Corporate Governance And CSR Law Violation On Some Observation Audit of HCL Technologies Ltd
Corporate Governance - CSR Audit by HR Lab
* Birendra K Jha Practitioner CSR Social Impact Audit; CSR Expert: Planning, Implementation ; Corporate Governance Audit; Empanelled Independent Director, Ministry of Corporate Affair; Member Institute of Social Auditor of India (Institute of Chartered Accountants of India) EMail: birendrajha03@yahoo.com
If Independent Directors are poor in Corporate Governance practice and illiterate completely on the Company and SEBI Law, they create only disaster. They damage the company and put the shareholders money at risk. The spinal cord of any business is adherence to the strict Corporate Governance regulation and implementation. The practice of Corporate Governance & CSR in the HCL Technologies (HCLTech) speak, classic breakdown of the Corporate Governance Law and the CSR Law. The Independent Directors sitting in the board may be IT Engineers. But they are incompetent. They should must step down in public interest or shareholders may remove them.
Background of HCL Technologies (HCL Tech)
HCL Technologies (HCL Tech) is a leading global IT services company headquartered in Noida, India, with over 226,000 employees across 60 countries and $14.5 billion in revenue (as of late 2025). Founded by Shiv Nadar, it provides AI, engineering, cloud, and software solutions to major global enterprises. HCL Technologies Ltd. (CIN: L74140DL1991PLC046369) is a publicly listed company in India, with its shares traded on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). As a listed entity, it complies with regulations set by the Securities and Exchange Board of India (SEBI), including the Listing Obligations and Disclosure Requirements (LODR).
Corporate Governance Violation Of Law On The Subsidiary Governance SEBI LODR Regulation Regulation 24(1) & 24(4):
Under SEBI LODR 24(1) there is No clear mapping of Independent Directors to "Material Subsidiaries" in the Year FY 2023-24 and FY 2024-25. This is major violation.
According to HCLTech Annual Report (FY 2023-24 & FY 2024-25), the following companies become "Material Subsidiaries" of the HCL Technologies respectively:
FY 2023-24
HCL America Inc.
HCL Bermuda Ltd.
FY 2024-25
HCL America Inc.
In FY 2023-24, the HCL Tech has not appointed any of its listed Independent Director in the Board of Directors of HCL America Inc. The SEBI LODR Regulation 16(1)(C) defines "Material subsidiary”. It says: "Material Subsidiary” shall mean a subsidiary, whose turnover or net worth exceeds ten percent of the consolidated turnover or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year. The important Corporate Governance part is deployment of "Independent Directors" of the listed entity into the "Material Subsidiary" company, vide the SEBI LODR Regulation 24(1). This compliance is missing.
The "Independent Directors" of the listed company HCL Tech are (1) Nishi Vasudeva ; (2) Deepak Kapoor ; (3) Simon John England ; (4) Vanitha Narayanan (5) Amitabh Kant (6) Bhavani Balasubramaniam and (7) Lee Fang Chew. None of the "Independent Directors", is appearing in the HCL America Inc as Director. This is Major Compliance Violation of FY 2023-24. The Directors of HCL America Inc. in FY 2023-24 is : C. Vijayakumar – Director (also CEO & Managing Director of HCLTech) and Prateek Aggarwal – Director.
Under the SEBI LODR Regulation 24(4) – A review of Subsidiary Governance by Audit Committee is necessary. The nature of lapse is "Disclosure violation". This is deemed non-compliance. The Legal requirement of SEBI LODR Regulation 24(4) mandates that:
“The Audit Committee of the listed entity shall review the financial statements, in particular, the investments made by the unlisted subsidiary.”
This review must be explicitly disclosed in the Annual Report / Corporate Governance Report. But, the observation of FY 2024–25 Annual Report (The Corporate Governance section) does not contain an explicit statement confirming that the Audit Committee reviewed financial statements of unlisted subsidiaries, and the review of investments made by such subsidiaries was undertaken. Only a generic description of Audit Committee powers is provided, but no affirmative compliance statement is made for SEBI LODR Regulation 24(4). This is major violation.
