CSR Penalties Under Section 135: What Indian Companies Face for Non-Compliance (2026)

Marpu Foundation
2 days ago
13 min read

This article reflects observations on the CSR penalty framework under Section 135 of the Companies Act 2013 as of July 2026. The regulatory framework continues to evolve. This article is updated annually. Last updated: July 2026.

CSR compliance under Section 135 of the Companies Act 2013 carries specific penalty exposure for both the company and its officers in default. Since the 2019 and 2020 amendments to the Section 135 framework, the compliance obligations have carried statutory penalty provisions that shape how Boards, CSR Committees, Company Secretaries, and Chartered Accountants approach the annual compliance cycle.

Understanding the penalty framework matters because it clarifies what is at stake. But understanding it well matters more than understanding it superficially. Articles that treat CSR penalties as scare content, or that suggest specific implementation partners eliminate penalty exposure, both distort the actual reality. The honest position is that the CSR penalty framework is real, the specific statutory amounts are law-defined and available in the Companies Act itself, and the compliance discipline that prevents penalty exposure is knowable and workable when applied consistently.

This article walks through the CSR penalty framework at the framework level. It covers the compliance obligations that carry penalty exposure, the Section 135(7) penalty framework, the Section 450 general penalty framework, what non-compliance looks like in practice, personal liability for officers in default, the compliance discipline that prevents penalty exposure, common weaknesses that create risk, suggestions for maintaining penalty-preventive compliance, and how the penalty framework connects to the broader CSR compliance picture.

It is written for the CSR head, the CFO, the Company Secretary, the Board, the CSR Committee, and anyone thinking about CSR compliance discipline in an Indian company covered by Section 135. The article is a practitioner-voice reference. It is not a legal opinion, and it does not cite specific statutory amounts because those amounts are best read directly from Section 135(7), Section 450, and related provisions of the Companies Act 2013, and interpreted for the company's specific situation by the Company Secretary, Chartered Accountant, and Legal counsel.

Important note: This article provides observations on the CSR penalty framework under Section 135 of the Companies Act 2013 based on practitioner reference as of July 2026. It is informational guidance only and does not constitute legal, financial, or compliance advice. The specific statutory penalty amounts are set out in Section 135(7), Section 450, and related provisions of the Companies Act 2013 and should be read directly from the Act and interpreted for the company's specific situation by the Company Secretary, Chartered Accountant, and Legal counsel. The Companies Act 2013 and the Companies (CSR Policy) Rules 2014 are subject to amendment by the Ministry of Corporate Affairs. Verify against current provisions and consult professional advisers before making any compliance decision.

The Compliance Obligations That Carry Penalty Exposure

Section 135 of the Companies Act 2013 and the Companies (CSR Policy) Rules 2014 establish several compliance obligations. Each obligation, when not met, creates potential penalty exposure under the Section 135(7) framework or under Section 450 of the Companies Act 2013.

The core compliance obligations covered by the penalty framework include the following.

The 2% CSR spend obligation: Companies covered by Section 135 must spend the required percentage of average net profits on CSR activities every financial year, in the manner specified by the Act and the Rules
The unspent amount transfer obligation: Where the CSR obligation is not fully spent in the financial year, the unspent amount must be dealt with in the manner specified in Section 135(5) and Section 135(6), including transfer to a Schedule VII fund within the specified timeline
The ongoing project provision: Where the unspent amount relates to an ongoing project under Rule 4(6), it must be transferred to a separate bank account and utilised within the specified timeline
The CSR Committee constitution obligation: The company must constitute a CSR Committee in the manner specified by Section 135(1) and the applicable exemptions
The Annual Action Plan obligation: Rule 5(2) requires the Board to approve an Annual Action Plan for CSR activities
The Board's Report disclosure obligation: Section 134 requires specific CSR disclosures in the Board's Report
The Form CSR-2 filing obligation: Rule 12 requires annual filing of Form CSR-2 with the Ministry of Corporate Affairs
The impact assessment obligation where applicable: Rule 8(3) requires impact assessment for companies and projects meeting the specific thresholds

Each of these obligations has specific compliance requirements, and each carries potential penalty exposure when not met. Understanding the obligations is the first step; the second step is understanding the penalty framework that applies when they are not met.

