Liberal Interpretation of CSR Schedule

Newly born Indian Corporate Social Responsibility Law is subject to a debate too hot to have it, too tasty politically, socially and economically to avoid it.

In a recent general circular 21 of 2014 dated 18th June 2014, Government of India urged that “the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule.”

The CSR Law bring a responsibility on Corporate Affairs Ministry to give a direction to national development and inclusive growth and same time, stop its potential misuse. This is why, the Government clarified that “one-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships

of TV programmes etc. would not be qualified as part of CSR expenditure.”

The industry lobbying hard to includes its other commitments while counting CSR expenditures, the government correctly said, “expenses incurred by companies for the fulfilment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure.” Otherwise all water polluting industries may claim CSR benefit to for their sewerage treatment plants.

The Problem under this circular may be:

1. “Any financial year” referred under Sub-Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014, implies ‘any of the three preceding financial years’.
2. Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.

I will discuss here in brief:

First one is correct interpretation of the provision of the Section but the section in my view. However, Industry may face a hardship if for a brief period say in year 2013- 14 it has fulfilled threshold criteria under Section 135. Thereafter, in years 2014- 15, 15 – 16 and 16- 17, the company shall have a Corporate Social Responsibility Committee, a related Policy published everywhere like its website, and report in annual report and annual return that “your company had incurred loss and could not spent any money on CSR”. This condition may have been avoided.

Second clarification may not be correct interpretation. Why a holding company should spend out of its profit not the company responsible for it?