Further relaxations by SEBI due to Covid-19– third in a row!
Vinod Kothari & Company
corplaw@vinodkothari.com
Moving to contactless lending, in a contact-less world
-Kanakprabha Jethani (kanak@vinodkothari.com)
Background
With the COVID-19 disruption taking a toll on the world, almost two billion people – close to a third of the world’s population being restricted to their homes, businesses being locked-down and work-from home becoming a need of the hour; “contactless” business is what the world is looking forward to. The new business jargon “contactless” means that the entire transaction is being done digitally, without requiring any of the parties to the transaction interact physically. While it is not possible to completely digitise all business sectors, however, complete digitisation of certain financial services is well achievable.
With continuous innovations being brought up, financial market has already witnessed a shift from transactions involving huge amount of paper-work to paperless transactions. The next steps are headed towards contactless transactions.
The following write-up intends to provide an introduction to how financial market got digitised, what were the by-products of digitisation, impact of digitisation on financial markets, specifically FinTech lending segment and the way forward.
Journey of digitisation
Digitisation is preparing financial market for the future, where every transaction will be contactless. Financial entities and service providers have already taken steps to facilitate the entire transaction without any physical intervention. Needless to say, the benefits of digitisation to the financial market are evident in the form of cost-efficiency, time-saving, expanded outreach and innovation to name a few.
Before delving into how financial entities are turning contactless, let us understand the past and present of the financial entities. The process of digitisation leads to conversion of anything and everything into information i.e. digital signals. The entire process has been a long journey, having its roots way back in 1995, when the Internet was first operated in India followed by the first use of the mobile phones in 2002 and then in 2009 the first smartphones came into being used. It is each of these stages that has evolved into this all-pervasive concept called digitisation.
Milestones in process of digitisation
The process of digitization has seen various phases. The financial market, specifically, the NBFCs have gone through various phases before completely guzzling down digitization. The journey of NBFCs from over the table executions to providing completely contactless services has been shown in the figure below:
From physical to paperless to contactless: the basic difference
Before analysing the impact of digitisation on the financial market, it is important to understand the concept of ‘paperless’ and ‘contactless’ transactions. In layman terms, paperless transactions are those which do not involve execution of any physical documents but physical interaction of the parties for purposes such as identity verification is required. The documents are executed online via electronic or digital signature or through by way of click wrap agreements.
In case of contactless transactions, the documents are executed online and identity verification is also carried out through processes such as video based identification and verification. There is no physical interaction between parties involved in the transaction.
The following table analyses the impact of digitisation on financial transactions by demarcating the steps in a lending process through physical, paperless and contactless modes:
| Stages | Physical process | Paperless process | Contactless process |
| Sourcing the customer | The officer of NBFC interacts with prospective applicants | The website, app or platform (‘Platform’) reaches out to the public to attract customers or the AI based system may target just the prospective customers | Same as paperless process |
| Understanding needs of the customer | The authorised representative speaks to the prospects to understand their financial needs | The Platform provides the prospects with information relating to various products or the AI system may track and identify the needs | Same as paperless process |
| Suggesting a financial product | Based on the needs the officer suggests a suitable product | Based on the analysis of customer data, the system suggests suitable product | Same as paperless process |
| Customer on-boarding | Customer on-boarding is done upon issue of sanction letter | The basic details of customer are obtained for on-boarding on the Platform | Same as paperless process |
| Customer identification | The customer details and documents are identified by the officer during initial meetings | Customer Identification is done by matching the details provided by customer with the physical copy of documents | Digital processes such as Video KYC are used carry out customer identification |
| Customer due-diligence | Background check of customer is done based on the available information and that obtained from the customer and credit information bureaus | Information from Credit Information Agencies, social profiles of customer, tracking of communications and other AI methods etc. are used to carry out due diligence | Same as paperless process |
| Customer acceptance | On signing of formal agreement | By clicking acceptance buttons such as ‘I agree’ on the Platform or execution through digital/electronic signature | Same as paperless process |
| Extending the loan | The loan amount is deposited in the customer’s bank account | The loan amount is credited to the wallet, bank account or prepaid cards etc., as the case may be | Same as paperless process |
| Servicing the loan | The authorised representatives ensures that the loan is serviced | Recovery efforts are made through nudges on Platform. Physical interaction is the last resort | Same as paperless process. However, physical interaction for recovery may not be desirable. |
| Customer data maintenance | After the relationship is ended, physical files are maintained | Cloud-based information systems are the common practice | Same as paperless process |
The manifold repercussions
The outcome of digitisation of the financial markets in India, was a land of opportunities for those operating in financial market, it has also wiped off those who couldn’t keep pace with technological growth. Survival, in financial market, is driven by the ability to cope with rapid technological advancements. The impact of digitisation on financial market, specifically lending related services, can be analysed in the following phases:
Payments coming to online platforms
With mobile density in India reaching to 88.90% in 2019[1], the adoption of digital payments have accelerated in India, showing a rapid growth at a CAGR of 42% in value of digital payments. The value of digital payments to GDP rose to 862% in the FY 2018-19.
