Delay in Transfer of Unspent CSR Amount Cost the Company Over ₹10 Lakh: What the ROC Bangalore Order Under Section 135(7) Actually Tells Us

Delay in Transfer of Unspent CSR Amount Cost the Company Over ₹10 Lakh: What the ROC Bangalore Order Under Section 135(7) Actually Tells Us

Corporate Social Responsibility (CSR) is no longer limited to spending the prescribed amount on eligible CSR activities. The Companies Act, 2013 also imposes strict obligations regarding the treatment of any unspent CSR amount. Failure to comply with these statutory timelines can result in substantial penalties for both the company and its officers in default.

A recent adjudication order passed by the Registrar of Companies (ROC), Bangalore, under Section 454 of the Companies Act, 2013, serves as an important reminder that delayed transfer of unspent CSR funds attracts penal consequences even if the company subsequently rectifies the default

What Actually Happened
The company was required to comply with the CSR provisions under Section 135 of the Companies Act, 2013.

During the relevant financial year, there was a shortfall in the CSR amount required to be spent. Consequently, the company was obligated to transfer the unspent amount to the appropriate fund specified under Schedule VII within the prescribed timeline.

However, due to an inadvertent error in calculating the CSR liability, the company failed to transfer the unspent amount within the statutory period. The amount was transferred only after the due date, and the company subsequently filed a suo motu application seeking adjudication of the default.

Legal Provisions

Section 135(5) — Where a company fails to spend the prescribed CSR amount during a financial year and the amount does not relate to an ongoing project, the unspent amount must be transferred to a Fund specified in Schedule VII within six months from the end of the financial year.

Section 135(6) — Where the unspent CSR amount relates to an ongoing project, it must be transferred within 30 days from the end of the financial year to a special account called the “Unspent CSR Account” to be utilised within the prescribed period.

Section 135(7) — If a company fails to comply with Section 135(5) or Section 135(6):

• The Company is liable to a penalty equal to twice the amount required to be transferred or ₹1 crore, whichever is lower.
• Every Officer in Default is liable to a penalty equal to one-tenth of the amount required to be transferred or ₹2 lakh, whichever is lower.

 Company’s Explanation
The company submitted that:

• the delay came down to a genuine error in working out the CSR obligation, no intent to dodge anything;
• no attempt to hide the shortfall once it was found;
• the full amount eventually got transferred, so the underlying obligation was fulfilled in substance, even if late;
• the company came forward itself, through the suo motu route, rather than waiting to be caught.

Findings of the ROC
The ROC observed that:

1. the statutory obligation underSection 135 had not been complied within the prescribed timeline.
2. subsequent transfer of the amount does not wipe out the original default.
3. Voluntary disclosure counts for something and does work in the company’s favor — but as a mitigating factor in how the case is treated, not as a get-out clause from the penalty itself. Where the Act spells out a formula, the ROC doesn’t get to waive it just because someone came forward on their own.

Penalty Imposed
Under Section 135(7), the ROC penalized both the company and whichever officers were held responsible — probably the CFO, company secretary, or whoever had been handed CSR oversight, depending on how the company had split up accountability internally. A payment deadline came attached to the order.

Miss that deadline, and Section 454(8) takes over — which can escalate things further. Additional penalties for continued non-compliance, and in more serious or repeat cases, action against officers personally, beyond just the money already owed.

Key Compliance Lessons

1. Spending CSR Amount Alone Is Not Enough

Many companies focus only on CSR expenditure. Equally important is complying with the statutory requirements relating to any unspent amount.

2. Identify Whether the Amount Relates to an Ongoing Project

Different timelines apply depending upon whether the CSR project is ongoing.

Incorrect classification may itself lead to non-compliance.

3. Maintain a CSR Compliance Calendar

Companies should maintain internal reminders for:

• CSR Committee meetings;
• Board approval;
• CSR spending;
• transfer of unspent amounts;
• CSR disclosures in the Board’s Report; and
• filing of Form CSR-2, wherever applicable.

4. Internal Review Before Finalisation of Financial Statements

Finance, legal and secretarial teams should jointly verify:

• CSR obligation;
• amount actually spent;
• balance remaining;
• due dates for transfer; and
• compliance with Section 135 before approving the financial statements.

Post-Facto Compliance Does Not Eliminate Liability

Even if the company later transfers the amount voluntarily, the original statutory default remains and penalties may still be imposed.

A Practical Checklist

• Work out the CSR obligation properly, off the correct three-year average net profit
• Track spending through the year — not in a year-end scramble
• Settle the ongoing-project classification early, with reasoning documented
• Transfer any shortfall within the 135(5) or 135(6) window, whichever applies
• Keep dated, clean records of Board and CSR Committee decisions
• File CSR-2 on time, where it applies
• Run a final CSR compliance check before the Board’s Report is signed
• Found a default already? Consider suo motu disclosure sooner rather than later

Conclusion

The real takeaway here isn’t complicated: timing matters as much as the compliance itself does. You can do everything right eventually — spend the money, transfer the shortfall, disclose it yourself — and still get penalized if the clock ran out first. That’s the part worth actually remembering. And it’s exactly why a proper, monitored compliance calendar beats good intentions after the fact, every time.