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Debenture Trustee – Role & Compliance

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Debenture Trustee – Role & Compliance Debenture Trustee In India’s evolving capital markets landscape, a Debenture Trustee plays an indispensable role in protecting the interests of debenture holders – the retail and institutional investors who lend money to companies through debenture instruments. As India’s debt market continues to grow at an unprecedented pace, with corporate bond issuances crossing ₹8 lakh crore in FY 2024–25, the compliance framework for Debenture Trustees has become more robust and demanding than ever. Whether you are a company secretary, a compliance officer, a legal professional, or an investor, understanding the role of a Debenture Trustee is essential for navigating India’s corporate debt market. This comprehensive guide covers every dimension of the Debenture Trustee’s role, including their legal basis, appointment process, duties, obligations, liabilities, compliance requirements, and the latest regulatory amendments under SEBI and the Companies Act 2013 as updated for 2026. 💰 What is a Debenture? A Quick Primer A debenture is a debt instrument issued by a company to raise long-term capital from the public or private investors. Unlike equity shares, debentures do not confer ownership rights; instead, they carry a fixed rate of interest and a promise of repayment of the principal amount at maturity. Debentures can be secured (backed by company assets) or unsecured (also known as naked debentures), convertible or non-convertible, and listed or unlisted. Companies Act 2013 under Section 71, along with SEBI (Debenture Trustees) Regulations, 1993 (as amended up to 2026), govern the entire framework of debenture issuance and management in India. The mandatory appointment of a Debenture Trustee is one of the cornerstones of this framework. ⚖️ Legal Framework Governing Debenture Trustees in India 1. Companies Act, 2013 – Section 71 Section 71 of the Companies Act, 2013 is the primary statutory provision mandating the appointment of a Debenture Trustee. Key provisions include: Every company issuing debentures to more than 500 persons must appoint a Debenture Trustee before the issuance. A trust deed must be executed within 60 days of allotment of debentures. The Debenture Trustee must be independent and must not have any pecuniary interest in the company. Secured debentures must have the underlying assets charged or mortgaged in favour of the Debenture Trustee. 2. SEBI (Debenture Trustees) Regulations, 1993 (Amended 2026) The Securities and Exchange Board of India (SEBI) introduced the Debenture Trustees Regulations in 1993, with comprehensive amendments issued over the years. The most recent amendments relevant to 2026 include: SEBI (Debenture Trustees) (Amendment) Regulations, 2023 – Enhanced due diligence requirements. SEBI Circular SEBI/HO/DDHS/2024 – Mandatory half-yearly reports to SEBI on asset cover. SEBI Master Circular on Debenture Trustees (2025) – Consolidated compliance framework. SEBI Amendment 2026 – Digital verification of security creation and real-time monitoring of covenants. 3. SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 These regulations, effective from August 2021, govern the public issue and listing of Non-Convertible Debentures (NCDs) and Perpetual Debt Instruments. They lay down additional obligations on Debenture Trustees, including: Disclosure obligations in the offer document. Monitoring of financial covenants on a quarterly basis. Cooperation with the Stock Exchange in event of default. Regulatory Authority Applicable Law / Regulation Key Requirement SEBI SEBI (DT) Regulations, 1993 Registration, conduct & oversight MCA / ROC Companies Act, 2013 – Sec. 71 Trust deed & security creation RBI RBI Master Directions (Banks) Banks acting as DT compliance Stock Exchanges SEBI Listing Obligations Event-based & periodic reporting IBBI Insolvency Code, 2016 Role in IBC proceedings 🏦 Who Can Be a Debenture Trustee? Not every entity is eligible to act as a Debenture Trustee in India. SEBI mandates strict eligibility criteria: Eligible Entities Scheduled Commercial Banks (with SEBI registration) Public Financial Institutions (PFIs) as defined under the Companies Act Insurance companies registered with IRDAI Entities registered with SEBI as Debenture Trustees (Category I) Ineligibility Criteria Any person/entity that holds shares in the issuer company (more than 2% shareholding). Any person/entity that has a beneficial interest in the debentures being issued. Any person who is a director, promoter, or key managerial personnel of the issuer. Any entity with a material conflict of interest as defined by SEBI. SEBI Registration Requirements (As of 2026) To register as a Debenture Trustee with SEBI, an entity must meet the following: Minimum Net Worth: ₹1 Crore (for initial registration); ₹3 Crore for renewal. Infrastructure: Adequate office space, communication facilities, and trained staff. Fit & Proper Criteria: All key personnel must meet SEBI’s Fit & Proper norms. Application to SEBI in prescribed Form DT-1 along with applicable fees. Registration Fee: ₹50,000 (Initial); ₹25,000 (Renewal – every 3 years). 