Legal Chronicle

August 2026

Index

Dear Reader,

The Legal Department at UJA is pleased to present this edition of Legal Chronicle, aimed at keeping readers informed about recent legal developments and their practical implications for businesses.

In this edition, Legal Chronicle examines the evolving landscape of Corporate Social Responsibility (“CSR”) in India, with a particular focus on the role of judicial interpretation in shaping the application and enforcement of Section 135 of the Companies Act, 2013. Through an analysis of key judicial decisions, this edition explores important aspects of the CSR framework, including its applicability, computation of CSR expenditure, statutory interpretation, compliance requirements and the consequences of non-compliance.

We hope that this edition provides our readers with useful insights into the evolving CSR framework and its practical significance for companies. In case you have any feedback or would like us to include any additional information to make future editions more informative, please feel free to write to us at legal@uja.in.

Introduction

Corporate Social Responsibility (“CSR“) is the commitment of businesses to contribute to society by integrating social and ethical considerations into their operations and decision-making. It reflects the recognition that businesses have responsibilities that extend beyond generating profits and include contributing to sustainable development, community welfare, environmental protection and other initiatives that create long-term social value.

It is premised on the broader expectation that companies, having benefited from society’s resources, infrastructure, markets and workforce, should contribute towards the welfare and sustainable development of the communities in which they operate.

The Legislative Framework: CSR Under The Companies Act, 2013

India’s CSR framework is set out in Section 135 of the Companies Act, 2013, read with Schedule VII and the Companies (Corporate Social Responsibility Policy) Rules, 2014. Section 135 applies to companies meeting prescribed financial thresholds and requires them to constitute a Board-level CSR Committee.

The Committee recommends the CSR Policy, spending amount and implementation monitoring, while the Board approves the policy, oversees compliance, makes required disclosures and ensures fulfilment of statutory CSR obligations.

Schedule VII identifies qualifying CSR activities and the CSR Rules provide procedures for policy formulation, implementation, action plans, impact assessment, monitoring and reporting. Together, these provisions create a governance framework that promotes transparency, accountability and effective CSR implementation.

Judicial Evolution of CSR

Judicial decisions have clarified key aspects of CSR compliance, including applicability, expenditure computation and consequences of non-compliance. These rulings have shaped the practical application of the CSR regime, moving it beyond the statutory 2% spending mandate toward broader corporate governance and accountability.

Shri Santosh Meenakshi Textiles Pvt. Ltd. v. Registrar of Companies, Tamil Nadu, 2019

Facts of the Case

The RoC alleged non-compliance with Sections 134(3)(o) and 135 for failure to disclose the CSR Policy and reasons for under-spending. The company contended that it had complied with Section 135 and sought quashing of the complaint on the ground that the offence under Section 134(8) had been decriminalized by the Companies (Amendment) Act, 2020.

Issue

Whether the pending criminal complaint for the alleged contravention of Sections 134(3)(o) and 135 of the Companies Act could continue after the offence under Section 134(8) had been decriminalized by the Companies (Amendment) Act, 2020.

Contentions of the Parties

The petitioners submitted that the present case pertained to Section 134(8) of the Companies Act and that the offence had been decriminalized by the Companies (Amendment) Act, 2020, reducing the punishment to a fine. Relying upon Barai v. Henry Ah Hoe, they argued that the benefit of the reduced punishment should be extended to them.
The RoC fairly submitted that the legal position had changed after the Amendment Act and accepted that the benefit of ex post facto reduction in punishment could be granted to the petitioners. Both parties agreed that the complaint pending before the Trial Court could be quashed and the matter referred to the Adjudicating Authority.

Judgment

The Gujarat High Court held that the benefit of decriminalization ought to be granted to the petitioners, as the Amendment Act had reduced the consequences of the offence to the imposition of a fine. Relying on the Supreme Court’s decision in Barai v. Henry Ah Hoe, the Court held that there was no justifiable reason to deny the retrospective benefit of such decriminalization.
Accordingly, the Court held that the criminal complaint could not legally be sustained and quashed the complaint as well as the order issuing process against the petitioners.

Legal Position

The decision recognizes that where the Companies (Amendment) Act, 2020 has decriminalized the punishment for CSR-related violations and reduced the consequences to the imposition of monetary penalties, the benefit of such decriminalization should extend to pending proceedings, and criminal complaints are liable to be transferred to the competent adjudicating authority.