Why This Is A Violation:
SEBI has consistently held that absence of clear disclosure itself amounts to non-compliance, even if the action may have been performed internally.
This is not only disclosure failure under the SEBI LODR Reg. 24(4), but, attracts Section 23E, SEBI Act read with Reg. 98 of LODR.
CSR Law Violation Classic Case Of “CSR Washing” Through Corporate Governance Loopholes:
CSR fund is moving towards director-owned / controlled entities. This arises clear "Related Party Transactions". This is violation of Companies Act and SEBI LODR Regulation. This is a classic case of “CSR washing” through the Corporate Governance loopholes.
Core CSR Law Issue Identified:
CSR fund is routed to an entity over which Company Directors / Promoters exercise control or significant influence, while the relationship is disclosed only as a “CSR implementing agency” and Not evaluated as a “Related Party Transaction (RPT)” under SEBI LODR Regulation/ Companies Act.
This creates major compliance violation of Section 135 CSR Law of Companies Act and violation of the Related Party Transaction Law under Section 188 (2) of Company Act and SEBI LODR Regulation 23.
The Company has transferred the CSR Fund to an entity for availing or rendering the CSR services. This part is covered under Section 188 (1) (d) of Company Act.
Section 188 (1) (d) mentions clearly:
"(d) availing or rendering of any services";
The Section 188 (2) of Company Act further says:
"Every contract or arrangement entered into under sub-section (1) shall be referred to in the Board’s report to the shareholders along with the justification for entering into such contract or arrangement".
However, the Annual Report FY 2024-25 ends with a blanket statement that:
“All transactions entered by the Company with related parties are at arm’s length and in the ordinary course of business.”
There is no justification for entering into such contract or arrangement, with an entity which is controlled by the Company Director.
Why CSR Fund Is A Related Party Transaction - Key Legal Principle:
1. CSR spend does NOT enjoy immunity from Related Party norms merely because it is “charitable”. This CSR Fund is falling under "Related Party Transfer", where necessary compliance is needed under the Company Act and the SEBI LODR Regulation. That is completely missing.
The RPT ( Related Party Transaction) principle is now well-settled. The Companies Act, 2013 under the Section 2(76) defines “Related Party". A related party includes:
a) Director
b) Relative of Director
c) Entity in which Director has significant influence
d) Trust or foundation controlled by promoters/directors
Hence under Section 2(76) of Company Act, if CSR fund is given to a trust / foundation where directors are trustees, founders, or controlling persons, it is clearly a "Related Party Transaction". Further, under Section 188 ( Related Party Transactions), even if, there is no commercial consideration, or CSR purpose is cited, this needs proper approval from the Board. Further, under the SEBI (LODR) Regulations, 2015 23 (2), "All Related Party Transactions shall require prior approval of Audit Committee". Hence approval of Board and Audit Committee both are necessary on such CSR Fund transfer. In this case neither Board approval is taken nor the Audit Committee has given any approval. The Independent Directors remained completely silently. They allowed movement of CSR Fund, without proper sanction and check in the hand of Director controlled entity.
Whether CSR Fund is used or misused, can only be assessed after Independent Forensic Audit and reconducting Third Party Social Impact Assessment Audit. This Independent Forensic Audit is needed because the CSR Governance demands that the CSR expenditure must be:
a) Independent
b) Free from conflict of interest, and
c) Aligned with public interest
Routing CSR funds to director-controlled entities violates fiduciary neutrality. This breaks down completely the CSR Governance. Such CSR Fund transfer must be disclosed as "RPT" under the SEBI LODR Regulation 34(3) read with Schedule V. This mandates that the Annual Report must disclose:
a) Nature of RPT
b) Name of related party
c) Amount
d) Justification
A Circular is issued by the Ministry of Caproate Affairs, vide General Circular No. 21/2014. This Circular mandates that the CSR activities must: 1) Not be designed to benefit promoters or directors; and 2) Avoid self-serving philanthropy. Hence any Director-linked CSR agencies violate the spirit of CSR law.
