Corporate Social Responsibility (CSR) A Platform Misused by Indian Companies

National News

Corporate Social Responsibility is a self-regulating business module that makes shareholders and investors socially responsible in their companies through their corporates. This idea of making the corporate socially responsible to narrow the gap between income and wealth of different sections of society.
Under ‘The Companies Act, 2013’ certain provisions were introduced where big corporates are to constitute a committee named “Corporate Social Responsibility Committee” consisting of three or more directors of which one director should be an independent director for the following categories of companies:
a) Either with a turnover of Rs.1000 Crores or more
b) Or companies earning a net profit of Rs.5.00 Crores and above
c) Or a company having a net worth of

Rs.500 Crores and above
would be obliged to perform social responsibility for Indian Society in general. These companies would have to spend 2% of their three years average net profits under the policy of CSR. And the calculation of average of three years net profit would be in accordance with the provisions of section 198 of the Act. The corporates would give preference to the local area or areas around it where the corporation operates. CSR regulations have been formulated with an aim to:
1. Eradicate poverty and extreme hunger from India.
2. Promote Education in areas where people are unable to help their children get education
3. Empowerment of women and gender equality
4. Child mortality reduction and improvement of health of mothers
1. Reducing the scope of diseases like malaria, deficiency of vitamins among infants.
2. Sustaining environment
3. Business promotion for society as a whole.
4. Increasing vocational skills and ultimate goal to generate employment.

But if any corporate fails to spend this amount, the board shall have to specifically mention the reasons for not spending under clause (o) of sub-section (3) of section 134 of The Companies Act, 2013.
The concept of CSR was introduced to bridge the gap between rich and the poor, wealthy and the financially deprived section of the society and was expected to bring about radical change in funding for the social cause.
Here it becomes necessary to mention that some of the corporates have started using CSR platform to launder money and generate black money by making fake entries in connivance with the officials of charitable trusts and NGOs.
Some companies have been using charitable trusts to show false CSR spending in such a way that fake expense entries are fabricated or values inflated by the charitable trusts and the corporates providing funds to the trusts and paying back in cash to the corporates or theirresponsible officers.
India is probably the only and the first country to bring CSR provision for the corporates as mentioned above, but no audit is provided for by the statutory auditors of the companies. Whereas the audits of the charitable trusts are also not scrutinized minutely. The provisions itself having loopholes, certain companies, charitable trusts, NGOs and people connected with these kinds of the social cause within, started taking advantage of such misuse of loopholes.
Some of the companies even started registered/floated NGOs/charitable trusts in the name of their family members and started transfer of funds from their companies in the name of CSR. So, the promoters misappropriated such funds which are also one of the big causes of generating black money.
From the sources of anonymity, who did not want to be named, has revealed that such charitable trusts, Non-Governmental Organization (NGO) are even set up by big politicians or rich individuals and these organizations are used to launder money in the name of Corporate Social Responsibility (CSR). For example, if an educational institution is set up by one individual, would invite funds from big corporates, keeping certain percentage with them would return the balance to the promoters of the corporates in cash. The educational institution would thereafter inflate the expenditure in the name of social cause, this would result in generation of black money.
Similarly, trusts in the name of health care, hospitals, environment protection or any other area as specified in the Government schedule are formed with the same modus operandi. As the close of the financial year approaches these organizations incorporate the transactions in such a way so as to the CSR reporting by the corporates becomes easily reportable. Here the main escape is that such reports are not subject to any serious external audit but only the internal audits are conducted.
In Maharashtra, these provisions are governed by the Bombay Public Trust Act, 1950 but the law does not apply in same way in other states where these Public Trust Act, 1950 but the law does not apply in same way in other states where these Public Trusts have become possible and flavored route of money laundering as monitoring part is not that strong. For example, in Delhi, the provisions of the Indian Trust Act, 1882 is applicable and authority to monitor the ways and means of routing the funds to black money are not checked.
Scrutiny has never been so serious as to check this area from the angle of money laundering. An Income Tax Officer, who wanted not to be named, has also stated that unless they were specifically informed, the department never indulged into the scrutiny of accounts to track illegal transactions and crack the ways and means to black money.
Director General and CEO of Indian Institute of Corporate Affairs (IICA) Mr. Bhaskar Chatterjee, who had been part of the committee which formulated the provisions of CSR and got the same incorporated in the Companies Act, 2013, is also of the view that there was no fool-proof system to make such trusts and NGOs responsible and accountable.
Finance Minister, Arun Jaitley had also pointed on a Facebook post that huge chunk of black money was still within the country. To plug the loopholes of such areas of generation of black money, political will, strong legislation and strict actions are required.
Still, it is reiterated that “Corporate Social Responsibility” (CSR) is a good move on the part of the Government. But if meticulously implemented with honesty and integrity, radical changes can be observed within the society even within five years. This becomes a joint responsibility of the Corporates and the Government for their honest efforts to spend the funds earmarked for the social cause and keeping simultaneous vigilant eye, so that the funds are not siphoned away but used to help the poor and neglected. But here the responsibility to help does not end but to generate employment also for them so that poverty is eradicated permanently, leading to an ideal society.

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