Facts of the Matter

  1. Companies meeting the prescribed thresholds under Section 135 of the Companies Act, 2013 are required to spend a specified amount on CSR activities.
  2. Schedule VII specifies the permissible CSR activities.
  3. The Ministry of Corporate Affairs has expanded the scope of Schedule VII by inserting a new CSR-eligible activity.
  4. The newly inserted activity permits subscription to Zero Coupon Zero Principal (ZCZP) Instruments listed on a Social Stock Exchange.
  5. Such subscription can now be treated as eligible CSR expenditure.

 

Issues Involved

  1. Whether subscription to Zero Coupon Zero Principal (ZCZP) Instruments on a Social Stock Exchange qualifies as CSR expenditure under the Companies Act, 2013?
  2. Whether companies can count the amount invested through such instruments towards fulfillment of their statutory CSR obligations?
  3. Whether the amendment broadens the available channels for CSR deployment through regulated and transparent funding mechanisms?

 

Position Prior to the Amendment

Prior to insertion of Item (xiii) in Schedule VII, subscription to ZCZP instruments through a Social Stock Exchange was not specifically recognized as an eligible CSR activity.

Companies generally fulfilled CSR obligations through:

  • Direct implementation of projects;
  • Contributions to eligible funds;
  • Activities undertaken through registered implementing agencies;
  • Other activities expressly covered under Schedule VII.

 

Position After the Amendment

Following the amendment:

  • Subscription to ZCZP Instruments on a Social Stock Exchange is expressly recognized as a CSR activity.
  • Companies may deploy CSR funds through SSE-listed social enterprises and non-profit organizations.
  • Such expenditure can be considered for compliance with CSR spending requirements under Section 135.
  • The amendment introduces a transparent, regulated and structured mechanism for channelizing CSR funds.

 

Important Clarification

What is a Social Stock Exchange (SSE)

A Social Stock Exchange is a dedicated platform enabling eligible social enterprises and non-profit organizations to raise funds from investors, donors and corporate entities in a transparent and regulated environment.

What are Zero Coupon Zero Principal (ZCZP) Instruments

ZCZP Instruments are unique instruments issued primarily by non-profit organizations.

  • No interest is payable (Zero Coupon).
  • No principal amount is returned (Zero Principal).
  • The subscription amount effectively operates as a structured philanthropic contribution.
  • The instrument facilitates transparent fundraising through the Social Stock Exchange ecosystem.