through notification. This notification of 10 April says that money allocated for CSR cannot be used for payment of wages. It is punishable for any employer also for noon compliance with the provisions of Disaster Management Act 2005 and such violations are punishable under section 51[b] and 58 of the Disaster Management Act of 2005 beside provisions of section 188 of IPC.
This is tendentious, let alone demolition of the basic structure of the Constitution by detrimental scuttling of trichotomy: Centre-State-Concurrent lists, and seems to be a systematic continuity of attacking the morale of democratic polity.

CSR , is a concept, that empowers companies decide voluntarily to contribute to a better society and a cleaner environment , thus enabling them to integrate social and other useful concerns in their business operations for the betterment of its stakeholders and society in general in a voluntary way.

CSR, is brainchild of Dr Manmohan Singh when he was the Union finance minister, is to improve the stakeholder caring public image of the companies by publicising the efforts towards a better society.

Today in liquidity crisis scenario in the industry the employers by and large are in deep trouble to pay salary and wages for April when their shops are closed due to lockdown. On the one hand the Government is saying the salary for the lockdown period to be paid, at the same time it states that no money kept for CSR should be used for payment of wages. It is more than an Ionescoan absurdity which the employers are involuntarily negotiating with as they have been asked to perform an impossible task. Supreme Court in Superintendent of Taxes Vs O N Trust in 1976 clarified that no directive can compel to perform something which is impossible to perform. The age old legal maxim Lex non cogit at impossibilia supports such argument.

Surprisingly, if any ex-gratia payment is made to temporary / casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as a onetime exception provided there is an explicit declaration to that effect by the board of the company, which is duly certified by the statutory auditor.

But precisely here the MCA is a clog in the wheel of logical functioning of CSR. It is inexplicable as to why money allocated for CSR cannot be given to workers for their earned salary , but may be donated to PM Care amidst cash-less situation in industry. Many businessmen spend nightmarish days for uncertainty in pay the salary for April, when the business is not working without cash-in-flow- a situation when cutting wages across their organizations is inescapable. Now if we look at MCA it looks so heartless that it bluntly recommend the corporate to give away money earmarked for CSR to PM Sure and if done that will qualify for legal requirements.

At a time when businesses across most segments face severe disruptions due to the coronavirus outbreak, ,any industries and employers, especially those belonging to the small and medium size sectors, operate with a high proportion of fixed operating expenses, which makes their businesses high-risk in the case of revenue fluctuations. These are businesses that are facing darkened times facing zero revenue generation. On an average, 2 per cent of average net profit of any company is allocated to CSR. Take tea companies, based on tea estates. According to a study by the Tea Board of India, wages and head office expenses each account for 8 per cent of turnover. An internal auditor of a top tea company told this writer that often head office expenses are manipulated. So it is possible, given emergence of conscientious feel, companies may arrange for payment of wages for two/three months through CSR or other means. Mind you this leeway shall be available for those few companies for which provisions of CSR are applicable. God perhaps even doesn’t know what will happen with regard to payment of salary and wages to other companies and in unorganised sector.

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