India Plans Major Update to Companies Act with Focus on CSR and Compliance

As part of this reform, public consultations have been initiated, and active dialogues are underway with key ministries to shape the next phase of corporate law in India.

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By marrying ease of doing business with rigorous accountability, the Government of India is fostering a responsible corporate culture.

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NEW DELHI (India CSR): In a significant move to strengthen India’s corporate regulatory framework, the Government of India is planning comprehensive amendments to the Companies Act, 2013. These reforms, based on recommendations from the Company Law Committee (CLC) in its 2022 report, aim to boost ease of doing business while ensuring better corporate governance, particularly around Corporate Social Responsibility (CSR) compliance. The Ministry of Corporate Affairs (MCA) has initiated public consultations and inter-ministerial discussions on the proposed changes, indicating the government’s commitment to modernize corporate law in line with evolving business practices.

CSR Compliance Under the Scanner

In line with these reforms, Corporate Social Responsibility (CSR) compliance and monitoring are also set to receive more attention. Under the current framework, companies are required to:

• Disclose their CSR policies, activities, and expenditures in Board reports and on their official websites.
• Formulate and adhere to an annual CSR action plan.
• Monitor the proper utilization of CSR funds.
• Conduct impact assessments of their CSR initiatives.

Additionally, statutory auditors are mandated to verify CSR expenditures to ensure transparency and accountability. Any non-compliance with CSR provisions can trigger legal action.

Strengthening the CSR Framework

To further streamline disclosures, companies that fall under the CSR mandate are required to file the annual CSR-2 Form, which consolidates detailed information on their CSR projects and fund utilization.

The current provisions — especially Section 135 of the Companies Act, Schedule VII, and the Companies (CSR Policy) Rules, 2014 — create a robust disclosure-based governance mechanism to prevent misuse of CSR funds and enforce compliance.

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A Legislative Makeover for the Corporate Ecosystem

The proposed amendments cover a broad spectrum of objectives. At the heart of the government’s agenda is the goal to make India a more business-friendly environment while maintaining regulatory accountability.

The CLC’s 2022 report emphasizes:

• Promoting ease of doing business for law-abiding corporates
• Streamlining the Companies Act to reduce redundant compliance
• Addressing emerging trends in the corporate world
• Recognizing new business models and digital transformation

These reforms are also closely tied to the government’s overarching vision of “Ease of Living” by creating a simplified and transparent legal ecosystem for businesses, especially small and medium-sized enterprises (SMEs) and start-ups.

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Parliament Acknowledges the Move

In response to a Lok Sabha unstarred question (No. 1058) on February 10, 2025, Minister of State for Corporate Affairs, Shri Harsh Malhotra, outlined the government’s approach. He confirmed that consultations are underway and reiterated that the amendments will enable a smoother implementation of the Companies Act and the Limited Liability Partnership (LLP) Act, 2008.

“The amendments are intended to improve operational efficiency, support innovation in corporate structures, and ensure that our legislative framework remains globally competitive,” said Malhotra.

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The CSR Regime Under the Scanner

The government is equally focused on strengthening the CSR regime. India was the first country to make CSR mandatory through Section 135 of the Companies Act, 2013. Over the years, the regulatory framework for CSR has evolved, and the new proposed changes seek to further reinforce transparency and accountability.

Under the existing law, companies with:

• A net worth of ₹500 crore or more, or
• A turnover of ₹1,000 crore or more, or
• A net profit of ₹5 crore or more

are required to spend 2% of their average net profits (of the past three years) on CSR activities.

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Mandatory Disclosures and Accountability

Companies are required to disclose their CSR policies, expenditures, and project details in:

• Their annual Board Reports
• Company websites
• CSR-2 Forms filed annually

This information includes details such as the composition of the CSR Committee, CSR activities undertaken, approved budgets, implementation strategies, and impact assessments.

In addition, the CSR Committee of the Board is mandated to:

• Recommend an annual CSR action plan
• Ensure fund utilization as per approved projects
• Establish a clear monitoring and reporting mechanism
• Evaluate the need for impact assessment of ongoing projects

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Auditor’s Role in CSR Compliance

The government has taken steps to enhance accountability through financial auditing. Under the Companies (Auditor’s Report) Order (CARO) 2020—effective from FY 2021–22—statutory auditors must report any unspent CSR amount and provide insights on how funds have been deployed.

These auditor obligations add another layer of scrutiny, ensuring companies cannot treat CSR as a symbolic or checkbox activity.

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CSR-2 Form: A Comprehensive Tracker

Since 2022, the Ministry has mandated the filing of the CSR-2 Form. This digital tool collects detailed information on CSR activities for each financial year. It serves as a single-source document for assessing how effectively a company has met its CSR obligations.

This measure is aimed at enhancing data centralization, enabling comparative assessment, and making monitoring easier for the authorities.

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A Disclosure-Driven Governance Model

The government’s CSR policy is based on a robust disclosure framework rather than intrusive regulation. It focuses on:

• Transparency in CSR planning and implementation
• Board-level accountability
• Periodic impact assessment of large-scale projects
• Public access to CSR data

This model ensures that while companies have the freedom to choose their CSR focus areas (as per Schedule VII of the Act), they remain accountable for both financial and social outcomes.

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Action Against Non-Compliant Companies

If a company fails to spend the prescribed amount on CSR and does not transfer the unspent amount to a designated fund or account, it can face penal provisions under the Companies Act. The Ministry takes cognizance of such violations and initiates legal proceedings accordingly, following due process.

