Supreme Court’s Decision to Review Rajasthan’s Case: CM Relief Fund’s Exclusion Despite PM CARES Fund’s CSR Benefits

Recently, the Supreme Court of India drives its attention to the case requires an examination in an original lawsuit filed under Article 131 of the Constitution. This lawsuit was initiated by the State of Rajasthan, alleging discrimination in the treatment of the Chief Minister’s Relief Fund for COVID-19 (CM Relief Fund) as compared to the Prime Minister’s Citizen Assistance and Relief in Emergency Situation Fund (PM CARES Fund) in the context of Corporate Social Responsibility (CSR) activities.

The State of Rajashtan raised an issue over excluding the CM Cares Fund as a CSR activity under Schedule 7 of the Companies Act, 2013, while the PM Cares Fund enjoys such recognition.

Back in June 2020, the Supreme Court bench, headed by Chief Justice S.A. Bobde, issued a notice regarding this case.

The Court today noted that the following issues have arisen-

• Maintainability of the Suit
• Arbitrary and Discriminatory Exclusion
• Extension of CSR Benefit to CM Fund
• Discriminatory Nature of OM(Office Memorandum) by Corporate Ministry

The Court ordered “the suit shall be listed before registrar for recording admission and denial of documents. File documents relied upon within 1 week. Registrar to complete the exercise by the end of November 2023. List on 5th December”

Court Overview 

A judicial panel comprising Justices Abhay S. Oka and Pankaj Mithal presided over a notable lawsuit filed by the State of Rajasthan under Article 131 of the Indian Constitution. This legal action challenges the exclusion of the CM Relief Fund from participation in Corporate Social Responsibility (CSR) activities as determined by the Union of India.

In March 2020, the Ministry of Corporate Affairs issued a circular, affirming the appropriateness of utilizing Corporate Social Responsibility (CSR) funds for such activities. It’s pertinent to mention that on March 24, 2020, a nationwide lockdown was instituted, and on March 28, 2020, the Central Government released a specific circular explicitly designating contributions to the PM CARES Fund as eligible for CSR purposes under the Companies Act.

The circular clearly stated, “The PM-CARES Fund has been established to provide relief in cases of any emergency or distress. Consequently, it is affirmed that any contribution made to the PM CARES Fund will be recognized as CSR expenditure under the Companies Act, 2013.”

Subsequently, on March 29, 2020, the State of Rajasthan established the “Rajasthan CMRF COVID-19 Mitigation Fund (CMRF)” as a dedicated account within the Chief Minister Relief Fund, with a primary focus on mitigating the effects of COVID-19. It is noteworthy that this fund maintained a separate account exclusively dedicated to managing associated funds.

However, on April 10, 2020, the Ministry of Corporate Affairs issued a directive specifying that contributions to the ‘PMCARES Fund’ qualified as CSR expenditure under Schedule VII of the Companies Act, while the Chief Minister’s Relief Fund or the ‘State Relief Fund for COVID-19’ was not included, rendering contributions to it ineligible as CSR expenditure.

In response to this development, the State of Rajasthan invoked Article 131 of the Indian Constitution, initiating the present legal action.

In their petition, the plaintiff argued, “The objective of this designated account (CMRF) squarely aligns with the enumerated clauses of Schedule VII of the Companies Act, 2013, making it eligible as CSR Expenditure. General Circular No. 15 of 2020 dated 10.04.2020 issued by the Ministry of Corporate Affairs has created an apprehension that CMRF may not be considered CSR Expenditure. In order to alleviate such concerns and to assert that CMRF indeed falls within the CSR Funds, we have chosen to file the present suit under Article 131 of the Indian Constitution.”

The plaintiff sought a permanent injunction against Circular No. 15 of 2020, issued on April 10, 2020, by the Ministry of Corporate Affairs. They contended that this circular contradicted Schedule VII of the Companies Act, 2013, and alleged that it was unconstitutional as it purportedly violated the constitutional principle of equality as enshrined in Article 14 of the Indian Constitution.

Furthermore, the plaintiff requested a directive that contributions made to the CMRF be recognized as eligible activities as specified in Schedule VII of the Companies Act, thereby qualifying as Corporate Social Responsibility (CSR) endeavors.

The plaintiff also underscored the fact that COVID-19 is classified under the National Disaster Management Act, 2005, and that Schedule VII of the Companies Act encompasses provisions related to public and preventive healthcare, as well as disaster management and relief. The plaintiff argued that these categories should encompass the CMRF.