The Section 135(7) Penalty Framework

Section 135(7) of the Companies Act 2013 establishes the specific penalty framework for non-compliance with the CSR spend and unspent-amount transfer obligations under Section 135. The framework has three distinguishing features.

1. The Framework Applies to the Company

Section 135(7) creates a monetary penalty framework that applies to the company for specific compliance failures relating to the CSR spend and unspent amount obligations. The specific penalty amounts and the trigger conditions are set out in Section 135(7) and should be read directly from the Act.

2. The Framework Also Applies to Officers in Default

Beyond the company penalty, Section 135(7) also creates personal liability for officers in default. This means specific officers of the company may face monetary penalty for the same compliance failures. Which officers are considered in default is determined by reference to the Companies Act 2013 provisions on officer liability.

3. The Framework Was Introduced Through Amendment

The Section 135(7) penalty framework in its current form was introduced through amendments to the Companies Act 2013 in 2019 and 2020, which converted certain CSR compliance failures from being outside the specific penalty framework into being covered by monetary penalty under Section 135(7). This shift changed the compliance risk profile meaningfully and shaped how Boards and CSR Committees approach the annual cycle.

The specific statutory amounts under Section 135(7) are law-defined and should be read directly from the Act. The Company Secretary and Legal counsel can interpret the framework for the specific company's situation.

The Section 450 General Penalty Framework

Beyond Section 135(7), some CSR compliance failures may attract penalty under Section 450 of the Companies Act 2013, which is the general penalty framework applicable to contraventions where no specific penalty is separately provided.

Section 450 covers the following.

General contravention penalty: Where a provision of the Companies Act or the Rules is contravened and no specific penalty is provided elsewhere, Section 450 provides the penalty framework
Applicability to both company and officers: Section 450 applies both to the company and to officers in default
Continuing contravention: Where the contravention is continuing, additional penalty may apply for each day of continuance

Certain CSR compliance failures, particularly failures relating to Board's Report disclosure obligations, CSR Committee constitution, or filing obligations, may fall under Section 450 depending on the specific facts. Which specific failures fall under Section 135(7) and which fall under Section 450 is a matter for Company Secretary and Legal counsel interpretation for the company's specific situation.

What Non-Compliance Actually Looks Like in Practice

The penalty framework is defined by statute, but the practical patterns of non-compliance that trigger penalty exposure are worth understanding. Non-compliance rarely takes the form of deliberate CSR neglect. It more often takes the form of specific gaps that accumulate over the compliance cycle.

Common patterns of non-compliance include the following.

1. Under-Spending Against the CSR Obligation

The company's actual CSR spend for the financial year falls short of the required percentage of average net profits, and the unspent amount is not handled in the manner specified by Section 135(5) or Section 135(6). This is the most common pattern of Section 135(7) exposure.

2. Late or Missing Transfer of Unspent Amounts

Where unspent CSR amounts require transfer to a Schedule VII fund or to a separate bank account for ongoing projects, delay or omission in the transfer creates exposure. The specific timelines for transfer are set out in Section 135(5), Section 135(6), and Rule 4(6).

3. Missing or Weak Board's Report Disclosure

The Board's Report is required to include specific CSR disclosures under Section 134. Where these disclosures are missing, incomplete, or materially misleading, exposure may arise under Section 134 and Section 450 depending on the specific facts.

4. Late or Missing Form CSR-2 Filing

Rule 12 requires annual filing of Form CSR-2 with the Ministry of Corporate Affairs. Where this filing is delayed or missed, exposure arises under the general filing penalty framework.

