CORPORATE SOCIAL RESPONSIBILITY UNDER SECTION 135 OF THE COMPANIES ACT, 2013: MANDATE, IMPACT AND ENFORCEMENT

ABSTRACT

The idea of corporate social responsibility (CSR) has shifted from voluntary to statutory framework under Section 135 of the Companies Act, 2013 in India. This provision applies to companies that satisfy certain financial limits and are required to spend on activities mentioned in Schedule VII, under the requirement of CSR. This article explores the distribution of CSR spending across sectors and whether financial spending alone can have a significant social impact. The article also discusses the impact assessment when trying to see whether CSR activities lead to measurable social effects.

It also talks about the enforcement mechanism related to unspent CSR amounts, reporting obligations and penalties for non-compliance. The analysis highlights that effective CSR requires more than just fulfilling a prescribed expenditure requirement.

Keywords: Corporate Social Responsibility, Section 135 of the Companies Act, 2013, Social Impact, Enforcement, CSR compliance, CSR Expenditure.

INTRODUCTION

According to IBM definition, Corporate Social Responsibility (CSR) means that every enterprise’s main theme of business dealings should involve making a positive impact on the society and environment.

The European Commission proposes a new definition of CSR as “the responsibility of enterprises for their impacts on society”. Enterprises should have a process in place to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders. The aim of the process should be:

the creation of shared value for their owners/shareholders, their other shareholders and society at large; identifying, preventing and mitigating their potential adverse impacts. 

India’s approach to CSR is more prescriptive under Section 135 of the Companies Act, 2013. The Indian framework does not only articulate the responsibility of a company to society, it identifies companies that cross specified financial thresholds and imposes a statutory CSR obligation, including the requirement relating to CSR expenditure and activities under Schedule VII.

This article is about the CSR under section 135 of the Companies Act, 2013. Its mandate, impact and enforcement are discussed here. It also mentions where does the actual CSR expenditure go and whether it really benefits the society or not.

MANDATE

Which companies are covered under CSR?

According to section 135 of the Companies Act, CSR provision applies to all the companies that satisfies any one of the following financial thresholds in the preceding financial year:

Criterion

Threshold

Net worth

Rs. 500 crore or more

Turnover

Rs. 1000 crore or more

Net profit

Rs. 5 crore or more

The 2% spending mandate:

Companies are required to allocate at least 2% of their average net profits from the preceding three years towards CSR activities.

What triggers the CSR obligations?

Professor Archie Carroll of the University of Georgia developed a model called Carroll’s 1991 Pyramid of Corporate Social Responsibility and arranges a company’s obligation into four tiers, each building on the one below it.

At the bottom sits economic responsibility, the requirement to be profitable. Above that is legal responsibility, businesses must obey the laws and regulations of the societies in which they operate. The third tier is ethical responsibility, doing what is right, fair, and just, even when the law does not explicitly require it. At the top sits philanthropic responsibility, voluntary contributions to the community.

Essentially, Carroll argued that these four responsibilities should be fulfilled simultaneously as an integrated whole.

CSR committee composition:

Any company having CSR obligation of Rs. 50 lakh or more shall constitute a CSR Committee of the Board comprising of:

(a) Minimum 3 directors (for companies having 3 or more directors), 

(b) Minimum 1 independent director, 

(c) For private companies with only 2 directors: both directors on the CSR Committee, 

(d) For companies with CSR obligation below Rs. 50 lakh: CSR Committee is not required and the Board directly performs CSR functions.

CSR committee responsibilities:

• To develop and recommend to the Board a CSR Policy.

• To indicate the amount of CSR spending.

• To manage the implementation of the CSR Policy.

• To approve the Annual Action Plan of CSR activities.

CSR ACTIVITIES

Schedule VII of The Companies Act, 2013 provides a list of activities that qualify as corporate social responsibility. Anything spent beyond the activities given under Schedule VII will not count as CSR activities. Some of the activities are:

1. Eradicating poverty, hunger and malnutrition including healthcare and sanitation.
2. Promoting education, including special education and employment enhancing skills.
3. Promoting gender equality, empowering women, and protection of the elderly.
4. Promoting environment sustainability.
5. Measures for the benefits of the armed forces veterans.
6. Providing relief, rehabilitation at times of disaster.

IMPACT

The main question is: What social impact resulted from CSR expenditure?

Schedule VII tells us where CSR amount can go, while CSR expenditure data tells us where it actually goes.

According to the MCA reports, the diagram below shows the sector-wise distribution of CSR expenditure in India FY 2024-25:

The diagram indicates a picture of the actual CSR expenditure. Education accounts the largest share of the CSR expenditure, followed by health care, environment, livelihood, and rural development also received allocations.

But the above data does not establish whether these expenditures have actually created any social impact. 

CSR doesn’t mean only legal obligation is to be achieved. It also means that a real impact has been created. Actual impact means things such as:

• Improved educational outcomes,
• Better access to healthcare,
• Increased employment,
• Measurable environment improvement.

