DNA EXCLUSIVE: RIL under lens for diverting Rs 1.7K cr CSR funds

The Ministry of Corporate Affairs (MCA) has sent a notice to Reliance Industries Ltd (RIL) over violation of the Corporate Social Responsibility (CSR) norms.

The government may soon start inspection of its CSR projects, where the company has reportedly spent 2% of its net profits as mandated by the law. The action comes following a complaint by a whistle-blower to the Department of Economic Affairs of the Finance Ministry.

The three CSR projects of the country's biggest company to come under the scanner are Sir HN Reliance Foundation Hospital and Research Centre (Mumbai), Reliance University (Jio University, Navi Mumbai), and Lodhivali Hospital and Art Clinic (Dhirubhai Ambani Hospital, Lodhivali).

"Prima facie, you appear to be in violation of provisions of Companies Act, 2013 as use of CSR as a source of funding an existing business is not permissible," the ministry said in the notice sent to RIL under section 206 of the Companies Act, 2013.

It has asked RIL to furnish details about funding, operations and revenues for each of the three CSR projects for all financial years, starting 2014-15 till date.

The company reported expenditure of Rs 2,816 crore, as against the prescribed amount of Rs 2,414 crore in the years spanning 2014 to 2018. Of this, the company spent a total of Rs 1,141 crore on Sir H N Reliance Foundation Hospital and Research Centre, Rs 590 crore on Reliance University and Rs 8 crore on Lodhivali Hospital and Art Clinic in three years, which is being investigated. RIL didn't respond to the e-mail sent by DNA Money seeking its response.

Under the Companies Act, all firms with a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more have to spend 2% of their average three-year annual net profit towards CSR activities in a financial year. The CSR provisions came into effect from April 2014.

The ministry has also asked RIL's top officials to appear before it in person. "A final opportunity is being accorded to you to explain your compliance of CSR provisions... and are requested to appear for a hearing on the matter, in person, to demonstrate through legal documents how the prescribed CSR amount has been spent and CSR compliance has been made," said the notice sent on May 31.

"In case compliance of CSR provisions can't be demonstrated, formal inspection under Companies Act shall follow," it added. The Ministry found the company's reply to its earlier letter "not satisfactory".

Certain violations of the CSR provisions under Section 134(8) of the Companies Act can be fined up to Rs 25 lakh. The penalty for each officer in default ranges between Rs 50,000 and Rs 5 lakh per person.