5. CSR Committee Constitution Gaps

Where the CSR Committee is not constituted in the manner specified by Section 135(1), or where committee composition falls short of the requirements including where an independent director is required, exposure may arise.

6. Weak Documentation Discipline

Weak documentation of CSR spend, activity records, Utilization Certificates, and impact evidence does not directly trigger penalty in most cases, but it significantly weakens the company's position during statutory audit review, MCA scrutiny, and any subsequent penalty proceedings.

Non-compliance patterns are usually not deliberate; they usually reflect specific gaps that accumulate when compliance discipline is not consistently maintained across the annual cycle.

Personal Liability for Officers in Default

The Section 135(7) penalty framework and the Section 450 general penalty framework both create personal liability for officers in default. This dimension deserves specific attention because it shifts the compliance conversation from being a company-level concern to being also a personal concern for specific officers.

Which officers are considered in default is determined by the Companies Act 2013 provisions on officer liability, which include the following.

The whole-time director: Directors serving in a whole-time capacity
The Company Secretary: The KMP designated Company Secretary
The Chief Financial Officer: The KMP designated CFO
Other officers as specified in the Act: Officers formally designated under specific provisions

Personal liability for compliance failures is a significant matter that deserves professional consultation. Officers of companies covered by Section 135 benefit from understanding their personal liability position under the CSR compliance framework, and this understanding is best developed in consultation with the Company Secretary and Legal counsel rather than through general reference material.

The Compliance Discipline That Prevents Penalty Exposure

Understanding what triggers penalty exposure is useful; understanding what prevents it is more useful. The compliance discipline that prevents penalty exposure is knowable and workable when applied consistently across the annual cycle.

Nine specific practices contribute to penalty-preventive compliance discipline.

1. Annual CSR Spend Planning at the Start of the Financial Year

Planning the CSR spend commitment across the full financial year, with projected quarterly milestones and specific implementation partner commitments, supports meeting the annual CSR obligation without last-quarter pressure.

2. Structured Multi-Year Programme Design

Multi-year programmes with ongoing project provisions under Rule 4(6) provide structural support for meeting the annual CSR obligation while enabling programmes that produce sustained community outcomes.

3. Quarterly Board and CSR Committee Review

Regular Board and CSR Committee review of CSR spend progress, programme delivery, and compliance status supports early identification of compliance gaps.

4. Documentation Discipline Aligned to Compliance Standards

Structured documentation of CSR spend, activity records, Utilization Certificates, and impact evidence supports the compliance position under statutory audit and any subsequent MCA scrutiny.

5. Implementation Partner Discipline

Working with CSR-1-registered implementation partners with sustained documentation practice supports the company's compliance position rather than complicating it. Weak partner documentation creates compliance risk for the corporate partner.

6. Unspent Amount Discipline

Where the CSR obligation is not fully spent in the financial year, timely handling of the unspent amount under Section 135(5), Section 135(6), and Rule 4(6) provisions is essential. The specific timelines are prescribed and must be tracked carefully.

7. Board's Report Discipline

The Board's Report CSR disclosures under Section 134 should be drafted with attention to the specific requirements. Weak or missing disclosures create Section 134 exposure and reflect poorly on the company's overall governance discipline.

8. Form CSR-2 Filing Discipline

Timely and accurate filing of Form CSR-2 with the Ministry of Corporate Affairs is a specific compliance requirement that should be tracked as part of the annual compliance calendar.

9. Professional Consultation as Ongoing Practice

The Company Secretary, Chartered Accountant, and Legal counsel provide the professional consultation that supports strong compliance across the annual cycle. Their involvement is not overhead; it is central to the compliance discipline that prevents penalty exposure.

Common Weaknesses That Create Penalty Exposure Risk

Across observed practice, several recurring weaknesses tend to accumulate into penalty exposure risk. Recognising these weaknesses supports proactive compliance discipline.

1. Last-Quarter CSR Spend Rush

Companies that leave CSR spend to the last quarter of the financial year often produce rushed programme design, weak documentation, and higher risk of under-spend. Early-year planning supports both compliance and outcomes.

