Author: Radhika Menon, The Kerala Law Academy Law College, Trivandrum
Abstract
This article looks at the Kerala CSR Funds Scam, a complex fundraising fraud that pretended to be real CSR activity. At the center of this scam was Ananthu Krishnan, who deceived NGOs and individuals into paying for “half-price” goods. He promised them that corporate CSR donations would cover the costs. They also found significant NGO involvement, whether knowingly or unknowingly, connections to political figures, and financial wrongdoings like money laundering. The study covers investigative methods, prosecutions, case consolidations, asset seizures, judicial oversight, and the need for systemic reforms. Recommendations include better verification of CSR activities, thorough checks on NGOs, and combined criminal and civil restitution processes.
To the Point
A large-scale Ponzi-style fraud disguised as Corporate Social Responsibility (CSR) initiatives has shocked Kerala’s civil and legal landscape. At the heart of this scheme is 26-year-old Ananthu Krishnan, who called himself a CSR facilitator. He took advantage of the rising trend of CSR-funded community outreach by offering consumer goods like two-wheelers, laptops, sewing machines, and household appliances at “half the market price.”
These items were falsely claimed to be subsidized by CSR contributions from well-known companies. The scam exploited the trust of vulnerable individuals and community organizations, tricking them into making upfront payments with promises of deep discounts that never materialized.
Investigations led by the Kerala Police Crime Branch, along with the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA), have revealed a financial scheme involving the misappropriation of ₹450 crore, with losses exceeding ₹1,000 crore. Authorities believe more than 200 NGOs and tens of thousands of people across various districts have fallen victim. Reports suggest these NGOs were used to reach grassroots beneficiaries and collect funds without verifying any real CSR ties.
The police have filed over 1,343 First Information Reports (FIRs) in the state. Many of these have been combined and handed over to a Special Investigation Team (SIT) within the Crime Branch. The SIT includes over 80 personnel working under senior officers. Several arrests have taken place, including key operatives, and the ED has frozen 19 bank accounts. They also conducted searches at 12 locations, including the homes and offices of the accused.
What makes this scam more troubling is the possible political support and influence that allowed it to operate smoothly. Notable figures, including a sitting Member of Legislative Assembly (MLA) and legal advisors, are under scrutiny for their suspected involvement in endorsing the fraudulent schemes. The accused are said to have used fake documents and fabricated Memoranda of Understanding (MoUs) to convince NGOs and individuals of their legitimacy. This manipulation of public trust and weaknesses in CSR implementation highlights an urgent need for regulatory reform and legal action.
Authorities are looking into a range of offenses, including criminal breach of trust under Section 316(5) of BNS, cheating under Section 318(4) of BNS, criminal conspiracy under Section 120B IPC, and money laundering under various sections of PMLA. The scale and complexity of the scam show a serious abuse of the CSR framework, initially created for corporate accountability and social development. The Kerala CSR scam has not only swindled the public but has also damaged the integrity of philanthropic efforts and the non-profit sector as a whole.
Use of Legal Jargon
The Kerala CSR scam involves several important legal concepts that describe the nature and seriousness of the offenses. The accused used a deceptive method by offering CSR-subsidised goods at discounted rates to entice victims into making advance payments. This forms the basis for charges under Section 316(5) of BNS for criminal breach of trust, where the accused misappropriated funds that were entrusted to them under false promises. Additionally, Section 318(4) of BNS addresses cheating by dishonestly enticing individuals with false promises.
Early recipients received goods to create an illusion of legitimacy, which persuaded more victims to invest. The involvement of multiple individuals, allegedly including those with political connections, has led to charges under Section 45 of BNS for aiding and Section 120B IPC for criminal conspiracy, as the fraud seemed to have been planned and facilitated through a network of accomplices.
The Enforcement Directorate has invoked the Prevention of Money Laundering Act (PMLA) to investigate how the criminal proceeds were laundered through various bank accounts and properties. This has resulted in asset seizure measures, including the freezing of 19 bank accounts. A Special Investigation Team (SIT) of over 80 Crime Branch officers is looking into the extensive scam, while one accused has petitioned the Kerala High Court to consolidate FIRs for better judicial efficiency.