Simultaneously, of the total payments made up to Nov 2018, in India, the value of cash payments stood at a mere 19%. The shift from cash payments to digital payments has opened new avenues for financial service providers.
Need for service providers
With everything coming online, and the demand for digital money rising, the need for service providers has also taken birth. Services for transitioning to digital business models and then for operating them are a basic need for FinTech entities and thus, there is a need for various kinds of service providers at different stages.
Deliberate and automatic generation of demand
When payments system came online, financial service providers looked for newer ways of expanding their business. But the market was already operating in its own comfortable state. To disrupt this market and bring in something new, the FinTech service providers introduced the idea of easy credit to the market. When the market got attracted to this idea, digital lending products were introduced. With time, add-ons such as backing by guarantee, indemnity, FLDG etc. were also introduced to these products.
Consequent to digital commercialization, the need for payment service providers also generated automatically and thus, leading to the demand for digital payment products.
Opportunities for service providers
With digitization of non-banking financial activities, many players have found a place for themselves in financial markets and around. While the NBFCs went digital, the advent of digitization also became the entry gate to other service providers such as:
Platform service providers:
In order to enable NBFCs to provide financial services digitally, platform service providers floated digital platforms wherein all the functions relating to a financial transaction, ranging from sourcing of the customer, obtaining KYC information, collating credit information to servicing of the customer etc.
Software as a Service (SaaS) providers:
Such service providers operate on a business model that offers software solutions over the internet, charging their customers based on the usage of the software. Many of the FinTech based NBFCs have turned to such software providers for operating their business on digital platforms. Such service providers also provide specific software for credit score analysis, loan process automation and fraud detection etc.
Payment service providers:
For facilitating transactions in digital mode, it is important that the flow of money is also digitized. Due to this, the demand for payment services such as payments through cards, UPI, e-cash, wallets, digital cash etc. has risen. This demand has created a new segment of service providers in the financial sector.
NBFCs usually enter into partnerships with platform service providers or purchase software from SaaS providers to digitize their business.
Heads-up from the regulator
The recent years have witnessed unimaginable developments in the FinTech sector. Innovations introduced in the recent times have given birth to newer models of business in India. The ability to undertake paperless and contactless transactions has urged NBFCs to achieve Pan India presence. The government has been keen in bringing about a digital revolution in the country and has been coming up with incentives in forms of various schemes for those who shift their business to digital platforms. Regulators have constantly been involved in recognising digital terminology and concepts legally.
In Indian context, innovation has moved forward hand-in-hand with regulation[2]. The Reserve Bank of India, being the regulator of financial market, has been a key enabler of the digital revolution. The RBI, in its endeavor to support digital transactions has introduced many reforms, the key pillars amongst which are – e-KYC (Know Your Customer), e-Signature, Unified Payment Interface (UPI), Electronic NACH facility and Central KYC Registry.
The regulators have also introduced the concept of Regulatory Sandbox[3] to provide innovative business models an opportunity to operate in real market situations without complying with the regulatory norms in order to establish viability of their innovation.
While these initiatives and providing legal recognition to electronic documents did bring in an era of paperless[4] financial transactions, the banking and non-banking segment of the market still involved physical interaction of the parties to a transaction for the purpose of identity verification. Even the digital KYC process specified by the regulator was also a physical process in disguise[5].
In January 2020, the RBI gave recognition to video KYC, transforming the paperless transactions to complete contactless space[6].
