Background
A petition has been filed in the Kerala High Court seeking action under the Banning of Unregulated Deposit Schemes Act, 2019 (BUDS Act) in connection with an alleged scam involving Corporate Social Responsibility (CSR) funds. The plea claims that several organizations have misused CSR funds meant for social development projects, diverting them for unauthorized or fraudulent activities. The petitioner has urged the court to direct authorities to conduct a thorough investigation and hold the culprits accountable under the stringent provisions of the BUDS Act.
CSR funds, mandated under the Companies Act, 2013, are intended for public welfare initiatives such as education, healthcare, and poverty alleviation. However, allegations have surfaced that certain entities have been illegally collecting and mismanaging these funds without adhering to the prescribed regulations.
Court’s Rationale
- Scope of the BUDS Act in Addressing Financial Fraud
- The BUDS Act was enacted to prevent fraudulent financial schemes and safeguard investors from being duped.
- The petition argues that misappropriation of CSR funds qualifies as an unregulated deposit scheme under the Act.
- Need for Accountability in CSR Fund Utilization
- CSR contributions by corporations are meant to be directed towards social welfare projects, and any diversion of these funds constitutes a serious offense.
- The plea highlights that such mismanagement not only defrauds intended beneficiaries but also erodes trust in the CSR framework.
- Failure of Regulatory Oversight
- The petitioner has pointed out lapses in monitoring CSR fund utilization by state agencies.
- The plea calls for stricter enforcement and oversight mechanisms to prevent similar frauds in the future.
Existing Measures and Legal Provisions
- Companies Act, 2013 (Section 135) – Mandates certain companies to allocate 2% of their net profits towards CSR activities and maintain transparency in fund usage.
- BUDS Act, 2019 – Prohibits unregulated deposit-taking activities and provides strict penalties for financial fraud.
- SEBI and MCA Guidelines – Corporate governance and financial reporting guidelines ensure CSR fund transparency.
Conclusion
The plea before the Kerala High Court seeks urgent judicial intervention in the alleged CSR funds scam, arguing for action under the BUDS Act to prevent fraudulent financial dealings. The outcome of this case could have significant implications for corporate accountability and the regulation of CSR funds, potentially leading to stricter enforcement mechanisms to curb misuse.
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