The case also highlights significant regulatory failures, especially the Ministry of Corporate Affairs not verifying CSR disclosures and the Vigilance and Anti-Corruption Bureau (VACB) missing early warning signs.
The Proof
One of the most compelling pieces of evidence comes from the statements and complaints of over 200 NGOs across Kerala. These organizations were tricked with promises of heavily discounted goods, such as two-wheelers, laptops, and appliances, offered at “half-price” under the guise of being subsidized by Corporate Social Responsibility (CSR) funds. Believing in the legitimacy of the CSR associations, these NGOs collected money from their beneficiaries and sent it to the accused’s accounts. Reports from Hindustan Times, New Indian Express, and The CSR Journal confirm the widespread nature of this fraud. Some NGOs even held local-level awareness sessions to promote these offers, which unintentionally broadened the fraud’s impact.
The financial evidence adds another layer of proof. According to the ED’s preliminary findings, over ₹450 crore was funneled through 19 bank accounts, with suspected layering of transactions, which suggests money laundering under the PMLA. This transaction data has been validated through forensic audits and statements from banking institutions. Reports from HT Syndication, Hindustan Times, and Magzter indicate that funds moved through fake firms and shell NGOs, many of which were registered under the names of relatives and close associates of the main accused.
In response, the Enforcement Directorate conducted raids at 12 locations, including the homes and offices of accused individuals like K.N. Anandakumar and Laly Vincent. During these raids, authorities seized hard drives, forged documents, fake CSR MoUs, stamp papers, and registers with details of money collected and NGO partners.
The Special Investigation Team (SIT) created by the Kerala Crime Branch has also been vital in gathering evidence. Out of 1,343 First Information Reports (FIRs) filed, 665 have been transferred to the Crime Branch, and 34 police stations across the state are currently assisting the SIT’s investigation. Testimonies from whistle-blowers and bank employees have supported the understanding of how the fraud operated. The Print and The CSR Journal reported that the SIT has developed a victim mapping dashboard to track the flow of money from individual victims to bank accounts linked to the accused.
Recent judicial developments have bolstered the case. The main accused, including Ananthu Krishnan, are in judicial custody, and several bail applications have been either denied or are still pending. Additionally, one of the accused filed a petition in the Kerala High Court, seeking to consolidate FIRs, claiming that the complaints stem from a common fraudulent scheme and can be tried together for efficiency.
Perhaps the most controversial element of the evidence is the alleged connection between the scam and political figures. Reports in The Print and Hindustan Times suggest that early evidence indicates financial benefits were provided to individuals like MLA Najeeb Kanthapuram and lawyer Laly Vincent, who allegedly helped legitimize the scheme. Investigators have obtained phone records, transaction slips, and communications that are currently being examined to establish the link between the fraud’s perpetrators and public officials.
Case Laws
To understand the legal implications of the Kerala CSR fund scam, it is important to look at past court cases. These cases come from different situations but offer helpful insights on fraud, breach of trust, Ponzi schemes, and accountability in public programs. The following cases clarify the legal framework relevant to this scam:
Sahara India Real Estate Corp. Ltd. v. SEBI, (2012) 10 SCC 603
This significant ruling addressed misrepresentation and unauthorized collection of funds disguised as investment schemes. The Supreme Court identified features of Ponzi schemes and ruled that public money raised without real backing or official approval is financial fraud. This situation closely relates to the Kerala scam, where those accused promised CSR benefits without any true corporate connections or approvals, resembling a Ponzi scheme.
Govind Ram v. State of Rajasthan, (1975) 3 SCC 67
In this case, the Court explained that those managing money for others have a duty of trust. The scammers in Kerala collected money from NGOs for a public-benefit program and broke that trust by misusing the funds for their personal gain.
