Penalties for breaking the CSR rules

A company that doesn’t comply with the spending and transfer rules in Section 135 of the Companies Act, 2013 faces a penalty of twice the amount it should have transferred, or ₹1 crore, whichever is less. Each officer in default faces one-tenth of that amount, or ₹2 lakh, whichever is less. These are civil penalties: since 22 January 2021, a CSR default has not been a crime.

The penalty is the end of a chain. It applies when a company spends less than its obligation and then fails to move the unspent money to the right place by the right date: an Unspent CSR Account within 30 days for ongoing projects, or a Schedule VII fund within six months for everything else. So most CSR penalties are avoided, or incurred, months before anyone thinks about them.

This guide is for company secretaries, CFOs, CSR heads and directors. It explains how the main penalty works, who counts as an officer in default, how penalties are imposed and appealed, the other provisions that can apply, and a checklist for staying clear. It reflects the law as in force on 3 October 2026.

The main penalty: Section 135(7)

Four points are often misunderstood:

• The officer’s penalty is a tenth of the amount, not of the company’s penalty. The MCA’s FAQs say the same: one-tenth of the unspent amount required to be transferred (FAQ 8.1). It reaches its ₹2 lakh cap once the amount is ₹20 lakh, and the company’s reaches ₹1 crore once the amount is ₹50 lakh.
• The penalty doesn’t replace the transfer. It is “over and above” the amount the company must still transfer (FAQ 8.2).
• Late is still a default. The duty is to transfer within the period. A transfer made after the deadline doesn’t undo the default, so treat 30 April and 30 September as hard dates.
• Only sub-sections (5) and (6) are covered (FAQ 8.3). That means the duty to spend and transfer unspent money. Other CSR failures have other provisions, set out below.

Who is an officer in default

Section 2(60) of the Act defines an “officer who is in default”. In plain words, it covers:

• whole-time directors;
• key managerial personnel, such as the managing director, the chief financial officer (CFO) and the company secretary;
• where there are no key managerial personnel, the directors the board specifies, or all the directors;
• a person the board or key managerial personnel have made responsible for the relevant records or filings, who authorises or allows the default, or fails to take steps to prevent it;
• a person on whose advice the board is accustomed to act, other than in a professional capacity;
• any director who knew of the contravention, because they received board papers or took part in proceedings without objecting, or where it happened with their consent or connivance.

So an independent director isn’t automatically an officer in default, but one who saw the shortfall in board papers and raised no objection can be. Directors who disagree with a CSR decision should make sure their objection is minuted.

A civil penalty since 2021

For the first seven years of Section 135, there was no penalty for not spending at all. The board only had to explain the shortfall in its report: the “comply or explain” years. The Companies (Amendment) Act, 2019 changed that and first provided for fines and imprisonment. The Companies (Amendment) Act, 2020 replaced them with civil penalties, and both changes took effect on the same day, 22 January 2021, so the version with imprisonment never applied. The MCA says non-compliance has been “a civil wrong” since that date (FAQ 2.6).

The difference matters. A civil penalty is imposed by an officer of the Ministry after a hearing, not by a criminal court after a prosecution. Nobody goes to prison for a CSR default under Section 135(7).

How penalties are imposed and appealed

Penalties under the Act are adjudicated under Section 454:

1. The adjudicating officer. The central government appoints its officers, not below the rank of Registrar, as adjudicating officers. For CSR, that is usually the Registrar of Companies for the state where the company’s registered office is.
2. A hearing. Before imposing a penalty, the adjudicating officer must give the company and the officers concerned a reasonable opportunity of being heard. The order then states the default and the penalty.
3. An appeal. Anyone aggrieved can appeal to the Regional Director with jurisdiction, within 60 days of receiving the order. The Regional Director can confirm, modify or set the order aside, after hearing the parties.
4. Paying. If a company doesn’t comply with the order within 90 days, Section 454(8) makes that failure punishable with a fine of ₹25,000 to ₹5 lakh, and an officer in default who doesn’t comply faces a fine or imprisonment of up to six months. The CSR default is civil; ignoring the penalty order isn’t.

Repeat defaults cost more. Under Section 454A, a company or officer that commits the same default again within three years of a penalty order is liable to twice the penalty for the second and later defaults.

Some smaller companies pay less. Section 446B applies “notwithstanding anything contained in this Act”. If the defaulting company is a One Person Company, a small company, a start-up company recognised by the Department for Promotion of Industry and Internal Trade, or a producer company, its penalty can be at most half the penalty otherwise specified, up to ₹2 lakh for the company and ₹1 lakh for each officer in default. A company can be small and still meet the ₹5 crore net profit test, so check its status before working out a CSR penalty.

Separately, Section 135(8) lets the central government give directions to a company or class of companies to secure compliance, and they must follow them. See Section 135, clause by clause.

Other provisions that can apply

The FAQs confirm that other CSR defaults fall under Section 134(8) or Section 450 (FAQ 8.4). Which applies depends on where the requirement sits: duties about the board’s report are in Section 134, and most others are caught by Section 450.

The false-statement provisions deserve respect. The annual report on CSR, Form CSR-2 and the CFO’s certificate under Rule 4(5) all state facts the law requires. Signing one that you know to be materially false, such as certifying that money was used when it wasn’t, isn’t a civil CSR default but a possible fraud.

A worked example

How to stay out of trouble

Most CSR penalties come from a missed classification or a missed date. A short checklist, for a financial year ending 31 March:

The full calendar is in how CSR works in India, step by step, and the deadlines are explained in unspent CSR money. Remember too that a company with money in an Unspent CSR Account must keep a CSR committee.

The CSR Law in Depth course has more penalty calculations and scenarios.