OTHER CORPORATE GOVERNANCE VIOLATION:
1. Under SEBI LODR Regulation 17(1)(c) & 17(1A) – disclosure on the Board Composition & Senior Director Continuity is needed. The Nature of lapse is "Disclosure Gap" here. The Legal requirement is Clear disclosure of Executive / Non-Executive / Independent Director classification with Age-related approvals (75+ directors) with special resolution reference.
The Audit Observation is the Director profiles are provided, but Age-based compliance under SEBI LODR Reg. 17(1A) is not cross-referenced with shareholder approval details in the Corporate Governance section in the Annual Report of 2024-2025. Further, approval is scattered in AGM notice, not consolidated in governance disclosures. The Regulatory implication is that - Fragmented compliance disclosure is contrary to SEBI’s “clear and consolidated” standard.
2. In SEBI LODR Regulation 18(1) & Part C - Read with Schedule II – Audit Committee Role Disclosure, again disclosure lapse is seen. The legal requirement is detailed disclosure of Audit Committee’s role, including:
Review of subsidiary financials
Inter-corporate loans and investments
Risk assessment processes
The Audit Observation, is that the Audit Committee charter is summarized, but the Subsidiary-specific oversight is not expressly disclosed. The Inter-corporate transactions are discussed elsewhere without committee linkage. The Regulatory implication is that this is Incomplete compliance with Schedule II (Part C).
3. Under SEBI LODR Regulation 46(2) – Mandatory Website Disclosures are needed. There is Cross-reference failure. The Legal requirement is Annual Report must be linked with cross-reference availability of:
a) Subsidiary financials
b) Policies (RPT, material subsidiary, familiarization) on the company website.
Observation is that Policies are available but the Subsidiary financials are not available. Specific URLs / live references are not consistently provided in the Annual Report. The Regulatory implication is that SEBI has treated it "defective disclosure", especially during inspections
THE ABOVE CITED DISCLOSURE DEFAULTS ARE FURTHER ATTRACTED THROUGH FOLLOWING SEBI JUDICIAL PRONOUNCEMENT:
The Independent Directors have attracted serious charges on the Corporate Governance violations. They frequently violate "Absence of clear disclosure". SEBI has taken tough action against following companies. It has applied the Maxim: “Absence of clear disclosure is itself a compliance failure.”. This Maxim attracts following case laws.
1) Syncom Healthcare Ltd. & Others - Adjudication Order. (August 30, 2019):
SEBI Adjudicating Officer held that the company and its directors failed to make required disclosures under the PIT Regulations / Code of Corporate Disclosures. The absence of required disclosures was considered a violation of the statutory disclosure regime.
2) Som Distilleries & Breweries Ltd.- Adjudication Order. (September 27, 2019 ):
SEBI held that delays in making shareholding change disclosures under the PIT Regulations, even if due to oversight, constituted non-compliance with the statutory disclosure obligation. The order imposes penalty on the basis that the disclosure failure is itself a violation.
3) Burnpur Cement Limited -Adjudication Order. (June 14, 2023 ).
SEBI adjudicated that failure to make disclosures under Regulation 29(1)/(3) of the SAST Regulations was a breach — This emphasis is on the statutory obligation regardless of the notice's intent or understanding.
4) HMP Cements Limited (now Global Cements Limited) – Adjudication Order issued September 30, 2019.
SEBI Adjudication Order was passed on 30 September 2019, and it adjudged the company liable for failure to disclose completely SCORES authentication for investor grievance redressal. SEBI imposed a penalty of ₹1,00,000 under Section 15HB of the SEBI Act, 1992.
CONCLUSION:
The quantum of Corporate Governance violation is very large and serious. The shareholders money remained in risk, in the absence of proper compliance. The Independent Directors should step down in public interest or shareholders may take action. From the SEBI and Company Law side following consequences & exposure of regulatory actions are pending:
a) SEBI adjudication under Section 15HB
b) MCA penalty under Section 450 / 134
c) Restatement of CSR disclosures
d) Audit Committee accountability
e) Director fiduciary breach exposure
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