Shri Malhotra noted that “adequate monitoring mechanisms are in place, and statutory audits, annual filings, and disclosure norms work together to ensure CSR funds are not misused.”

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Schedule VII: The Compass for CSR Initiatives

The list of eligible CSR activities under Schedule VII of the Companies Act includes:

• Eradicating hunger and poverty
• Promoting education and gender equality
• Environmental sustainability
• Rural development
• Support for armed forces veterans
• Disaster management and relief
• Promotion of sports, culture, and heritage

By clearly defining the scope, the government ensures that CSR spending is aligned with national priorities and development goals.

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Inter-Ministerial Dialogue for Policy Refinement

The Ministry of Corporate Affairs is working closely with other ministries and stakeholders to refine the amendment proposals. These discussions aim to ensure that the changes not only simplify compliance but also preserve regulatory integrity.

The public consultation process has also opened the door for industry experts, legal professionals, and business leaders to share their suggestions. It reflects the government’s commitment to democratic and inclusive lawmaking.

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Industry Expectations and Challenges

While the amendments are largely seen as positive, several industry voices have raised concerns regarding:

• The increased compliance burden on SMEs
• Complexity in CSR impact assessment for smaller companies
• Interpretation ambiguities in Schedule VII
• Overlap between CSR and ESG reporting requirements

Experts suggest the need for clearer guidelines, especially around CSR’s interface with ESG disclosures and sustainability reporting.

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Looking Ahead: Striking a Balance

As India looks to become a $5 trillion economy, corporate governance and social responsibility will play a defining role. The proposed amendments to the Companies Act reflect a dual intent—to support businesses while ensuring they contribute meaningfully to society.

The government’s emphasis on CSR impact, board accountability, and transparency signals a maturing approach toward corporate citizenship in India.

With these reforms, the country is not only updating an important piece of legislation but also sending a clear message: doing good is no longer optional—it is an integral part of doing business in 21st-century India.

GOVERNMENT OF INDIA MINISTRY OF CORPORATE AFFAIRS

LOK SABHA

UNSTARRED QUESTION

NO. 1058

ANSWERED ON MONDAY, FEBRURAY 10, 2025 MAGHA 21, 1946 (SAKA)

AMENDMENT IN COMPANIES ACT, 2013 QUESTION 1058.

Shri Anil Firojiya:

Will the Minister of CORPORATE AFFAIRS be pleased to state:

(a) whether the Government proposes to make any amendment to the Companies Act, 2013 and if so, the details thereof along with the objectives of the said amendments and its likely impact on the companies,

(b) the steps taken by the Government to monitor the expenditure incurred and projects undertaken by the companies under the Corporate Social Responsibility (CSR); and

(c) whether the Government has formulated any new policy to check the misuse of CSR funds and if so, the details thereof?

ANSWER

THE MINISTER OF STATE IN THE MINISTRY OF CORPORATE AFFAIRS AND MINISTER OF STATE IN THE MINISTRY OF ROAD, TRANSPORT AND HIGHWAYS SHRI HARSH MALHOTRA:-

(a) In line with the Government’s objective of promoting Ease of Living in the country by providing Ease of Doing Business to law abiding corporates, fostering improved corporate compliance for stakeholders and also to address emerging issues having impact on the working of corporates in the country, the Company Law Committee (CLC) has been constituted for examining and making recommendations to the Government on various provisions and issues pertaining to implementation of the Companies Act, 2013 and the Limited Liability Partnership (LLP) Act, 2008.

The CLC in its 2022 Report has made various recommendations for amendments in the Companies Act, 2013, broadly relating to promoting further ease of doing business for law-abiding corporates, strengthening existing regulatory practices to streamline and improve the operational efficiency of the Act, recognising new concepts in light of the rapidly evolving corporate landscape and changing business practices etc.

The report was placed on the website of the Ministry for public comments. Consultations with the concerned Ministries and Departments are being undertaken on the proposals.

(b) and (c):- The legal framework for Corporate Social Responsibility (CSR) has been provided under Section 135 of the Companies Act, 2013 (‘Act’), Schedule VII of the Act and Companies (CSR Policy) Rules, 2014. Schedule VII of the Act indicates the eligible list of activities that can be undertaken by the companies under CSR. The Board of the company is required to disclose the CSR Policy implemented by the company in its Board report and the Board of the company has to satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it.

The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of CSR policy, which includes the modalities of utilization for funds, monitoring and reporting mechanism for the projects or programs and details of need and impact assessment, if any, for the projects undertaken by the company.

The details of CSR activities, Impact Assessment etc. are required to be reported by the companies in the ‘Annual Report on CSR’ including annual action plan on CSR which is part of the Company’s Board Report.

CSR mandated companies who have their websites are required to make disclosures such as composition of CSR Committee, CSR Policy and CSR projects approved by Board on their website. The CSR framework is disclosure based and expenditure on CSR activities is required to be audited by the statutory auditors of the company.

The Ministry has notified the Companies (Auditor’s Report) Order, 2020, (“CARO, 2020”) applicable from FY 2021-22 which requires auditors to state details of any unspent CSR amount. Thus, the corporate governance framework along with the existing legal provisions such as mandatory disclosures, accountability of the CSR Committee and the Board, provisions for statutory audit of accounts of the company etc. provide adequate monitoring mechanisms. CSR mandated companies are required to file CSR-2 Form every year which serves as a single source of information about CSR related activities of each company.

Further, if any violation of CSR provisions is reported, action against such non­compliant Companies is initiated as per provisions of the Act following due process of law.

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