The 182-metre-tall statue of Sardar Vallabhbhai Patel or the Statue of Unity is standing tall on the misused social funds from the cash-strapped PSUs. A CAG (Comptroller and Auditor General of India) report tabled in the Parliament on August 7, 2018 has brought out serious irregularities in the use of social responsibility funds by the PSUs under the administrative control of Ministry of Petroleum & Natural Gas (MPNG).
According to the report, five PSUs – Oil and Natural Gas Corporation, Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited, Indian Oil Corporation Limited and Oil India Limited – had contributed Rs 146.83 crore together (ONGC: Rs 50 crore, IOCL: Rs 21.83 crore, BPCL, HPCL, OIL: Rs 25 crore each) towards the construction of Statue of Unity. The funding came from their expenditure earmarked for corporate social responsibility (CSR). In addition, 14 PSUs from Gujarat also seem to have spent Rs 104.88 crores under CSR for the same project.
Interestingly, the enormous expenditure incurred by the companies in the name of CSR does not meet with the specifications listed in the Companies Act.
Activities which may be included by companies in their CSR policy are as under:
(i) Activities relating to eradicating extreme hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation (including contribution to the Swachh Bharat Kosh set-up by the Central Government for the promotion of sanitation) and making available safe drinking water;
(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently-abled and livelihood enhancement projects;
(iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro-forestry, conservation of natural resources and maintaining quality of soil, air and water (including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga);
(v) protection of national heritage, alt and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional and handicrafts:
(vi) measures for the benefit of armed forces veterans, war widows and their dependents;
(vii) training to promote rural sports, nationally recognized sports, paralympic sports and Olympic sports;
(viii) contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;
(ix) contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government;
(x) rural development projects; and
(xi) slum area development.
The inauguration of the 2,989 crore project showed strikingly dissimilar results from those envisioned in the guidelines for the use of CSR money. With over 75,000 tribals fearing for their livelihood, and protesting against the construction of the statue, Modi’s display of extravagance was a day of mourning for the local tribal population.
Read more: As Modi Sucks Cash From Public Sector Companies, Dividend Payment to National Coffers Declines
Why did the PSUs divert social responsibility funds?
Reportedly, the already cash-strapped PSUs were under enormous pressure from both the central and the state governments to contribute funds towards the construction of the statue. Speaking to Newsclick, E A S Sarma, former secretary to the GOI said, “Sardar Patel's contribution to the unity of India is, no doubt, immeasurable, but he himself would not have endorsed such a huge expenditure of public funds for constructing his statue. As pointed out by the CAG, it was highly irregular on the part of the concerned PSUs to incur such expenditure under CSR, as envisaged under Section 135 of the Companies Act. It is surprising that neither the audit committee of any of these PSUs, nor the independent directors, nor the other directors have cared to question such irregular expenditure, apparently in fear of reprisals from those in authority.”
The arm-twisting of the PSUs by the government becomes evident in the complete breakdown in the procedures of the corporate governance of the 19 PSUs referred above. Procedurally, the audit committees could have used their power to prevent the respective managements from succumbing to the diktats of the Modi government. However, this was not done. Under Section 149 of the Companies Act, the independent directors are required to safeguard the interests of the shareholders, but they failed in doing so, in this case.
ONGC justified the contribution by stating that the project included activities such as promotion of education, and development of banks of river Narmada. The Management of BPCL, HPCL and IOCL stated in their reply to the CAG that as per circular no. 21/2014 issued by MCA, they interpreted the activity liberally to capture the essence of the subjects enumerated in the Schedule VII of Companies Act 2013.
Responding to this, the government auditor made it explicitly clear that the contribution to 'Sardar Vallabhbhai Patel Rashtriya Ekta Trust (SVPRET)' for Gujarat government's ‘Statue of Unity’ project cannot pass off as a contribution towards a project aimed at protecting national heritage, art and culture (an approved CSR activity as per schedule VII of the Companies Act 2013), as it was not a heritage asset.
The on the PSU’s was being built from the past few months. An agenda note which was approved by the chairman and the managing director, and ratified by the ONGC board in April, mentioned that Oil & Natural Gas Corp (ONGC) and Indian Oil Corp (IOC) will contribute Rs 50 crore each out of its CSR funds. Other profit-making public sector undertakings (PSUs) were reportedly directed to pay Rs 25 crore each. Instructions were also given by the Ministry of Petroleum & Natural Gas, in March 2017, to all oil and gas companies to support the project in “a collaborative mode”.
The CAG report exposes the pattern of weakening the public sector by the Modi government. The nature of arm-twisting of the PSU’s and the impunity with which the public funds were diverted for the statue invite serious objections.
The Ministry of Corporate Affairs is now in the spotlight, as pressure is being built on the ministry to order a probe ensuring deterrent action against concerned PSU managements as well as the audit committees and independent directors.
Read more: How Modi Govt Exhausted ONGC’s Cash Reserves And Drove It Under Debt
*This is a developing story.