CSR Penalty Under Section 135(7): Costs, Cases, Fixes

By SCORE Editorial Team · Prepared by SCORE’s audit, tax and advisory practice · Law stated as on 2 October 2026

Quick answer: The CSR penalty under Section 135(7) applies when a company fails to transfer unspent CSR money on time. The company pays twice the amount it should have transferred, capped at ₹1 crore. Each officer in default pays one-tenth of that amount, capped at ₹2 lakh. Late transfer does not cancel the penalty.

What is the CSR penalty under Section 135(7)?

Section 135 of the Companies Act, 2013 requires covered companies to spend at least 2% of average net profit on CSR. Money not spent must move out of the company’s hands within fixed windows. Section 135(7) penalises a default under sub-section (5) or (6), which hold those transfer duties.

The penalty has two parts:

Who pays	Penalty	Cap
Company	Twice the amount required to be transferred	₹1 crore, whichever is less
Every officer in default	One-tenth of the amount required to be transferred	₹2 lakh, whichever is less

These are civil penalties. The Companies (Amendment) Act, 2020 removed the imprisonment option for CSR defaults from 22 January 2021. The Registrar of Companies (ROC) now imposes them as adjudicating officer under Section 454.

Is under-spending CSR itself a penalty?

Not on its own, in practice. A company may spend less than 2% if it transfers the shortfall on time and explains the reasons in its Board’s Report. ROC orders so far target the missed or late transfer.

So the real exposure arises in three cases:

1. Unspent money on a non-ongoing project is not sent to a Schedule VII fund within six months of year-end.
2. Unspent money on an ongoing project is not moved to the Unspent CSR Account within 30 days of year-end.
3. A balance in the Unspent CSR Account is not spent within three years and not sent to a Schedule VII fund within 30 days after that.

Which other CSR defaults attract penalties?

Section 135(7) is the headline, but it rarely travels alone.

Default	Provision	Company	Officers in default
Unspent amount not transferred on time	Section 135(7)	2× the amount, up to ₹1 crore	1/10 of the amount, up to ₹2 lakh
Board’s Report silent on CSR policy or reasons for not spending	Section 134(3)(o) read with 134(8)	₹3 lakh	₹50,000 each
Late AOC-4 with linked CSR-2	Section 137(3) plus additional fees	₹10,000 plus ₹100 per day, up to ₹2 lakh; additional fee ₹100 per day	₹10,000 plus ₹100 per day, up to ₹50,000
False statement in a return or report	Section 448	Liability under Section 447 (fraud)	Liability under Section 447

How is the CSR penalty calculated? A worked example

Take a company with a CSR obligation of ₹2 crore for FY 2025-26. It spent ₹1.4 crore on non-ongoing projects. The ₹60 lakh balance had to reach a Schedule VII fund by 30 September 2026. It did not.

Step	Working	Result
Amount required to be transferred	₹2 crore − ₹1.4 crore	₹60 lakh
Company: 2× amount vs ₹1 crore cap	₹1.2 crore vs ₹1 crore	₹1 crore
Each officer: 1/10 of amount vs ₹2 lakh cap	₹6 lakh vs ₹2 lakh	₹2 lakh

The ₹60 lakh must still be transferred. The penalty comes on top of it, not in place of it.

For smaller defaults, the cap does not bite. The penalty is then a straight multiple of the shortfall, as the orders below show.

What do recent ROC orders show?

ROCs continue to issue CSR adjudication orders. Three patterns stand out from orders published in 2026.

Late transfer still draws the full penalty. In two orders dated 3 August 2026, ROC Mumbai II penalised the same company for FY 2020-21 and FY 2023-24 defaults. The company had moved the money to PM CARES on 3 June 2026. The penalties still followed the formula: about ₹11 lakh and ₹14.2 lakh on the company, and one-tenth of each shortfall on its two directors.

Many officers can be named. In an order dated 17 July 2026, ROC Delhi II penalised a company about ₹10.4 lakh for an FY 2020-21 shortfall of about ₹5.2 lakh. It also fined six officers in default about ₹52,000 each.

Board’s Report gaps are a separate default. In an order dated 5 February 2026, ROC Kolkata imposed ₹3 lakh on a company and ₹50,000 on each of two directors. The Board’s Report had not given reasons for unspent CSR for two years.