Hence, these social outcomes are determined by impact assessment. Under the Companies (Corporate Social Responsibility Policy) Rules, 2014 (amended in 2021) impact assessment is required where the following conditions are to be fulfilled:

• companies having an average CSR obligation of Rs. 10 crore or more in the preceding three financial years; and 
• CSR projects with an outlay of Rs 1 crore or more;

Projects must have been completed at least one year before the assessment. Assessment is conducted by an independent agency.

Thus, impact assessment is a tool to check if CSR initiatives are really beneficial for the society or not.

ENFORCEMENT

Monitoring and Reporting 

Reporting accurately is an important part of CSR compliance. Every company must attach an annual report on CSR activities in its board reports as per the format prescribed in CSR Rules. It should contain the company’s CSR policies and objectives, details of the CSR project undertaken, total spent and unspent amounts and its implementation mechanism and impact assessment. Also, companies must publish this on the company’s official websites to maintain transparency.

Unspent amounts not connected with any ongoing projects

Under section 135(5) of the Companies Act, 2013, if a company has unspent CSR funds that are not kept for any ongoing project, the rule is very simple. The unspent amount should be transferred to any fund specified in Schedule VII of the Act within six months from the end of the financial year. 

Unspent amounts in connection with any ongoing projects

Section 135(6) states that any amount remaining unspent on a project under implementation shall be transferred to the Unspent Corporate Social Responsibility Account within a period of 30 days from the end of the financial year and such amount shall be spent on that project only. The amount must be spent within three financial years, otherwise the balance has to be transferred to a Schedule VII fund within 30 days.

Penalties for non-compliance 

Under Section 135(7), non-compliance with Sections 135(5) and 135(6) attracts penalties. The company may be liable to twice the required amount or ₹1 crore, whichever is less, while an officer in default may face one-tenth of the required amount or ₹2 lakh, whichever is less. Other CSR violations may attract penalties under Sections 134(8) and 450 of the Companies Act, 2013.

LIMITATIONS OF THE CSR FRAMEWORK

1. The uneven allocation of CSR funds remains the biggest challenge in CSR implementation in India. The under developed region receive very less or no fund for development.
2. The companies may minimally comply CSR obligation just for their reputation and not focus on creating a real positive change in the society. Thus, they might not disclose full reports and data of CSR funds.
3. The High Court of Himachal Pradesh in the case- Court on its own motion v. Union of India (2025) highlighted that having a statutory obligation does not automatically ensures that CSR money reaches the intended social needs. 
4. There is also difficulty in monitoring the actual implementation of CSR projects and coordinating with the other stakeholders that are involved.

SUGGESTIONS

1. Companies should focus on the real social impact of CSR projects, and not take the prescribed expenditure as the only yardstick of compliance.
2. There is a need for enhanced reporting on CSR spending, implementation and results for greater accountability and transparency.
3. Companies must also ensure that the funds are allocated evenly. It must reach to the needful areas.
4. Companies should understand real needs of local communities and make CSR projects so that resources create meaningful benefits.
5. With better coordination between companies, implementing agencies and government authorities, monitoring can be improved and CSR funds can be more effectively used.

CONCLUSION

“Life’s most persistent and urgent question is, ‘what are you doing for others?’”

                                                                                           - Martin Luther King Jr.

CSR is not just about the amount spent as a legal obligation but it is about what and how much changes one wants to bring in the society. Companies’ business strategies must incorporate CSR so that it aligns with both corporate objectives and the needs of the society. The real achievement of implementing CSR is the lasting impact it is able to create in the society. It’s about creating balance between those who have more and those who have less so that everyone grows together and no one is left behind. CSR even if little bit but it can help to bridge that gap. At the end, I will conclude this article by the saying, “what matters is not merely what we give, but the difference our giving makes.”

FOOTNOTES:

[1] Amanda McGrath & Alexandra Jonker, What Is Corporate Social Responsibility (CSR)?, IBM Think, https://www.ibm.com/think/topics/corporate-social-responsibility (last visited Sept. 24, 2026).

[1] European Commission, A Renewed EU Strategy 2011–14 for Corporate Social Responsibility, COM(2011) 681 final, at 6 (2011), https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52011DC0681

[1] The Companies Act, No. 18 of 2013, INDIA CODE (2013), § 135(1).

[1] Archie B. Carroll, The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders, 34 Bus. Horizons 39, 42 (1991), https://doi.org/10.1016/0007-6813(91)90005-G

[1] The Companies Act, No. 18 of 2013, INDIA CODE (2013), sched. VII.

[1] Ministry of Corporate Affairs, Government of India, CSR Data as on 31st March, 2026 (FY 2024–25), Corporate Data Management Portal, https://www.mcacdm.nic.in/csr-data (last visited Sept. 24, 2026).

[1] Companies (Corporate Social Responsibility Policy) Rules, 2014, r. 8(3), as amended by the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, G.S.R. 40(E) (Jan. 22, 2021).

[1] The Companies Act, No. 18 of 2013, INDIA CODE (2013), § 135(5) (second proviso).

[1] The Companies Act, No. 18 of 2013, INDIA CODE (2013), § 135(6).

[1] The Companies Act, No. 18 of 2013, INDIA CODE (2013), §§ 135(7), 134(8), 450.

[1] Court on Its Own Motion v. Union of India, CWPIL No. 90 of 2025 (H.P. H.C. Dec. 17, 2025).