Author: Areej Mehdi, Megha Priya, Ananya Prasad

Abstract

Section 135 of the Companies Act, 2013 does something quietly contradictory. It forces qualifying companies to redirect profit toward public welfare, and in the same clause leaves those profits free to stay under corporate control. This paper argues that the contradiction was not missed by the drafters, it was left in place. Rule 4(1)(a) of the CSR Rules expressly allows a company to route its mandatory two percent spend to a Section 8 foundation that it has itself created and staffed, and the 2021 Amendment, which rewrote nearly every other compliance detail in the regime, left that permission exactly where it was. That is not an oversight. It is a decision, and this paper sets out to prove it rather than simply assert it. Applying a governance overlap mapping protocol to five NSE-listed conglomerates for FY 2024-25, the paper finds fund concentration of 90-100% across all five, and four of the five implementing foundations without a single independent trustee. Three things follow. Theoretically, the paper extends the tunneling framework into the public welfare domain and proposes welfare tunneling as its own analytical category. Doctrinally, it names captive philanthropy as a legal concept and separates out inverted circular ownership as a structurally distinct variant. And as remedies, it argues for treating captive CSR transfers as deemed related party transactions under Section 188, for mandating independent trustee quotas on recipient foundation boards, and for a public governance overlap register run by the Ministry of Corporate Affairs.

Keywords: Captive philanthropy, welfare tunneling, mandatory CSR, Section 135 Companies Act 2013, related party transactions, inverted circular ownership, governance overlap, Section 8 foundations, corporate social responsibility India, family conglomerates