The government has amended the corporate social responsibility rules under the companies law that is likely to help boost funding for developing new vaccines, drugs and medical devices related to the coronavirus pandemic. With the latest amendments, companies engaged in research and development (R&D) activity of new vaccine, drugs and medical devices in their normal course of business have been allowed to undertake R&D activity of new vaccine, drugs and medical devices related to COVID-19 under the CSR ambit. This would be applicable for three financial years — 2020-21, 2021-22 and 2022-23 — subject to certain conditions.
This means that money spent on such activities would be considered as Corporate Social Responsibility (CSR) spending under the Companies Act, 2013. Under the Act, certain categories of profitable companies are required to shell out at least 2 per cent of their three-year annual average net profit towards CSR activities in a particular financial year. The corporate affairs ministry, which is implementing the Act, issued two notifications related to CSR on August 24.
Changes have been made to Schedule VII of the Act that pertains to CSR activities. Now, contributions to incubators or R&D projects in the field of science, technology, engineering and medicine, funded by the central or state governments or public sector undertaking or any agency of the central or state government would be considered as CSR.
Contributions to public funded universities, Indian Institutes of Technology (IITs), national laboratories and autonomous bodies established under the Department of Atomic Energy (DAE), Department of Biotechnology (DBT), Department of Science and Technology (DST) and Department of Pharmaceuticals would also come under the CSR ambit, according to a notification. Further, the relaxation would be applicable for national laboratories and autonomous bodies under the Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH) and Ministry of Electronics and Information Technology.
As per the notification, contributions to other bodies, namely Defense Research and Development Organisation (DRDO), Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs) would also come under the CSR ambit. The changes have been made to item nine of Schedule VII.
In another notification, the ministry has amended the CSR rules whereby companies engaged in R&D activity of new vaccine, drugs and medical devices in their normal course of business have been allowed to undertake R&D activity of new vaccine, drugs and medical devices related to COVID-19 under the CSR framework. This would be for three financial years — 2020-21, 2021-22 and 2022-23. This means such expenditure would be considered as CSR spending subject to certain conditions.
One of the conditions is that such R&D activities should be "carried out in collaboration with any of the institutes or organisations" in item nine of Schedule VII, as per the second notification. Details of such activity should be disclosed separately in the annual report on CSR included in the board's report, it noted.
Sandeep Jhunjhunwala, partner at consultancy firm Nangia Andersen LLP, said the amendments would be an encouragement to medical research and pharmaceutical industry in India which is engaged in the research and development of vaccine or drugs for the treatment of coronavirus. "This initiative will surely boost the funding requirements for developing COVID-19 vaccines or drugs domestically," he said.
According to him, the amended policy is now a boon to companies which in their ordinary course of business are engaged in activities included in CSR rules, such as promoting education, protection of national heritage and promoting sports as the words "excluding activities undertaken in pursuance of its normal course of business" have been eliminated from the rules. "This would imply that expenditure towards these activities can be claimed under CSR provisions of the Companies Act even though incurred in the ordinary course of business by companies," he added.
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