Practical Considerations for Companies

While the statutory framework prescribes the minimum requirements for CSR compliance, companies should also consider the guidance issued by the Ministry of Corporate Affairs (MCA) to ensure that CSR initiatives are effective, compliant, and capable of withstanding regulatory scrutiny.

Integrate CSR into Business Strategy: CSR should be integrated into long-term business strategy rather than treated as a compliance exercise, enabling sustainable social impact while strengthening stakeholder relationships and corporate reputation.
Undertake CSR Through Structured Projects: MCA has clarified that CSR activities should generally be carried out through structured projects or programmes. One-off events, donations, advertisements, sponsorships and similar activities do not qualify as CSR expenditure. CSR initiatives should have clear objectives, implementation plans, timelines, and measurable outcomes.

Distinguish CSR from Statutory Obligations: Expenditure incurred solely to comply with other statutory requirements such as labour laws and environmental regulations, does not qualify as CSR expenditure. Companies should therefore maintain a clear distinction between mandatory compliance costs and genuine CSR spending.

Encourage Employee Participation: The Ministry encourages voluntary employee involvement in CSR initiatives to promote socially responsible business practices. However, monetized pro bono employee services cannot be counted as CSR expenditure.
Maintain Robust Monitoring and Reporting: Companies should maintain robust monitoring, impact assessment (where applicable) and accurate disclosures in the Board’s Report. Comprehensive documentation assists companies in demonstrating compliance and responding to regulatory scrutiny.

Frequently Asked Questions (FAQs)

1. What is Corporate Social Responsibility (CSR) under Indian law?

CSR is the commitment of businesses to contribute to society by integrating social and ethical considerations into their operations, going beyond profit generation to support sustainable development, community welfare and environmental protection.

2. Which companies are required to comply with CSR provisions under the Companies Act, 2013?

Companies meeting the financial thresholds prescribed under Section 135(1) are required to comply, including constituting a Board-level CSR Committee to recommend and oversee the CSR Policy.

3. How is the CSR spending obligation calculated?

As clarified by the NCLAT in Shri Santosh Meenakshi Textiles Pvt. Ltd. v. Registrar of Companies, CSR expenditure must be calculated as 2% of the average net profit, computed under Section 198, of the three immediately preceding financial years.

4. What happens if a company fails to comply with CSR requirements?

Following the Companies (Amendment) Act, 2020, violations under Section 134(8) have been decriminalized and reduced to monetary penalties and this benefit extends to pending proceedings, as recognized by the Gujarat High Court in KHS Machinery Pvt. Ltd. v. Registrar of Companies.

5. Do one-off donations or sponsorships qualify as CSR activities?

No. The MCA has clarified that CSR activities should generally be carried out through structured projects with clear objectives, timelines and measurable outcomes; one-off events, donations, advertisements and sponsorships do not qualify as CSR expenditure.

Conclusion

Corporate Social Responsibility in India has evolved into a structured statutory framework shaped by judicial interpretation. While Section 135 of the Companies Act, 2013 sets out the CSR framework, courts have clarified its application, enforcement, expenditure computation, compliance requirements and consequences of non-compliance, providing greater certainty in its implementation.

As the CSR regime develops, companies should align their policies and programmes with statutory requirements, judicial principles and regulatory guidance.

References

Need Help With CSR Compliance?

Navigating CSR applicability, expenditure computation and evolving compliance requirements can be complex. UJA Global Advisory’s legal and compliance experts help companies design, implement and monitor CSR policies that align with statutory requirements and judicial guidance. Write to us at legal@uja.in to discuss your CSR compliance requirements today. You may also like our earlier piece, Corporate Social Responsibility Under Indian Law, for a broader overview of the CSR framework.

Tip: Before finalizing your CSR Policy, reconcile your average net profit calculation under Section 198 with your statutory auditors to avoid disputes over the 2% spending obligation later.

Disclaimer

This document is intended to provide general information and is not intended to be substituted for any legal or professional advice. This document is meant exclusively for informational purposes and not for advertising or solicitation. UJA Global Advisory has made significant efforts to ensure that the information contained in this document is accurate and reliable. However, the information herein is provided “as is” without warranty of any kind. UJA hereby disclaims all responsibility and liability, whether stated or implied, for the accuracy, validity, adequacy, reliability or completeness of any information provided under this document. In no event shall UJA be held liable for any losses or damages whatsoever incurred as a result of using this document.

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