📝 Appointment Process of a Debenture Trustee Step-by-Step Appointment Procedure Board Resolution: The Board of Directors of the issuer company passes a resolution approving the appointment. Due Diligence Check: The proposed Debenture Trustee conducts preliminary due diligence on the issuer. Trust Deed Drafting: A comprehensive trust deed is drafted outlining rights and obligations. Execution of Trust Deed: The trust deed is executed between the issuer company and the Debenture Trustee. Security Creation: Assets are charged or mortgaged in favor of the Debenture Trustee within 90 days. Filing with ROC: The trust deed and charge documents are filed with the Registrar of Companies (ROC) in Form CHG-1 within 30 days of security creation. Disclosure in Offer Document: The name of the Debenture Trustee, their SEBI registration number, and contact details are disclosed in the offer document or Information Memorandum. Listing on Exchange: For listed debentures, intimation to the stock exchange about the appointed Debenture Trustee. ⚠️ Important: Failure to appoint a Debenture Trustee before issuance or failure to create security within the stipulated time invites penalties under Section 71(11) of the Companies Act, 2013, which may extend to ₹50,000 per day of default. 📄 The Trust Deed – Structure & Key Provisions The Trust Deed is the foundational legal document that defines the entire relationship between the issuer, the Debenture Trustee, and the debenture holders. Under SEBI and Companies Act guidelines, the trust deed must contain specific provisions: Mandatory Contents of

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CONVERTIBLE NOTES FOR STARTUPS

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CONVERTIBLE NOTES FOR STARTUPS Why Convertible Notes Matter for Indian Startups in 2026 Raising your first round of funding is one of the most exhilarating — and terrifying — experiences as a founder. You have a brilliant idea, a fledgling team, and perhaps a promising MVP, but putting a precise valuation on your startup at this early stage feels nearly impossible. Enter the convertible note — a financing instrument that bridges the gap between ‘too early to value’ and ‘ready for a priced round.’ In India, the startup ecosystem has matured dramatically. With over 1,30,000 DPIIT-recognised startups as of 2026, convertible notes have become an indispensable tool for early-stage financing. Yet, many founders still misunderstand the mechanics, the Indian regulatory framework, and the strategic nuances of these instruments. This comprehensive guide demystifies everything you need to know. A convertible note is not just a loan — it is a bridge to equity. Understand it correctly, and you unlock a powerful fundraising superpower. What Is a Convertible Note? A Plain-English Explanation A convertible note is a form of short-term debt that converts into equity (ownership shares) at a future financing event — usually a Series A or a defined ‘qualified financing round.’ Instead of negotiating a company valuation right away, the investor lends money to the startup and, in return, receives the right to convert that loan into shares later, typically at a discounted price or under a valuation cap. Key Characteristics of a Convertible Note It starts as debt: the startup receives cash and issues a promissory note. It carries an interest rate (usually 8–12% p.a. in India), which accrues and converts along with the principal. It converts to equity upon a qualifying financing event or at maturity. It delays the difficult question of ‘what is my company worth?’ It is faster and cheaper to execute than a priced equity round. Convertible Note vs. Equity Round — Side by Side Feature Convertible Note Priced Equity Round Valuation Required? No (deferred) Yes (negotiated upfront) Time to Close 2–4 weeks 3–6 months Legal Cost (₹) ₹50,000 – ₹1,50,000 ₹3,00,000 – ₹10,00,000+ Investor Protection Cap + Discount Anti-dilution, liquidation preference Best For Pre-seed, Seed Series A and beyond Regulatory Complexity Moderate (FEMA) High (Companies Act + FEMA) Core Components of a Convertible Note — Decoded Understanding the anatomy of a convertible note is critical before you sign one. Here are the six components every Indian founder must master: 1. Principal Amount This is the actual cash you receive from the investor. For example, if an angel investor wires ₹50,00,000 (₹50 lakhs), that is your principal. This amount — plus accrued interest — is what will eventually convert into equity. 