The report, which was tabled in the state Legislative Council by deputy chief minister Sushil Kumar Modi on Monday, said Section 293 (1) (e) of the Companies Act restricts the powers of the Board of Directors of a public company to contribute to charitable and other funds, not directly relating to the business of the company or the welfare of their employees.

The report said that “the company may contribute any amount the aggregate of which, within any financial year, does not exceed Rs 50,000 or 5% of its average profit during the three immediately preceding financial years, whichever was greater. Where the contribution is likely to exceed this limit, the same must be done with the prior consent of the company in general meeting.”

According to the CAG the public limited company's contribution was 41.67% of its average profit for the three immediately preceding financial years. Prior consent of the company in the general meeting was not taken. Thus the company's action to make the donation was not only in violation of the Act but also against the canons of financial prudence.