Further, the RBI is also considering a separate regime for regulation of FinTech entities, which would be based on risk-based regulation, ranging from “Disclosure” to “Light-Touch Regulation & Supervision” to a “Tight Regulation and Full-Fledged Supervision”.[7]
Way forward
2019 has seen major revolutions in the FinTech space. Automation of lending process, Video KYC, voice based verification for payments, identity verification using biometrics, social profiling (as a factor of credit check) etc. have been innovations that has entirely transformed the way NBFCs work.
With technological developments becoming a regular thing, the FinTech space is yet to see the best of its innovations. A few innovations that may bring a roundabout change in the FinTech space are in-line and will soon be operable. Some of these are:
- AI-Driven Predictive Financing, which has the ability to find target customers, keep track on their activities and identify the accurate time for offering the product to the customer.
- Enabling recognition of Indian languages in the voice recognition feature of verification.
- Introduction of blockchain based KYC, making KYC data available on a permission based-decentralised platform. This would be a more secure version of data repository with end-to-end encryption of KYC information.
- Introduction of Chatbots and Robo-advisors for interacting with customers, advising suitable financial products, on-boarding, servicing etc. Robots with vernacular capabilities to deal with rural and semi-urban India would also be a reality soon.
Conclusion
Digital business models have received whole-hearted acceptance from the financial market. Digitisation has also opened gates for different service providers to aid the financial market entities. Technology companies are engaged in constantly developing better tools to support such businesses and at the same time the regulators are providing legal recognition to technology and making contactless transactions an all-round success. This is just the foundation and the financial market is yet to see oodles of innovation.
[1] https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=19417
[2] https://www.bis.org/publ/bppdf/bispap106.htm
[3] Our write on Regulatory Sandboxes can be referred here- https://vinodkothari.com/2019/04/safe-in-sandbox-india-provides-cocoon-to-fintech-start-ups/
[4] Paperless here means paperless digital financial transactions
[5] Our write-up on digital KYC process may be read here- https://vinodkothari.com/2019/08/introduction-of-digital-kyc/
[6]Our write-up on amendments to KYC Directions may be read here: https://vinodkothari.com/2020/01/kyc-goes-live-rbi-promotes-seamless-real-time-secured-audiovisual-interaction-with-customers/
[7] https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/WGFR68AA1890D7334D8F8F72CC2399A27F4A.PDF
RPTs and related exemptions in the context of Government companies
Munmi Phukon and Tanvi Rastogi
corplaw@vinodkothari.com
Introduction
Ministry vide its Notification[1] dated 5th June, 2015 issued certain modifications/ exemptions/ exceptions for Government Companies on certain provisions of the Companies Act, 2013. One such exemption was with respect to the provisions pertaining to related party transactions (RPTs). Vide the said Notification, Government Companies were provided relaxation from obtaining the prior shareholders’ approval as required under the first proviso to section 188(1) and consequently, from the restriction on the affirmative voting by the related parties for (a) contracts/ arrangements with other Government Company(ies) and (b) where the Government Company is not a listed company, contracts/ arrangements with related parties other Government companies as mentioned above, if prior approval of the Ministry/ Department of the Central Government (CG) or State Government (SG) administrative in charge of the Company is obtained.
The aforesaid Notification has been revisited by the Ministry by issuing a further Notification[2] dated 2nd March, 2020 (2020 Notification) whereby the said exemptions have been extended to the contracts/ arrangements by the Government Companies with CG/ SG/ any combination thereof.
Before analysing the relevance of the 2020 Notification, one has to understand the related parties from a Government Company’s perspective. This article analyses the provisions of the Companies Act, 2013 (Act) only, considering the Notification has been brought in by the Ministry of Corporate Affairs.
Related parties for a Government Company
As per clause (76) of section 2 of the Act following shall be a related party with reference to a company:
- a director or his relative;
- a key managerial personnel or his relative;
- a firm, in which a director, manager or his relative is a partner;
- a private company in which a director or manager or his relative is a member or director;
- a public company in which a director or manager is a director and holds along with his relatives, more than two per cent of its paid-up share capital;
- any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
- any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;
- any body corporate which is—
- a holding, subsidiary or an associate company of such company;
- a subsidiary of a holding company to which it is also a subsidiary; or
- an investing company or the venturer of the company
- a director other than an independent director or key managerial personnel of the holding company or his relative as prescribed under Rules
Accordingly, to consider someone as related party, he/ she/ it shall have to strictly fall under any of the aforesaid sub-clauses. Seemingly, the Government of India or any State Government having controlling stake in the company does not get fit in any of the said clauses as the CG/ SG is neither considered as a person nor an entity/ body corporate. Accordingly, CG/ SG is not a related party to a Government Company as per the aforesaid definition.