2. Interest Rate Convertible notes bear interest, typically between 8% and 12% per annum in India. This interest does not get paid out in cash; instead, it accrues and converts into equity along with the principal. For example, on a ₹50 lakh note at 10% p.a., after 12 months, ₹55 lakhs worth of principal + interest will convert. 3. Maturity Date This is the deadline by which the note must either convert into equity or be repaid. Typical maturity periods range from 18 to 36 months. If your startup has not raised a qualifying round by then, you need to either repay the investor, extend the note, or negotiate a conversion at a mutually agreed valuation. Under Indian contract law, failure to repay at maturity makes the note legally enforceable as a debt. 4. Valuation Cap The valuation cap is the maximum company valuation at which the note converts into equity. It protects investors from being squeezed out if the startup’s valuation skyrockets before conversion. For example, if you raise your Series A at a ₹20 crore post-money valuation but the cap is ₹10 crore, the note investor’s shares are calculated as if the valuation were ₹10 crore — giving them more shares per rupee invested. Example: Investor puts in ₹1 crore on a note with a ₹10 crore cap. At Series A, the valuation is ₹20 crore. The investor converts at ₹10 crore valuation, receiving 2x the shares an equivalent Series A investor would receive for the same amount. 5. Discount Rate The discount rate gives the note holder the right to convert at a discount to the price per share paid by new Series A investors. Common discount rates in India are 15–25%. For example, if Series A investors pay ₹100 per share, a 20% discount means the note holder converts at ₹80 per share, receiving more shares for the same investment. 6. Most Favoured Nation (MFN) Clause An MFN clause ensures that if the startup issues subsequent convertible notes with better terms (lower cap, higher discount), the existing note holder automatically receives those better terms. This protects early believers who took the most risk. Indian Regulatory Framework for Convertible Notes in 2026 India has a distinct legal and regulatory landscape for startups raising money via convertible notes. Getting this wrong can mean penalties, forced buybacks, or voided investments. Here is what the law says as of 2026: The Companies Act, 2013 — Section 42 & 62 Convertible notes fall under the definition of ‘optionally convertible debentures’ (OCDs) or ‘compulsorily convertible debentures’ (CCDs) under the Companies Act, 2013. As a private limited company, you can issue these instruments to investors, but must comply with: Board resolution and special resolution requirements. Filing of return of allotment (Form PAS-3) with the Registrar of Companies (RoC) within 30 days. Maintaining a Register of Debenture Holders. Appointing a Debenture Trustee if the issue exceeds ₹500 crore (generally not applicable for early-stage). FEMA 2000 — Foreign Convertible Notes (FCC Notes) When a foreign investor (NRI or overseas entity) invests in an Indian startup via a convertible note, the Foreign Exchange Management Act (FEMA), 2000, and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 apply. Key rules: Foreign investment via convertible notes is permitted under the Automatic Route (no RBI prior approval needed) for DPIIT-recognised startups. The

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PREFERENCE SHARES vs EQUITY SHARES

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PREFERENCE SHARES vs EQUITY SHARES  Understanding Shares in the Indian Capital Market India’s capital markets have witnessed remarkable growth in 2026, with the NSE and BSE collectively boasting a market capitalisation exceeding ₹350 lakh crore. At the heart of this ecosystem lies the fundamental concept of share capital — the mechanism through which companies raise money from the public and through which investors participate in a company’s journey. Two of the most significant types of shares in the Indian capital market are Preference Shares and Equity Shares. While both represent ownership in a company, they differ significantly in terms of rights, risks, returns, and regulatory treatment. Whether you are a seasoned investor, a finance student, a startup founder, or a first-time market participant, understanding these two instruments is essential for informed decision-making. This comprehensive guide breaks down