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There are some confusion among the corporates about the the usage of CSR funds for Covid related activities. The MCA had clarified the same vide General Circular No. 15 /2020 and details of which given below. Whether contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure? Contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure under item no (viii) of Schedule VII of the Companies Act, 2013 and it has been further clarified vide Office memorandum F. No. CSR-05/1/2020-CSR-MCA dated 28th March, 2020. Whether contribution made to ‘Chief Minister’s Relief Funds’ or ‘State Relief Fund for COVID-19’ shall qualify as CSR expenditure? ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ is not included in Schedule VII of the Companies Act, 2013 and therefore any contribution to such funds shall not qualify as admissible CSR expenditure. Whether contribution made to State Disaster Management Authority shall qualify as CSR expenditure? Contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure under item no (xii) of Schedule VII of the 2013 and clarified vide general circular No. 10/2020 dated 23rd March, 2020. Whether spending of CSR funds for COVID-19 related activities shall qualify as CSR expenditure? Ministry vide general circular No. 10/2020 dated 23rd March, 2020 has clarified that spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure. It is further clarified that funds may be spent for various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII relating to promotion of health care including preventive health care and sanitation, and disaster management. Further, as per general circular No. 21/2014 dated 18.06.2014, items in Schedule VII are broad based and may be interpreted liberally for this purpose. Whether payment of salary/wages to employees and workers, including contract labour, during the lockdown period can be adjusted against the CSR expenditure of the companies? Payment of salary/ wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary/ wages to employees and workers even during the lockdown period is a moral obligation of the employers, as they have no alternative source of employment or livelihood during this period. Thus, payment of salary/ wages to employees and workers during the lockdown period (including imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure. Whether payment of wages made to casual /daily wage workers during the lockdown period can be adjusted against the CSR expenditure of the companies? Payment of wages to temporary or casual or daily wage workers during the lockdown period is part of the moral/ humanitarian/ contractual obligations of the company and is applicable to all companies irrespective of whether they have any legal obligation for CSR contribution under section 135 of the Companies Act 2013. Hence, payment of wages to temporary or casual or daily wage workers during the lockdown period shall not count towards CSR expenditure. Whether payment of ex-gratia to temporary /casual /daily wage workers shall qualify as CSR expenditure? 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 What are the General provisions governing the CSR under Companies Act, 2013 Read the detailed explanation by clicking here.

Corporate Social Responsibility is a through provoking idea to tap the wealth of Corporates for social well being. Section 135 of the Companies Act, 2013 deals with Corporate Social Responsibility (CSR). What are the provisions in Companies Act, 2013 governing the CSR? Section 135 of the Companies Act. Companies (Corporate Social Responsibility Policy) Rules, 2014 Notifications and Circulars of MCA Applicability of Section 135. Section 135 comes into play when a Company, Private as well as Public, meets any or all of the following three criteria. Net worth of Rs.500 Crore or more, or Turnover of Rs.1000 crore or more or a net profit of Rs.5 Crore or more during the immediately preceding financial year Corporate Social Responsibility Committee The companies which are falling under above criteria have to constitute a Committee known as CSR Committee. The Constitution of the Committee to be disclosed in the Board's Report of the Company. The CSR Committee of the Board shall consist of three or more directors, out of which at least one director shall be an independent director. As per the Companies(Amendment) Act, 2020, if the CSR liability of the company is not exceeding Rs. 50 lakhs, then it is not required to constitute the CSR Committee. Following are the responsibilities of CSR Committee Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in  Schedule VII recommend the amount of expenditure to be incurred on the activities referred to in clause (1); and monitor the Corporate Social Responsibility Policy of the company from time to time. The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company. Responsibilities of the Board of Directors The Board of every company referred to in sub-section (1) shall,— Approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its Board's Report and also place it on the company's website, and ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company. How much amount to be expended for CSR Activities? The Board of every company shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years. The "net profit" shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of Section 198. Where to spend the amount? The company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities, in accordance with the provisions of the CSR Policy of the Company. What if the company not spending the amount as above? If the company fails to spend such amount, the Board shall, in its report shall have specify the reasons for not spending the amount ; and unless the unspent amount relates to any ongoing projects then transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year Any amount remaining unspent towards ongoing projects shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account , and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer. If the company is not spending the money lying in the Separate bank account within a period of three financial year, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year. Note:- This section is yet to be notified and hence not applicable for the time being. What are the penal provisions for Non Compliance If a company contravenes the provisions of sub-section (5) or sub-section (6), the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both. Note: This section is yet to be notified and hence not applicable for the time being. How to implement the CSR Activities? The Company can undertake CSR activities in accordance with the CSR Policy of the board. It can be a new or ongoing project. However the activities undertaken should not be related to the activities in the normal course of business of the company. Can the CSR activities be implemented through an external agency? Yes. A Company can identify a Section 8 company or a registered trust or a registered society, established by the company, either singly or along with any other company an an implementation agency of the CSR Activities. However such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilisation of funds of such projects and programs and the monitoring and reporting mechanism. Can a company collaborate with other companies for implementing CSR Activities? Yes. A company may also collaborate with other companies for undertaking projects or programs or CSR activities. The company have to ensure that the CSR Committees of respective companies are in a position to report separately on such projects or programs in accordance with the CSR rules. Can a company utlise the CSR fund for activities abroad? No. The CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure. Will the amount expended for the benefits of employees of the company shall be considered as eligible expense? No. The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act. How much amount can be expended by the company for managing the CSR Activities? Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through Institutions with established track records of at least three financial years but such expenditure including expenditure on administrative overheads, shall not exceed five percent of total CSR expenditure of the company in one financial year. Will political contributions be considered as CSR activity? No.Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity. Can the company add the "surplus" generated out of CSR activity to the business profit? No. The surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company. Is there any reporting is needed with respect to CSR? Yes. The Board’s Report of a company covered under these rules pertaining to a financial year commencing on or after the 1st day of April, 2014 shall include an annual report on CSR. What are the activities covered in the Schedule VII Eradicating hunger, poverty and malnutrition, ‘‘promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water. promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects. promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups. ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water 4 [including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga. protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts; measures for the benefit of armed forces veterans, war widows and their dependents; training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports contribution to the prime minister's national relief fund or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women; Contribution to incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government, and contributions to public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies (established under the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO), Department of Science and Technology (DST), Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs). rural development projects slum area development. disaster management, including relief, rehabilitation and reconstruction activities. Whether the amount spending towards Covid 19 is eligible for CSR ? Yes. Read the detailed notes on this link.

IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL/APPELLATE JURISDICTION WRIT PETITION (CIVIL) NO. 43 OF 2019 Pioneer Urban Land and Infrastructure …Petitioners Limited & Anr. Versus Union of India & Ors. …Respondents The large number of writ petitions that have been filed before the Court challenging the constitutional validity of amendments made to the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”), pursuant to a report prepared by the Insolvency Law Committee dated 26th March, 2018 (hereinafter referred to as the “Insolvency Committee Report”). The amendments so made deem allottees of real estate projects to be “financial creditors” so that they may trigger the Code, under Section 7 thereof, against the real estate developer. In addition, being financial creditors, they are entitled to be represented in the Committee of Creditors by authorised representatives. Provisions of the Code being challenged are as follows 1. Explanation to Section 5(8)(f) – Real estate project related amendment. 