CSR penalties for non-compliance under Section 135 of the Companies Act, 2013 have become significantly stricter, making failures in CSR spending or required transfers financially and reputationally costly for companies. The regime now treats CSR as a mandatory statutory obligation rather than a voluntary charity initiative, with defaults attracting monetary penalties on both the company and its officers in default.
What Triggers CSR Penalties
Penalties arise when companies do not spend the minimum 2 percent of average net profits on CSR or fail to transfer unspent CSR amounts to the specified funds or ongoing project accounts within prescribed timelines. Non-compliance with disclosure obligations in the Board’s report regarding CSR policy, projects and expenditure can also attract enforcement scrutiny.
Regulators treat unexplained or repeated CSR shortfalls as a serious governance lapse rather than a mere procedural error. Companies that ignore CSR committee recommendations or Board-approved CSR plans risk being flagged during MCA inspections or regulatory data analytics.
How Section 135 Penal Provisions Work
Following the 2019 and 2020 amendments, unspent amounts not tied to ongoing projects must be transferred to the notified funds within six months of the financial year end. Amounts relating to ongoing projects must go to a special “Unspent CSR Account” within 30 days, and then be spent within three years, failing which they are also transferred to the specified funds.
If a company defaults, it can face a penalty calculated as a fixed amount or a percentage of the unspent CSR, subject to caps. Officers in default, including directors, can be individually penalised, reinforcing personal accountability for CSR lapses.
Rising Enforcement and Data-Based Scrutiny
The article highlights that enforcement has shifted from soft advisory letters to active issuance of penalty orders by Registrars of Companies and the MCA. Authorities increasingly use MCA-21 filings and CSR-2 data analytics to identify repeat offenders and patterns of chronic underspending.
This data-driven scrutiny means even mid-sized companies are no longer invisible, and past non-compliance can be reopened for examination. Settlement or compounding may not always be available where regulators perceive deliberate avoidance.
Key Compliance Lessons for Companies
Companies are advised to treat CSR planning as a year-round exercise aligned with budgets, rather than a last-quarter rush that often results in unspent amounts. Strengthening internal controls over CSR approvals, documentation, and tracking of transfer deadlines is critical to avoid penalties.
Boards and CSR committees must ensure that CSR deliberations and rationales are properly minuted and that implementation partners are vetted and monitored. The overall takeaway is that CSR is now a hard legal obligation, and casual or symbolic compliance can directly translate into financial penalties and governance red flags.