everything you need to know about Preference Shares vs Equity Shares — updated for 2026 under the latest SEBI regulations, Companies Act 2013 amendments, and Union Budget 2025–26 tax provisions applicable in India. What Are Equity Shares? Equity Shares, also known as Ordinary Shares or Common Shares, are the most fundamental form of ownership in a company. When you purchase equity shares, you become a part-owner (shareholder) of the company and are entitled to a proportionate share in its profits, assets, and voting decisions. Key Characteristics of Equity Shares Represent residual ownership in a company Carry full voting rights (one share = one vote, unless otherwise stated) Dividend is not guaranteed — it is declared by the board and depends on profits Shareholders are last in priority during liquidation (after creditors, debenture holders, and preference shareholders) Listed on recognised stock exchanges like NSE and BSE Face value typically ₹1, ₹2, ₹5 or ₹10 per share in India Can generate capital appreciation if the company grows As per the Companies Act 2013 (Section 43), equity share capital may be with differential voting rights or ordinary voting rights. What Are Preference Shares? Preference Shares are a class of share capital that give holders certain preferential rights over equity shareholders — primarily in the payment of dividends and repayment of capital during liquidation. The term ‘preference’ refers to the priority given to these shareholders in financial distributions. Key Characteristics of Preference Shares Dividend is fixed and paid before any dividend to equity shareholders Preference shareholders are paid before equity holders during winding-up Generally do not carry voting rights (except in specific circumstances under Sec 47 of Companies Act 2013) Can be redeemable (mandatory under Indian law — must be redeemed within 20 years, per Companies Act 2013) Can be convertible into equity shares after a defined period Fixed dividend rate makes them similar to debt instruments in nature Minimum face value of ₹10 per share in India (for unlisted companies) Section 43 and Section 55 of the Companies Act 2013 govern the issuance and redemption of preference shares in India. Types of Preference Shares in India (2026) 1. Cumulative Preference Shares If dividends are not paid in any year due to insufficient profits, the unpaid dividends accumulate and are carried forward to subsequent years. These arrears are paid before any equity dividend. This is the most investor-friendly category. 2. Non-Cumulative Preference Shares Unpaid dividends do not accumulate. If the company skips a dividend in one year, the investor loses that payment permanently. These carry higher risk than cumulative shares. 3. Participating Preference Shares In addition to the fixed dividend, holders also participate in the surplus profits left after payment of a stipulated dividend to equity shareholders. This hybrid nature can result in higher returns in profitable years. 4. Non-Participating Preference Shares Holders receive only the fixed dividend and do not share in surplus profits or surplus assets during liquidation. This is the most common type in India. 5. Convertible Preference Shares Can be converted into equity shares after a specified period or upon the happening of a specific event. Popular in startup funding rounds (CCPS — Compulsorily Convertible Preference Shares) as they allow investors to enter as preference shareholders and later convert to equity. 6. Non-Convertible Preference Shares Cannot be converted into equity shares and are repaid (redeemed) in cash at the end of the term. 7. Redeemable Preference Shares The company can buy back or repay the preference share capital after a specified period. Under Indian law, all preference shares must be redeemable within a maximum period of 20 years (extendable for infrastructure companies up to 30 years as per Companies (Amendment) Act). 8. Irredeemable Preference Shares (Now Prohibited in India) Irredeemable preference shares — those with no fixed redemption date — are now prohibited under the Companies Act 2013. All preference shares issued by Indian companies must have a redemption date. Types of Equity Shares in India (2026) 1. Ordinary Equity Shares The standard form of equity shares with equal voting rights and equal participation in dividends and capital. 2. Equity Shares with Differential Voting Rights (DVR) Introduced in India via the Companies Act 2013 and SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018. Companies like Tata Motors have issued DVR shares. These carry different voting rights (e.g., 1 DVR share = 1/10th vote) and may offer higher dividends as compensation. SEBI rules cap DVR shares at 26% of total post-issue paid-up equity capital. 