Similarly, to consider another Government Company as a related party for a Government Company, the former shall also be required to fall under the definition. Accordingly, one will have to determine whether the former Government Company is a related party or not, based on its structure i.e. private company, public company, body corporate, and also based on its relationship with the subject Government company i.e. holding company, subsidiary company, associate company etc.
Position before and after 2020 Notification
Transaction between Government companies and CG / SG
The position with respect to transactions between the Government Company and the CG/ SG before and after the 2020 Notification remains same as CG/ SG, as discussed above, does not get covered under the purview of the definition of related party provided under the Act. Therefore, until and unless there is a related party on the other side, any transactions with any other party cannot be considered as RPT. Accordingly, where the transaction itself is not an RPT, exemption from the provisions pertaining to RPTs does not arise.
Transaction between two Government Companies
As discussed above, for considering another Government Company as related party one has to consider the status of such company. Accordingly, for a Government Company, the following Government Companies may be considered as related party:
- A Government Company which is a private company in which a director, manager or relative thereof of the first mentioned Government Company is a member or director;
- A Government Company which is a public company in which a director or manager of the first mentioned Government Company is a director and holds along with his relatives, more than two per cent. of its paid-up share capital;
- A Government Company which is either the holding company or subsidiary or associate company of the first mentioned Government Company;
- A Government Company which is a fellow subsidiary of the first mentioned Government Company;
- A Government Company to which first mentioned Government Company is an associate company
Considering the structure of the Government Companies, it is very unlikely to have related parties covered under point (a) and (b) above. Coming to the position before or after the 2020 Notification, there is no change, as the 2015 Notification already covered transactions between two Government Companies.
Transactions between the Government Companies and other related parties including non- Government Companies
From the definition provided in the Act, the following persons/ entities may also be considered as related parties for a Government Company:
- Individuals who are director, key managerial personnel (KMP), relatives of director/ KMP (s), a director other than an independent director or KMP of the holding company or his relative;
- Firm in which a director or manager or relative thereof is a partner;
- Non- Government Companies such as:
- Private companies in which a director or manager or relative thereof is member or director;
- Public companies in which a director or manager is a director and holds > 2% of its paid-up share capital, singly or jointly with his relatives;
- Body corporate whose Board/ managing director/ manager accustomed to act in accordance with the advice, directions or instructions of a director or manager;
- Any person on whose advice, directions or instructions a director or manager is accustomed to act.
While the parties mentioned in point (d) and (e) above, cannot be determined without analysing the proper facts and considering these are purely circumstantial in nature, it is very unlikely to have such related parties. As regards the position before and after the 2020 Notification, the transactions between these related parties will still require the prior approval of the administrative Ministry in charge, if the company is not obtaining prior shareholders’ approval. Accordingly, there is no change in the position after 2020 Notification.
Conclusion
While the 2020 Notification is an extended version of the 2015 Notification, however, it seems that it does not carry any relevance at all. The reason for the same is that CG/ SG, as discussed above, does not get covered under the purview of the definition of related party provided under the Act. Therefore, until and unless there is a related party on the other side, any transactions with any other party cannot be considered as RPT. Accordingly, where the transaction itself is not an RPT, exemption from the provisions pertaining to RPTs does not arise.
[1]http://ebook.mca.gov.in/notificationdetail.aspx?acturl=6CoJDC4uKVUR7C9Fl4rZdatyDbeJTqg3XHmN4i4mFb+v2wWhMvQoFsXKgJTHtRr9VmNjj/XQUFc9vZ6tRKIi2gIhxfNI2SOK
[2]http://www.mca.gov.in/Ministry/pdf/Notification_02032020.pdf
Our other articles on related party transactions:
https://vinodkothari.com/2020/02/proposed-changes-in-rpts-ppt/
https://vinodkothari.com/2017/09/presentation-on-related-party-transactionrpts-an-overview/
IBC threshold raised in Coronatic Disruption: Analysis and Implications
–Megha Mittal & Shreya Jain
Frivolous initiation of insolvency process, merely for recovery of dues has been a persistent concern- catalyst being the seemingly low threshold of Rs.1,00,000/-.While murmurs about raising the threshold limit for initiating insolvency process have long been in the picture, the notification comes in the wake of recent outbreak of the novel COVID – 19 – the minimum default requirement now stands increased hundred times; from Rs. 1,00,000/- to Rs. 1,00,00,000.
