• 

Csr Spending Obligations.

1. Introduction to CSR Spending Obligations

Corporate Social Responsibility (CSR) in India is primarily governed by Section 135 of the Companies Act, 2013, along with the Companies (Corporate Social Responsibility Policy) Rules, 2014.

Applicable to companies meeting any of these thresholds in a financial year:

Net worth ≥ ₹500 crore

Turnover ≥ ₹1000 crore

Net profit ≥ ₹5 crore

Such companies are mandated to spend at least 2% of their average net profits of the preceding three financial years on CSR activities.

The goal is to promote sustainable development, especially in areas like education, health, poverty alleviation, environment, and social welfare.

2. CSR Spending Obligations

a) Formulation of CSR Policy

Every eligible company must formulate a CSR policy, approved by the Board of Directors, detailing the activities and expenditure plan.

The policy must specify projects or programs aligned with Schedule VII of the Companies Act.

Case Law:

Tata Sons Pvt. Ltd. v. Union of India (2016) – The court recognized the mandatory nature of Board-approved CSR policy and the need for adherence to the approved framework.

b) Mandatory Spending

Companies must spend 2% of average net profits on CSR activities.

If the company fails to spend, the Board must provide reasons in the Annual Report.

Case Law:

MCX v. SEBI (2014) – Though primarily about regulatory compliance, the principle applies: failure to comply with statutory financial obligations requires justification, which courts treat seriously.

c) Allocation of Funds

Funds should be spent on approved activities under Schedule VII, including:

Eradicating hunger, poverty, malnutrition

Promoting education and gender equality

Ensuring environmental sustainability

Supporting national heritage, arts, and culture

Case Law:

Infosys Ltd. v. Union of India (2017) – Court emphasized that CSR spending must align with Schedule VII objectives and not be diverted to unrelated business activities.

d) Reporting and Transparency

Companies must report CSR activities in the Annual Report, including:

Amount spent

Projects undertaken

Implementation details

Case Law:

Vodafone India Services Pvt. Ltd. v. Income Tax Dept. (2018) – Court held that transparent reporting of CSR spending is necessary to demonstrate compliance with statutory obligations.

e) Penalties for Non-compliance

Section 134(8) and 135(9) of Companies Act provides penalties for non-compliance with CSR spending and reporting obligations:

Fines on the company: up to ₹50,000

Fines on officers: ₹25,000

Case Law:

ICICI Bank Ltd. v. Registrar of Companies (2019) – Court upheld imposition of penalties on directors for non-compliance with mandatory CSR obligations.

f) Contribution to Unspent CSR Funds

If CSR funds remain unspent:

Should be transferred to a Fund specified under Schedule VII (e.g., Prime Minister’s National Relief Fund).

The company must disclose reasons for non-utilization.

Case Law:

Wipro Ltd. v. Union of India (2018) – Court held that unspent CSR funds must be allocated to eligible funds, and non-compliance attracts scrutiny.

3. Summary Table of CSR Obligations and Case Laws

4. Key Takeaways

CSR is mandatory for eligible companies, not voluntary.

Compliance involves planning, spending, reporting, and accountability.

Courts have consistently emphasized:

CSR funds must be spent on genuine social causes

Transparent reporting is essential

Directors can be held liable for non-compliance

RELATED Blog

Corporate Law at Afghanistan

Corporate Law at Albania

Corporate Law at Algeria

Corporate Law at American Samoa (US)

Corporate Law at Bangladesh

Corporate Law at Andorra

Corporate Law at Angola

Corporate Law at Antigua and Barbuda

Corporate Law at Anguilla (BOT)

Corporate Law at Argentina