3. Sweat Equity Shares Issued to directors and employees at a discount or for non-cash consideration such as know-how or IPR contributions. Regulated under Section 54 of Companies Act 2013 and SEBI (Sweat Equity) Regulations 2021. 4. Rights Shares Offered to existing shareholders in proportion to their current holdings, typically at a discount to market price, as a way to raise additional capital. 5. Bonus Shares Issued free of cost to existing shareholders out of retained earnings or free reserves, in proportion to their existing holdings. No cash changes hands; it is a capitalisation of reserves. Preference Shares vs Equity Shares: Detailed Comparison Table (2026) The table below provides a comprehensive side-by-side comparison of both types of shares

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Transfer of Shares – Stamp Duty & Process

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Transfer of Shares – Stamp Duty & Process  Transfer of Shares in India The transfer of shares is a fundamental mechanism in corporate India that allows shareholders to legally convey their ownership rights in a company to another person or entity. Whether you are a promoter, investor, or a retail shareholder, understanding the process, documentation, and stamp duty implications of share transfer is critical for legal compliance and smooth corporate governance. In India, share transfers are primarily governed by the Companies Act, 2013, the Indian Stamp Act, 1899 (as amended), and various state-level stamp duty notifications. As of 2026, significant changes have been implemented following the Stamp Duty (Amendment) Act and SEBI regulations that have streamlined the process, particularly for dematerialized (demat) shares. This comprehensive guide walks you through every aspect of share transfers – from legal provisions and documentary requirements to stamp duty calculation with examples in Indian Rupees (INR), and the step-by-step process for private limited companies, public companies, and listed entities. Legal Framework Governing Transfer of Shares in India 1. Companies Act, 2013 Section 56 of the Companies Act, 2013 is the cornerstone provision that governs share transfers in India. It mandates that: Every instrument of transfer must be in the prescribed form (Form SH-4) before its execution. The instrument of transfer must be duly stamped and delivered to the company within 60 days of execution. The company must register the transfer unless there is a valid reason for refusal under Section 58. In case of refusal, the company must send notice within 30 days from the date of receipt of the transfer instrument. 2. Indian Stamp Act, 1899 & Finance Act, 2019 Amendments The Indian Stamp Act, 1899, as amended by the Finance Act, 2019 (effective from July 1, 2020), brought uniformity in stamp duty on securities across India. Prior to 2020, different states levied different stamp duties on share transfers, creating confusion and arbitrage. The 2019 amendment centralized stamp duty collection through stock exchanges and depositories for market transactions and prescribed fixed rates for off-market and physical share transfers. 3. SEBI Regulations (2026 Update) The Securities and Exchange Board of India (SEBI) mandates that shares of listed companies can only be transferred in dematerialized (demat) form. Physical share certificates of listed companies are no longer transferable as of April 1, 2019, except in cases of transmission (by operation of law, such as death or succession). In 2026, SEBI has further tightened compliance for dematerialization before any transfer is permissible for listed entities. 4. Income Tax Act, 1961 – Capital Gains Implications While not directly governing the procedure of transfer, the Income Tax Act, 1961 is crucial as it determines the tax liability on gains arising from share transfers. As of 2026: Short-Term Capital Gains (STCG) on listed shares held for less than 12 months: Taxed at 20% (revised upwards from 15% post Budget 2024). Long-Term Capital Gains (LTCG) on listed shares held for more than 12 months: Taxed at 12.5% on gains exceeding ₹1,25,000 per year (revised from ₹1,00,000). For unlisted shares: STCG taxed at applicable slab rates; LTCG at 12.5% without indexation benefit (as per Finance Act, 2024 amendment effective FY 2025-26). Types of Share Transfer A. Transfer of Physical Shares (Private Limited Companies / Unlisted Companies) Physical share transfers are still relevant for private limited companies and unlisted public companies. These require the execution of Form SH-4, payment of stamp duty on the physical instrument, and registration in the company’s Register of Members. B. Transfer of Demat Shares (Listed