2. Section 21(6A)(b) - 21. Committee of creditors 3. Section 25A- Rights and duties of authorized representatives of financial creditors Case laws that lead to amendment (2019 amendment ) of the Code to include home buyers as financial creditors. The following pronouncements made by NCLAT had recognised the allottees of real estate project as “Financial Creditors” and gave them a seat in Committee of Creditors as Financial Creditors. The National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”) on 21st July, 2017 in Nikhil Mehta and Sons (HUF) v. AMR Infrastructure Ltd., (Company Appeal (AT) (Insolvency) No. 07 of 2017) held that amounts raised by developers under assured return schemes had the “commercial effect of a borrowing”, which became clear from the developer’s annual returns in which the amount raised was shown as “commitment charges” under the head “financial costs”. As a result, such allottees were held to be “financial creditors” within the meaning of Section 5(7) of the Code. On 11th September, 2017, an order was passed by this Hon’ble Court in Chitra Sharma & Ors. v. Union of India (Writ Petition (Civil) No.744 of 2017) in the case of Jaypee Infratech Ltd. appointing a representative of the home buyers, i.e. the allottees, 14 to participate in meetings of the Committee of Creditors in order that their interests be protected. Given the above orders by NCLAT, the Insolvency Committee Report suggested that amendments be made in the Code seeking to clarify, as a matter of law, that allottees of real estate projects are financial creditors. On 17th August, 2018, the Parliament passed the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (hereinafter referred to as the “Amendment Act”) incorporating the aforesaid amendments as were provided for by the Amendment Ordinance. The above amendment was challenged in the SC on following grounds. One, the amendment is discriminatory in as much as it treats unequals equally, and equals unequally, having no intelligible differentia; and two, that there is no nexus with the objects sought to be achieved by the Code. The amendments made to Section 21 and the insertion of Section 25A of the Code do away with the collegiality and commercial wisdom of the Committee of Creditors, and are manifestly arbitrary on this count. As RERA is there to address all the real estate projects related isues, the amendments in IBS is excessive , disproportionate and violative of Article 14 and 19(1)(g) of the Constitution. It would be wholly arbitrary to include allottees as financial creditors when, in fact, they possess none of the characteristics pointed out in Swiss Ribbons (supra) of banks and financial institutions. Real estate allottees/ homebuyers are unsecured creditors and are therefore more akin to OCs rather than FCs Real estate allottees make payments to the corporate debtors in lieu of services rendered – i.e., construction of apartments. In several cases, payments are also made on a construction linked payment basis. Each individual allottee will be owed a sum that is often much smaller than the amount owed to a single bank/financial institution. There are no repayment schedules in apartment buyer agreements – as the payments have been made by allottees towards grant of possession of their units in a project – and the date of possession is further subject to force majeure and other circumstances. Refund of money by the developer only arises in the event that the allottee validly terminates/ cancels the agreement and not otherwise Agreements between allottees and developers have arbitration clauses. Allottees are interested in securing their single time investment, and not the financial well-being of, or ensuring the continuity of, the corporate debtor as a going-concern. Allottees do not have the expertise or information to be in a position to evaluate the feasibility and viability of resolution plans keeping in mind the business of the corporate debtor as a whole Most of the sources evidencing a financial debt as listed do not apply to real-estate allottees. In the case of real estate allottees, in most cases, the default has not yet occurred since the date of possession is often extended on account of force majeure and other circumstances. Observations of the Court It is important to remember that the Code is not meant to be a debt recovery mechanism. It is a proceeding in rem which, after being triggered, goes completely outside the control of the allottee who triggers it. The home buyers/allottees give advances to the real estate developer and thereby finance the real estate project at hand, are really financial 117 creditors. Given this finding, this plea of the Petitioners must also be rejected. This challenge must also, therefore, fail. It would in fact be manifestly arbitrary to omit allottees from the Committee of Creditors when they are vitally interested in the future of the corporate debtor as they have funded anywhere from 50% to 100% of the project in most cases. It is clear that the expression “disburse” is Section 5(8) would refer to the payment of instalments by the allottee to the real estate developer for the particular purpose of funding the real estate project in which the allottee is to be allotted a flat/apartment. The expression “disbursed” refers to money which has been paid against consideration for the “time value of money”. In short, the “disbursal” must be money and must be against consideration for the “time value of money”, meaning thereby, the fact that such money is now no longer with the lender, but is with the borrower, who then utilises the money. Thus far, it is clear that an allottee “disburses” money in the form of advance payments made towards construction of the real estate project. The expression “borrow” is wide enough to include an advance given by the home buyers to a real estate developer for “temporary use” i.e. for use in the construction project so long as it is intended by the agreement to give “something equivalent” to money back to the home buyers. Conclusion The Amendment Act to the Code does not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution of India. The RERA is to be read harmoniously with the Code, as amended by the Amendment Act. It is only in the event of conflict that the Code will prevail over the RERA. Remedies that are given to allottees of flats/apartments are therefore concurrent remedies, such allottees of flats/apartments being in a position to avail of remedies under the Consumer Protection Act, 1986, RERA as well as the triggering of the Code.’ Section 5(8)(f) as it originally appeared in the Code being a residuary provision, always subsumed within it allottees of flats/apartments. The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law.