CSR Penalty Under the Companies Act, 2013: Rules, Amounts, and a Recent Case

Under Section 135 of the Companies Act, 2013, a company that qualifies for mandatory CSR spending but fails to spend the required amount or fails to properly explain why it didn’t can face a penalty. The penalty for not transferring an unspent CSR amount to the prescribed fund is twice the unspent amount or ₹1 crore, whichever is lower, under Section 135(7). Separately, failing to give a proper explanation for unspent CSR in the Board’s Report or failing to disclose CSR details in the prescribed format is penalized under the Act’s general penalty provisions, Section 134(8) or Section 450, typically starting at ₹10,000 for the company and each officer in default. A recent ROC Coimbatore order against Prabhu Spinning Mills Private Limited illustrates exactly how this plays out in practice.

What Counts as CSR Non-Compliance Under the Companies Act?

CSR non-compliance under Section 135 generally falls into three categories, each treated differently by the law:

• Not spending the mandatory CSR amount: companies meeting the net profit, turnover, or net worth thresholds under Section 135(1) must spend at least 2% of average net profit from the preceding three years on CSR activities.
• Not explaining why the amount went unspent: Section 135(5)’s second proviso requires the Board’s Report to specify the reasons for non-spending, not just disclose that it happened.
• Not disclosing CSR details in the prescribed format: The Companies (CSR Policy) Rules, 2014, require a specific structure for how CSR spending and policy details appear in the Board’s Report.

What Is the Penalty for CSR Non-Compliance?

For failing to transfer unspent CSR funds (Section 135(7)): the penalty is twice the unspent amount, or ₹1 crore, whichever is lower for the company. Every officer in default faces a penalty of one-tenth of the unspent amount, or ₹2 lakh, whichever is lower.

For inadequate explanation or disclosure (Section 134(8) or Section 450): these are procedural and disclosure failures rather than non-spending itself, and the Act doesn’t carry a CSR-specific penalty clause for them, so they fall under the Act’s general penalty provisions. Section 450 (the catch-all provision) sets a penalty of ₹10,000 for the company and each officer in default, rising by ₹1,000 per day of continuing contravention, capped at ₹2 lakh for the company and ₹50,000 for an officer.

This is the distinction that trips companies up most often: spending the money late or incompletely is a different and more severely penalized failure than explaining it poorly. A company can comply with the spending obligation and still face a penalty purely for how it wrote up the explanation.

Section 135(5) CSR Amendment Rules and Penalties: What Changed

The Companies (Amendment) Act, 2019, and the Companies (Amendment) Act, 2020, reclassified most CSR-related offenses from criminal to civil. Before these amendments, non-compliance with Section 135 could trigger criminal prosecution; after them, these failures are adjudicated as civil penalties by the Registrar of Companies rather than prosecuted in criminal court. This is a meaningful shift not just procedurally, but because civil adjudication moves faster, doesn’t carry the same exposure for the individuals involved, and is what allows the kind of case shown below to resolve through an ROC order rather than years of criminal litigation. The Madras High Court has held that cases that began as criminal prosecutions before the amendments should be re-adjudicated civilly going forward, which is exactly the path the case below took.

Case in Point: ROC Coimbatore’s Order Against Prabhu Spinning Mills

On 30 August 2024, the Registrar of Companies, Coimbatore, penalized Prabhu Spinning Mills Private Limited and its then-Managing Director ₹10,000 each for failing to properly explain, in the company’s Board’s Report, why a mandatory CSR amount went unspent, a Section 135(5) violation.

Background:

The company, a Tirupur-based textile manufacturer, qualified for mandatory CSR spending due to net profit exceeding ₹5 crore. In FY 2014-15 and FY 2015-16, its Board’s Report stated only that it was “in the process of identifying appropriate eligible CSR ‘projects’ the same line, unchanged, across two financial years. By FY 2016-17, the company had spent the full CSR amount, though its disclosure didn’t follow the prescribed tabular format.

What the ROC found:

Despite the company eventually spending the full amount and showing financial records consistent with genuine intent to comply, the repeated, non-specific explanation didn’t satisfy Section 135(5)’s requirement to state specific reasons for non-spending. The order treated this as the substantive violation, with the formatting issue treated as a secondary, less significant procedural matter.

The pattern that matters more than this one case:

ROC Coimbatore issued near-identical orders with the same violation, same ₹10,000-each penalty, and same date against at least five other Tirupur-area textile companies on 30 August 2024. That’s not coincidental enforcement; it reads as a targeted compliance sweep across one industrial cluster, and it signals that generic, repeated language in CSR non-spending explanations is now a real audit risk, not just a theoretical one.

How to Avoid a CSR Penalty: Practical Steps

• Don’t repeat the same explanation across financial years: If your board’s report says “in the process of identifying eligible projects” two years running, that’s exactly the pattern that drew scrutiny in the case above.
• Be specific, not procedural: State what’s actually delaying the spend, a named project under evaluation, or a specific implementation timeline rather than a generic process statement.
• Spending the money late doesn’t retroactively fix a vague explanation: The ROC in the case above acknowledged the company eventually spent in full and still penalized the explanation given in the year it didn’t.
• Use the prescribed disclosure format: The Companies (CSR Policy) Rules, 2014, specify a tabular structure for CSR disclosures. Formatting non-compliance is treated as less severe than substantive non-compliance, but it’s still a flagged violation and an easy one to avoid.

Source and Reference

Complete Order ROCCBE/ADJ/135/4480/2024: MCA Official Document