Applicable from 24.03.2020, the Government, in exercise of its powers under section 4 of the Insolvency and Bankruptcy Code, 2016 (“Code”)[1] has specified Rs. 1,00,00,000 (Rupees One Crore) as the minimum amount of default for the purposes of triggering insolvency. Note that Rs. 1 Crore is the maximum threshold which the Central Government can prescribe under section 4.
The step has been widely touted as a relief for MSMEs in this time of crisis, however, this might have multiple implications. The authors have made a humble attempt to analyse its implications from a broader perspective, and if at such increase would be welcomed in absence of the ongoing crisis.
Further relief for corporates announced by the FM – amid Covid-19
Vinod Kothari & Company
corplaw@vinodkothari.com
Companies under IBC-quarantine, get GST-rebirth
-Vinod Kothari
Resolution is not a re-birth of an entity – it is simply like nursing a sick entity back to health. It is almost akin to putting the company under a quarantine – immune from onslaught of creditor actions, while the debtor and/or the creditors prepare a revival plan. The objective is that the entity revives – in which case, it is out of the isolation, and is back as a healthy entity once again.
This process is not unknown in insolvency laws world-over. However, in India, revival under insolvency framework has taken a completely unique trajectory. First was section 29A, cutting the company from its promoter-lineage for all time to come. The next was section 32A – redeeming the company from the past burden of civil as well as criminal wrongs, thereby giving it a new avatar, with a new management.
Now, the initiation of a CIRP proceeding will be akin to a new birth to the company, at least for GST purposes. Therefore, irrespective of whether the revival process succeeds or not, at least for GST purposes, the entity becomes clean-slate entity. This is the result of the new GST rule announced on 21st March, 2020. However, the new rules do not seem to have envisaged several eventualities, and we opine the intent of giving an immunity from past liabilities might have better been carried out by appropriate administrative instructions, rather than the new registration process.
SEBI relaxes timelines at the time of disruption caused by COVID-19
Vinod Kothari & Company
Below is a short snippet of the relaxed timelines issued by the securities market regulator in the wake of the disruption caused by COVID-19.
Is capital relief allowed for on-balance sheet securitisations?
Timothy Lopes, Executive, Vinod Kothari Consultants
Non-Banking Financial Companies (NBFCs) have been actively involved in the securitisation market, being one of its major participants at the originating as well as investing front. One of the key motivation of a securitisation transaction is its ability to take the loans off the books of the originator, thereby extending capital relief.
Until the implementation of IFRS or Ind AS in the Indian financial sector, the de-recognition of financial assets from the books of financial institutions was pretty simple; however, with complex conditions for de-recognition under Ind AS 109, almost all securitisation transactions now fail to qualify for de-recognition.
This leads to the key question of whether capital relief will still be available, despite the transactions failing de-recognition test under Ind AS. Through this write-up we intend to explore and address this question.
Situation prior to Ind-AS
Prior to the implementation of Ind-AS, there was no accounting guidance with respect to de-recognition of the financial assets from the books of the financial institutions. However, it was a generally accepted accounting principle that if the transaction fulfilled the true sale condition, then the assets were eligible to go off the books.
The true sale condition came from the RBI Guidelines on Securitisation[1]. The off-balance sheet treatment of the assets led to capital relief for the financial institutions. However, the Guidelines requires knock off, to the extent of credit enhancement provided, from the capital (Tier 1 and Tier 2) of the financial institution.
Post Ind-AS scenario
One of the key highlights of the IFRS 9 or Ind AS 109 is the introduction of the de-recognition criteria for financial instruments. Under Ind AS, a financial asset can be put off the books, only when there is a transfer of substantially all risks and rewards arising out of the assets. This, however, is difficult to prove for the transactions that take place in India because most of the structures practiced in India have high level of first loss credit support from the originators, therefore, evidencing high level of risk retention in the hands of the originator.