Officers’ penalties must be paid from personal funds, not by the company. Recent orders state this expressly.

Do small companies or start-ups pay less?

Sometimes. Section 446B caps penalties for small companies, One Person Companies, producer companies and recognised start-ups. They pay at most half the normal penalty, up to ₹2 lakh for the company and ₹1 lakh per officer.

Many CSR-covered companies will not qualify. In the Mumbai orders above, the ROC refused Section 446B relief because the company was not a small company under Section 2(85). Check the current small company limits before relying on it: paid-up capital up to ₹10 crore and turnover up to ₹100 crore, from 1 December 2025.

What happens after an ROC penalty order?

Stage	Rule	Timeline
Show-cause notice and hearing	Section 454(4)	Before any penalty is imposed
Payment	Through the MCA e-adjudication module	Within 90 days of the order
Appeal to the Regional Director	Section 454(5) and (6)	Within 60 days of receiving the order
Non-payment: company	Section 454(8)(i)	Fine of ₹25,000 to ₹5 lakh
Non-payment: officer	Section 454(8)(ii)	Up to 6 months’ imprisonment, or fine of ₹25,000 to ₹1 lakh, or both

Non-payment is where a civil default turns criminal. Do not let a penalty order lapse.

Missed the 30 September 2026 deadline? What to do now

1. Quantify the shortfall for FY 2025-26 and any earlier year, project by project.
2. Transfer immediately to a Schedule VII fund or the Unspent CSR Account, as the project type requires. Keep bank proof.
3. Pass a Board resolution recording the default, the transfer and the reasons.
4. Disclose correctly in the Board’s Report and Form CSR-2. Do not paper over the delay.
5. Take advice on adjudication. Some companies apply to the ROC themselves rather than wait for a notice. The ROC Delhi II order above followed such an application.
6. Fix the cause. Add the transfer dates to your compliance calendar and name an owner.

CSR penalty exposure self-check

• ☐ Every FY 2025-26 unspent amount transferred within 30 days (ongoing) or six months (other projects)
• ☐ Every Unspent CSR Account balance tracked against its three-year window
• ☐ Board’s Report gives reasons for any shortfall and transfer details
• ☐ Earlier years’ shortfalls reviewed; late transfers documented
• ☐ CSR-2 matches the Board’s Report to the rupee
• ☐ Officers in default identified and briefed on personal liability

Frequently asked questions

What is the maximum CSR penalty for a company?

₹1 crore per default under Section 135(7). The company pays twice the amount it failed to transfer, but never more than ₹1 crore. Other penalties, such as under Section 134(8), can apply on top.

Is non-compliance with CSR a criminal offence?

No, not since 22 January 2021. CSR defaults carry civil penalties imposed by the ROC. However, failing to pay a penalty order within 90 days can lead to fines and, for officers, imprisonment under Section 454(8).

Who is an officer in default for CSR?

Section 2(60) defines the term. It usually covers whole-time directors, key managerial personnel such as the CFO and company secretary, and anyone the Board has charged with CSR. Recent orders have named up to six officers in one case.

Does paying the penalty settle the CSR obligation?

No. The unspent amount must still be transferred to the right account or fund. The penalty is in addition.

Does transferring late avoid the penalty?

No. ROCs have imposed the full formula even where the money was transferred before the order. Late transfer does limit further exposure and helps your case on disclosure.

Will the Corporate Laws (Amendment) Bill, 2026 change CSR penalties?

The Bill proposes CSR changes, including a 90-day window for unspent transfers. It is with a Joint Parliamentary Committee and is not law. Until it is passed and notified, the current Section 135(7) applies.

How SCORE helps

SCORE’s CSR & Regulatory practice reviews CSR spend, transfers and disclosures for open years. We quantify exposure, help rectify defaults and prepare the Board record and filings.

Worried about a missed CSR transfer? Book a CSR compliance health-check with SCORE and ask for our CSR Penalty Exposure Self-Check.

Sources

• Companies Act, 2013 and rules (India Code)
• National CSR Portal (Ministry of Corporate Affairs)

This article is general information, not professional advice.