Director of Income Tax (Investigation) v. Vishnu Bhagwan, (2007) 8 SCC 194
The Supreme Court allowed for tracing and seizing illegal funds to ensure that criminals do not benefit from their actions. This precedent supports the ED’s current moves to freeze bank accounts and seize assets under the Prevention of Money Laundering Act in the CSR scam.
Charan Lal Sahu v. Union of India, 1990 AIR 1480
This ruling highlighted the State’s responsibility to ensure transparency and accountability in public interest programs. Although this case came from a different situation (the Bhopal Gas tragedy), it underscores that failure by institutions to oversee programs that involve public trust like the CSR registry can lead to legal responsibility and changes in policy.
Conclusion
The Kerala CSR funds scam serves as a cautionary tale about the confluence of permissive legal loopholes, apathetic administrative processes and self-serving opportunism that can emerge to enact widespread public deception. Beyond the monetary loss of this scam, it also uncovers deeper weaknesses in the socio-legal structure that governs corporate social responsibility (CSR) in India. While CSR was conceived as an expression of progressive development, the blatant implications of this scam show how easily even benevolent schemes can be circumvented in the absence of accountable structures.
Social media reflect the growing discontent with charities, NGOs and charities today. The effect of recognizing perceived beneficiaries of these organizations as complicit in dubious schemes has detrimental effects on those charities, NGOs and intentions in their mission to create socially-positive outcomes in communities. As customary, given this sort of situation, there will be a slow response from the Commission as it follows due process and rules for evidence submissions. In the meantime, we can request an interim, auditor review of NGO direct and indirect funds raised for a CSR project. Furthermore, it is evident that the public is losing faith in corporate giving, and in the quality of response from firms that did gain notoriety in the affiliated public issue. We can guide these firms toward stronger partnerships with stakeholders and their communities, as well as improve NGO’s bonds to collaborate on CSR projects.
While there is no way to replace firm memory, there exist robust memories for learning from failures, inaccuracies and unintentional or even intentional loss. While legal proceedings can be justified, do not take away the sense of injustice and personal loss that those charities collectively feel. It is important for both NGOs and corporate to address the ethical ramifications and set clear goals for their work.
Regulators like governments and the professional associations need to mandate proper verification procedures for CSR and specifically for projects using third-party NGOs as intermediaries. Corporations need to incorporate real-time reviewing and accurate reporting of CSR funds, and banks and financial organizations, need to spend more time on due diligence in the use of public funds, particularly if it has a CSR purpose.
It is clear Indian society will have to face some cures—moving forward, the morality and ethics of corporations, civic responsibility, and civil society engagement can only evolve by holding corporate and civic actors to account legally, appointing an independent and operational regulator, informing a regulated society of their rights, and providing public access to/registering accountability through digital media platforms. Society needs to act to protect social good from being hijacked by sinister corporations, and making charitable intentions garbled wheat from the chaff. The Kerala CSR scandal is much, much more than a crime; it is nothing less than a signal to reconsider and reconceptualize the ethical base of corporate and civic involvement.
FAQS
Q1: Which sections of the law apply to this scam?
Cheating (Sec 318(4) BNS), criminal breach of trust (Sec 316(5) BNS), conspiracy (Sec 61(2) BNS), and abetment (Sec 45 BNS) are invoked. Money laundering provisions of the Prevention of Money Laundering Act (PMLA) apply due to fund transfers and asset concealment.
Q2: What role do NGOs play in legal proceedings?
NGOs may be co-accused or victims. Those just used as conduits must assist investigations; proven complicity can lead to charges. Civil suits can be initiated for restitution by victims.
Q3: How is ED contributing to the case?
ED enacted PMLA investigations: raided 12 locations, froze bank accounts, traced ₹450–₹1,000 crore proceeds, and interrogated intermediaries.
Q4: How can future CSR fraud be prevented?
Mandatory CSR scheme registration.
Publishing corporate fund allocations on a public portal.
Random audits of implementing NGOs.
Mandatory beneficiary reviews.
Stronger penalties for intermediaries.
