March 27, 2020
The Industrial Enterprise Act, 2020(2076 BS) (“IEA”) mandates (i) medium industries and large industries and (ii) cottage industries and small industries having annual turnover more than NPR 150,000,000 in order to allocate at least 1% of the annual net profit to be utilized towards Corporate Social Responsibility (the “CSR Requirement”). The industries should formulate annual plan and program for the utilization of the CSR requirement and utilize such fund within the areas or activities prescribed by the Government of Nepal.
Rule 37 of the Industrial Enterprise Regulation, 2019 (2076) (the "Regulation") formulated under the Industrial Enterprise Act, 2016 (2073) (the “Previous Act”) (which will be applicable under the IEA till separate regulation is issued) prescribes the area of utilization of the amount allocated for CRS Requirement. The areas include (a) control of Natural Calamities like flood, landslide, earthquake, fire and rescue related activities, and (b) Heath Related Activities including distribution of medicines or health related equipment to community health institutions, enhancement of health related awareness and to carry out health camp.
The definition of the natural calamity currently does not cover health related crisis like current pandemic. Further, the Regulation does not provide explicit ground for CSR allocation in relation to prevent, control and combat global pandemic such as COVID-19. The Regulation does not provide explicit clarity whether spending of CSR funds for COVID-19 is eligible CSR activity or not. Based on the literal interpretation, the Regulation does not provide any scope for distribution of medicines and medical equipment to the health institutions other than community hospital.
The Guidelines for Health Institution Establishment, Operation and Upgrade Standard, 2014 (2070) defines community hospital as not for profit institution registered in regulating authority and licensed for rendering health related services with the investment an operation of the community. The Definition of Community Hospital excludes other types of health institutions which has been licensed to provide health related services such as (a) teaching hospital, (b) government hospital, (c) cooperative hospital, (d) health clinic and (e) other health institutions such as research center, poly clinic, health clinic and lab services. Provided that, the Regulation provides non-exclusive basis for CSR allocation in health relative activities which is open for further interpretation and it can be interpreted applying golden rule of interpretation that arrangement required (in terms of health assistance, medicines and equipment distribution etc.) measure for the current health crisis would fall under health related activities. It seems that the Regulation however, permits to carry out awareness against novel COVID-19 and carry out health camps in that relation.
The purposive interpretation should be that activity or contribution made for current global pandemic like COVID-19 shall be treated as CSR related activities under the definition of natural calamities or broaden the scope of health related activities. COVID -19 would be treated as eligible CSR activities and shall adopt progressive approach to formulate and implement Regulation under the IEA expanding the scope of CSR activities such as promotion of healthcare, including preventive healthcare and sanitation and disaster management including the issues of global pandemic such as COVID-19.
The recent circular issued by Ministry of Corporate Affairs, Government of India (“GOI”) with the circular no. 10/2020 (the “Circular”) would be pragmatic example of CSR for combating COVID-19. Indian Legislation also provides CSR requirement with certain limitation. For the purpose of expanding the scope and ambit of CSR requirement and by adopting flexible and purposive approach of interpretation of CSR, the Circular has been issued addressing to all stakeholders clarifying on spending of CSR funds for COVID-19, the GOI has clarified that spending of CSR funds for COVID-19 is eligible CSR activity. For long term development and pragmatic application of CSR, in days to come Nepal also need to adopt the same approach on CSR spending as initiated by the GOI.
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