As a result, the transactions fail to satisfy the de-recognition test and the financial assets do not go off the books of the financial institutions.
This raises another concern with respect to maintenance of regulatory capital, since the assets are not de-recognized as per accounting standards, although backed by a legal true sale opinion. The apprehension here is whether capital relief would still be available in case the assets are retained on the books as per accounting norms. Capital relief would mean not having to assign any risk weight to or maintain capital for these assets.
RBI guidance on implementation
In the absence of any clarity on the question of capital relief to be availed by NBFCs, the whole idea for securitization was getting frustrated. However, RBI has on March 13, 2020 issued guidance for NBFCs and Asset Reconstruction Companies for implementation of Ind-AS[2].
It has now been clarified by RBI that securitised assets not qualifying for de-recognition under Ind-AS due to credit enhancement given by the originating NBFC on such assets shall be risk weighted at zero percent. This implies that the originating NBFC will not be required to maintain any capital against the securitised portfolio of assets. However, the originator shall still be required to make 50% deduction from Tier 1 and 50% from Tier 2 capital.
The relevant extract of RBI notification states as follows-
vii) Securitised assets not qualifying for de-recognition under Ind AS due to credit enhancement given by the originating NBFC on such assets shall be risk weighted at zero percent. However, the NBFC shall reduce 50 per cent of the amount of credit enhancement given from Tier I capital and the balance from Tier II capital.
Accordingly, the fact that a transaction does not qualify for off-balance sheet treatment shall not be relevant for capital adequacy computation. As long as a securitisation transaction satisfies the conditions laid down in the relevant Securitsation Guidelines the fact that whether it has been de-recognised or not for accounting purposes will not make a difference.
Read our related write ups here –
Securitisation accounting under Ind-AS
Securitisation accounting: disconnects between RBI Guidelines and Ind-AS
Accounting for DA under Ind-AS
[1] https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=2723
[2] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11818&Mode=0#AN1
CSR funds may be used for COVID-19 relief, clarifies MCA
Team Vinod Kothari & Company | corplaw@vinodkothari.com
Updated on 29th March, 2020
Like all other public agencies, MCA has been taking a series of steps in the wake of the rapidly spreading COVID-19 and issued clarification[1] on spending of CSR funds for COVID 19 stating that the amount spent on COVID-19 by companies will count towards CSR spending. The activities falling under item nos. (i) & (xii) of Schedule VII of Companies Act, 2013 undertaken due to COVID 19 shall qualify as CSR activity which covers the following:
- 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.
- Disaster management, including relief, rehabilitation and reconstruction activities.
Subsequently, the Ministry on 28th March, 2020 has also clarified by way of an office memorandum, that companies contributing towards recently formed Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (‘PM CARES Fund’) shall also qualify as CSR expenditure under item (viii) of Schedule VII of Companies Act, 2013.
Hence, this is the right occasion, and unarguably, one of the noblest causes, to use CSR funds in whatever way, one may think of for the welfare of society.
Notably, substantial CSR money remains unspent, very often for want of appropriate CSR projects. Many companies have to explain the same by finding some reason or the other. Currently the country is passing through an epidemic that has affected the whole world. Hence, companies may come forward and spend their unspent CSR budgets. Indeed companies are also welcome to over-spend this year’s budget pursuant to a proposal in the Companies Amendment Bill which permits carry forward of excess spending as well.
Questions are often being asked – can the company include the expenditure incurred for COVID-19 preparedness for its own employees and workmen – say, giving of masks, sanitizers, or similar expense, as a part of its CSR spending?
Our answer to this question is the same as what we have continuously answered as a part of our FAQs[2] on CSR that CSR is spending on a social cause. An employer spending for the well being, safety or welfare of employees is performing the employer’s legal or moral obligation. That cannot be regarded as CSR. However, if the company spends on COVID-19 preparedness, either by itself or through implementing agencies, for a wider section of public, and its employees or their families are also the beneficiaries of such an exercise, there is no denial as to eligibility of the same as CSR spending.
Our detailed write ups on CSR may be viewed here:
Draft CSR Rules Make CSR More Prescriptive
CAB, 2020: Bunch of Proposals for revamping CSR Framework
[1]http://www.mca.gov.in/Ministry/pdf/Covid_23032020.pdf
[2]https://vinodkothari.com/2019/11/faqs-on-corporate-social-responsibility/
