Corporate Social Responsibility – A tool to hide black money?

What is it?

It is a concept where companies incorporate social and environmental concerns in their business operations and in an interaction with their stake-holders on voluntary basis. In other words, we can say that, it is a concept through which companies decide and voluntarily contribute to the society and a cleaner environment.

Origin and history of CSR

This concept was opined in 1999 by Elkington as ‘triple bottom line’ and interpreting it as concern for society and environment with the co-existence of profits[1].

In India this was made a statutory obligation in 2013[2] which provides that every company having a specified net worth or net profit during a financial year shall constitute a CSR Committee of the Board that shall ensure that atleast 2% of the net average profit made by the company during the three immediately preceding financial years shall be spent on social activities.

Benefits of CSR

  1. It builds a positive impact on the community by avoiding detrimental impacts on the community. This can be illustrated as – a company/ business uses a lot of resources from the environment, so, in order to recover or we can say to overcome the exploitation of those resources that business/ company gives some facilities or performs some social activities such as eradication of poverty, promotion of education, gender equality and women empowerment, ensuring environment sustainability etc.

Some of the examples of this are

  • WeWood plants a tree for every wood watch purchased.
  • Project 7 sells gum, snacks, bottled water and clothing. For each product purchased they make a corresponding donations for things like fruit trees, meals, digging wells, and providing education.
  • NBCC has been engaged in various CSR activities all across the country. Under various schemes of CSR, the Company is participating in execution of Bio-digester Toilets in village schools at various locations of the country, providing scholarships to the poor school children for their education, helping in skill development of workers in various trades etc.
  1. It supports public value concern.
  2. It brings greater brand loyalty.
  3. It encourages both professional and personal developments as it provides employees with an opportunity to be involved in a company’s socially responsible activities that may have the benefit of teaching new skis to the staff, which in turn would be applied at the workplace.
  4. It may also enhance relationships with the clients by building a strong C.S.R. framework which in turn would help to build trust between the company and the client.

Indian Scenario

Provisions for the C.S.R were brought by the way of Section 135 of the Companies Act, 2013 for doing something for the benefit of society and environment. But, this provision or we can say the concept is now being used for some other purposes other than those mentioned in the Act. Some sections of the Indian economy are using it as a means for laundering of black money. Since India is the only country that has mandated the CSR, it has a lot of loopholes in its law that provides an easy path to the companies to launder black money. CSR spends are not ratified by the statutory authorities like any other financial spends. A Chartered accountant in an interview told that in some of the cases, promoter of the company pockets the money.

Such misuse is uncommon in the trusts run by the company itself but is commonly observed in the situations where the company uses external trusts. For example, if a company is obligated to spend, say, Rs 10 crore on CSR, it writes out a cheque in favour of a trust that works in education, health care, environment protection or any of the activities specified by the government. The trust, after deducting its commission, discreetly returns the money in cash to the officials or promoters, instantly turning Rs 10 crore of white money into black.

According to a report[3], Public trusts are a favoured route to launder money because they are not adequately governed or monitored. Though some states such as Maharashtra have their own law such as the Bombay Public Trusts Act, 1950, trusts are not governed by a nationwide law. If a state law doesn’t exist such as in Delhi, these trusts are governed by the Indian Trusts Act of 1882 that applies to private trusts. There is no centralised repository— like the registrar of companies for corporates—of information on public trusts.

Although the concept of CSR was mandated in the Indian System for the general social and environmental benefits, the companies have found so many crafty and manipulative ways to exploit the laws.

[1] http://asq.org/learn-about-quality/social-responsibility/history.html

[2] under section 135 of the Companies Act, 2013

[3] http://economictimes.indiatimes.com/articleshow/49474584.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst


ABOUT THE AUTHOR

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TESU GUPTA

Tesu Gupta is a third-year B.A.LLB(H) student of Jagan Nath University, Haryana. She has participated in many moot court competitions and paper presentations. Passionate about law and legal research, her area of interest is Arbitration. She has won the intra-university moot court competition and received the ‘Best Presenter’ award.

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