2. Weak Committee Governance

CSR Committees that meet infrequently, review programmes superficially, or delegate compliance oversight without engagement produce weak governance that creates exposure risk.

3. Weak Partner Documentation

Implementation partners without disciplined documentation practice create documentation gaps for the corporate partner. Partner selection with attention to documentation discipline supports compliance.

4. Delayed Handling of Unspent Amounts

Where unspent CSR amounts require transfer or specific handling under Section 135(5), Section 135(6), or Rule 4(6), delay creates specific compliance exposure. Timeline tracking is essential.

5. Weak Board's Report Attention

Board's Report drafting that treats CSR disclosure as a formality rather than a substantive compliance obligation creates exposure. The disclosures require attention and accuracy.

6. Absent Professional Consultation

CSR compliance approached without ongoing Company Secretary, Chartered Accountant, and Legal counsel involvement often misses specific compliance requirements that professional consultation would catch.

Five Suggestions for Maintaining Penalty-Preventive Compliance

The following suggestions reflect practice that supports strong penalty-preventive compliance. They are observations, not prescriptions, and should be adapted to the company's specific situation with professional consultation.

1. Build the Annual Compliance Calendar Early

Mapping the full annual compliance calendar at the start of the financial year, including Board meetings, CSR Committee meetings, programme milestones, Board's Report drafting, Form CSR-2 filing, and impact assessment where applicable, supports discipline across the year.

2. Engage Company Secretary, Chartered Accountant, and Legal Counsel Actively

Professional advisers should be engaged as ongoing consultants across the compliance cycle, not just at year-end for filings. Their early involvement catches specific compliance requirements and shapes stronger compliance overall.

3. Choose Implementation Partners With Compliance Strength

Implementation partner selection that considers CSR-1 registration status, documentation discipline, statutory audit-ready record practice, and Board's Report support capability produces stronger corporate partner compliance across the cycle.

4. Design CSR Programmes With Multi-Year Horizons

Multi-year programme design under Rule 4(6) ongoing project provisions provides structural support for meeting CSR obligations while producing sustained community outcomes. It also reduces the last-quarter compliance pressure that often creates risk.

5. Review the Full Compliance Picture Annually

An annual review of the full compliance picture, ideally as part of Board and CSR Committee year-end review, supports identification of specific gaps and refinement of the following year's compliance approach.

How the Penalty Framework Connects to the Broader CSR Compliance Picture

The CSR penalty framework does not exist in isolation. It connects to the broader CSR compliance framework, corporate governance framework, and statutory audit framework.

Section 135 core obligations: The full compliance framework covering the 2% CSR spend, unspent amount handling, CSR Committee, Annual Action Plan, and reporting obligations
Companies (CSR Policy) Rules 2014: The Rules that provide operational detail on the Section 135 obligations
Schedule VII of the Companies Act 2013: The permissible CSR activity areas
Section 134 Board's Report obligations: The disclosure framework for CSR in the Board's Report
Statutory audit: The audit process includes CSR expenditure verification and reporting
BRSR Principle 8 for listed companies: The disclosure framework for community outcomes
The corporate governance framework: CSR compliance sits within the broader corporate governance discipline of the company
Officer liability framework: The provisions on officer in default liability that apply across the Companies Act

Understanding the penalty framework as one part of this larger compliance picture supports comprehensive compliance discipline rather than fragmented attention to specific provisions.

A Note on the Limits of This Article

This article provides observations on the CSR penalty framework under Section 135 of the Companies Act 2013 based on practitioner reference as of July 2026. It is informational guidance only and does not constitute legal, financial, or compliance advice.

The specific statutory penalty amounts under Section 135(7), Section 450, and related provisions of the Companies Act 2013 are law-defined and should be read directly from the Act and interpreted for the company's specific situation by the Company Secretary, Chartered Accountant, and Legal counsel. The Companies Act 2013 and the Companies (CSR Policy) Rules 2014 are subject to amendment by the Ministry of Corporate Affairs.

The observations, patterns, and suggestions in this article are starting references, not prescriptions, and should be adapted to the company's specific compliance situation, sector, and governance context with professional consultation. Personal liability for officers in default is a significant matter that deserves specific professional consultation.

For the specific statutory penalty amounts, the specific trigger conditions, the specific officer liability position, and the specific application of Section 135(7) and Section 450 to the company's situation, consult the Company Secretary, Chartered Accountant, and Legal counsel with reference to current statutory provisions and MCA notifications.

What This Article Is Actually Saying

Three things are worth holding onto.

1. The CSR penalty framework under Section 135(7) and Section 450 is real and applies to specific compliance failures. The framework covers monetary penalty for the company and personal liability for officers in default. Understanding the framework is the first step to compliance discipline that prevents penalty exposure.

2. Non-compliance rarely reflects deliberate CSR neglect. It more often reflects specific gaps that accumulate across the annual cycle: last-quarter spend rush, weak committee governance, weak partner documentation, delayed handling of unspent amounts, weak Board's Report attention, and absent professional consultation. Recognising these patterns supports proactive discipline.

3. Compliance discipline that prevents penalty exposure is knowable and workable when applied consistently. Annual compliance calendar, active professional consultation, compliance-strong implementation partners, multi-year programme design, and annual full-picture review together produce strong compliance across the cycle.

The companies that maintain strong penalty-preventive compliance tend to be those that build the annual compliance calendar early, engage the Company Secretary, Chartered Accountant, and Legal counsel actively across the year, choose implementation partners with compliance strength, design CSR programmes with multi-year horizons, and review the full compliance picture annually. The compounding effect across years, in terms of compliance strength and reduced exposure, is meaningful.

Working With Marpu Foundation on Compliance-Strong CSR Programmes

At Marpu Foundation, we work with corporate CSR teams across India as they build compliance-strong CSR programmes. Our documentation and operational discipline are designed to support corporate partners' full compliance across the annual cycle. We currently work with 250+ corporate partners across 23+ Indian states, and our 85% partner retention reflects the compliance and delivery reliability that corporate partners depend on.

For corporate CSR teams building compliance-strong programmes for FY 2026-27 and beyond, the ways we support the compliance discipline that prevents penalty exposure include the following.

Current CSR-1 registration: Marpu holds current CSR-1 registration under Rule 4(1), supporting corporate partners' compliance under the Companies (CSR Policy) Rules 2014
Current 12A and 80G registration: Marpu holds current 12A and 80G registration, supporting corporate partners' tax treatment discipline
Structured documentation practice: Our activity-level, financial, and outcome documentation supports corporate partners' statutory audit, Board's Report drafting under Section 134, Form CSR-2 filing under Rule 12, and where applicable BRSR Principle 8 disclosure
Multi-year programme design: Support for multi-year programme design under Rule 4(6) ongoing project provisions, reducing last-quarter compliance pressure and supporting sustained outcomes
Utilization Certificate discipline: Timely Utilization Certificates supporting corporate partners' financial reporting and compliance position
Impact evidence documentation: Structured impact evidence supporting Rule 8(3) impact assessment where applicable and Board's Report narrative

For corporate CSR teams building compliance discipline that supports penalty-preventive compliance across the annual cycle, write to connect@marpu.org or visit marpu.org. Send a brief note on your compliance scope, target cause areas, target geographies, and multi-year horizon, and we respond within two working days with programme design input, operational compliance support, and a proposal aligned to your compliance priorities.

For CSR teams building compliance-strong programmes with any implementation approach, the guidance above is the working reference. Build the annual compliance calendar early, engage professional advisers actively, choose implementation partners with compliance strength, design multi-year CSR programmes, and review the full compliance picture annually. The companies that maintain strong compliance are the companies that treat compliance discipline as ongoing practice, not as year-end response.