Companies / Unlisted Companies Opting for Demat) For dematerialized shares, transfer takes place electronically through the depository system. No physical instrument is required. Stamp duty is collected electronically at the time of transfer by the depository (NSDL or CDSL). C. Transmission of Shares Transmission differs from transfer. It occurs by operation of law – upon death, insolvency, or succession of a shareholder. No stamp duty is payable on transmission. The legal heir or nominee is entitled to have shares transmitted upon submission of supporting documents such as death certificate, succession certificate, or probate of will. D. Off-Market Transfer of Shares An off-market transfer is a direct transfer between two parties outside the stock exchange. This is common in share pledging, gift transactions, or intra-group transfers. Stamp duty is applicable on off-market transfers at specified rates. E. Transfer via Gift (Gift Deed) Shares can be transferred as a gift. For listed companies in demat form, stamp duty at 0.015% is applicable. For physical/unlisted shares, stamp duty on the gift deed may apply based on state laws. Additionally, gift tax provisions under the Income Tax Act, 1961 apply when shares are gifted to non-relatives exceeding ₹50,000 in value. Stamp Duty on Transfer of Shares – Updated Rates for 2026 Centralized Stamp Duty Rates (Post Finance Act, 2019 Amendment) Effective from July 1, 2020, and applicable in 2026, the following uniform stamp duty rates apply across India: Type of Transaction Stamp Duty Rate Applicable On Delivery-based purchase (Exchange) 0.015% Transaction value (Buy side) Non-delivery (Intraday / F&O) 0.003% Transaction value (Buy side) Off-Market Transfer (Demat) 0.015% Market value of shares Physical Share Transfer (Unlisted / Private) 0.015% Consideration value or Face Value (higher) Debentures (Market/Off-Market) 0.0001% Transaction / Market Value Stamp Duty Calculation Examples (In Indian Rupees – INR) Example 1 – Physical Transfer of Private Company Shares: Mr. Arjun transfers 5,000 shares of XYZ Pvt. Ltd. to Ms. Priya. The agreed consideration is ₹2,00,000. The face value of shares is ₹10 each (total ₹50,000). Stamp Duty = 0.015% of ₹2,00,000 (higher of consideration and face value) = ₹30 Note: Minimum stamp duty of ₹1 applies. Stamps are affixed on Form SH-4. Example 2 – Off-Market Demat Transfer: Rajiv transfers 10,000 shares of ABC Ltd. (unlisted, demat) to Sunita. Market value = ₹50 per share. Total value = ₹5,00,000. Stamp Duty = 0.015% × ₹5,00,000 = ₹75 This is collected electronically by the depository (NSDL/CDSL) at the time of transfer. Example 3 – Listed Company Delivery-Based

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WHISTLE BLOWER POLICY

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WHISTLE BLOWER POLICY Companies Act Rules & Compliance Guide 2026  Whistle Blower Policy in India In the evolving landscape of corporate governance in India, the Whistle Blower Policy has emerged as a cornerstone of ethical business conduct. As companies navigate the complexities of regulatory compliance in 2026, a robust Vigil Mechanism — as it is formally known under Indian law — is not merely a good practice but a statutory obligation for a significant segment of corporate entities. A whistle blower is an individual — whether an employee, director, stakeholder, or vendor — who raises concerns about unethical behaviour, actual or suspected fraud, or any violation of the company’s code of conduct or ethics policy. In India, the framework for protecting such individuals and establishing a systematic reporting mechanism is primarily governed by the Companies Act, 2013, along with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, commonly known as SEBI LODR. This comprehensive blog covers every dimension of the Whistle Blower Policy in India — from its legal foundations and mandatory applicability to its implementation, protections afforded, penalties for non-compliance, and best practices for 2026. Legal Framework Governing Whistle Blower Policy in India Companies Act, 2013 – Section 177(9) and 177(10) The primary legislation mandating a Vigil Mechanism (Whistle Blower Policy) for Indian companies is the Companies Act, 2013. Section 177(9) requires every listed company and certain classes of companies to establish a vigil mechanism for directors and employees to report genuine concerns or grievances. Section 177(10) further provides that the vigil mechanism must make adequate safeguards against victimisation of employees and directors who use such mechanism and provide for direct access to the chairperson of the Audit Committee in exceptional cases. Companies (Meetings of Board and its Powers) Rules, 2014 – Rule 7 Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 specifies the detailed requirements for the Vigil Mechanism. It prescribes the categories of companies required to establish the mechanism, the minimum elements to be included in the policy, and how the mechanism must be communicated to all stakeholders. SEBI LODR Regulations, 2015 – Regulation 22 For listed entities, Regulation 22 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandates a formal Whistle Blower Policy. SEBI strengthened this requirement through its amendments, making it mandatory for listed companies to: Establish a vigil mechanism / whistle blower policy Allow direct access to the Audit Committee for protected disclosures Host the policy on the company’s website Disclose the establishment of the mechanism in the Annual Report Prevention of Corruption Act, 1988 & Lokpal and Lokayuktas Act, 2013 For public sector undertakings (PSUs) and government employees, the Lokpal and Lokayuktas Act, 2013 and the Public Interest Disclosure and Protection of Informers (PIDPI) Resolution (2004, amended periodically) provide the backbone of whistle blower protection. Complaints under PIDPI are handled by the Central Vigilance Commission (CVC). Whistle Blowers Protection Act, 2014 Although enacted in 2014, the Whistle Blowers Protection Act, 2014 — once fully notified — provides for a comprehensive standalone law to receive and inquire into public interest disclosures against public servants, including corrupt practices and misuse of power. As of 2026, this Act remains under review by the Government of India for operationalisation with certain amendments being considered. Who Must Mandatorily Adopt a Whistle Blower Policy? Under Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014, the following categories of companies are required to establish a Vigil Mechanism: Category Criteria Applicable Law Listed Companies All companies listed on recognised stock exchanges (BSE, NSE) SEBI LODR Reg. 22 + Sec. 177 Companies Accepting Deposits Companies that accepted/accepting deposits from public Rule 7, Companies Act 2013 Companies Having Borrowed Money Companies that borrowed money from banks/PFIs exceeding ₹50 Crore Rule 7, Companies Act 2013 Certain Other Companies As notified by Central Government from time to time Section 177(9) 📌 Note: As per MCA updates in 2025-26, SEBI has also extended applicability to large unlisted public companies with paid-up capital exceeding ₹10 Crore and turnover exceeding ₹100 Crore, mandating a documented vigil mechanism. Key Components of a Whistle Blower Policy A legally compliant and effective Whistle Blower Policy in 2026 must include the following essential components: Purpose and Scope The policy must clearly define its purpose — to provide a formal channel for reporting concerns relating to unethical behaviour, actual or suspected fraud, violations of the company’s Code of Conduct, applicable laws or regulations. The scope should extend to all directors, permanent employees, contract staff, vendors, and other stakeholders. Types of Reportable Concerns Financial fraud, embezzlement, or misappropriation of company assets Bribery or corruption involving employees or third parties Violations of the Companies Act, 2013, SEBI regulations, or other applicable laws Sexual harassment (POSH Act violations) Insider trading or market manipulation Health, safety, or environment violations Misuse of company resources or IT assets Conflict of interest not disclosed to management Falsification of financial records or auditor manipulation Breach of data privacy or cybersecurity obligations under the DPDP Act, 2023 Reporting Mechanism The policy must designate a specific authority (Nodal Officer / Compliance Officer / Audit Committee) to receive complaints. In 2026, best practices include: A dedicated email address (e.g., whistleblower@company.com) A secured online portal or mobile app for submissions A physical drop box for written complaints A confidential hotline number (toll-free) Option for anonymous reporting with adequate safeguards Protected Disclosures Every complaint made under this policy constitutes a ‘Protected Disclosure’. The policy must clearly state that a Protected Disclosure will be kept confidential and that the identity of the complainant shall not be disclosed without their prior consent except as required by law. Investigative Process The policy should outline a structured investigation process including timelines. A typical framework: Stage Action Timeline Receipt Acknowledgement of complaint to complainant Within 7 working days Preliminary Review Assessment by Nodal Officer / Compliance Officer Within 15 working days Investigation Detailed enquiry by Investigation Committee Within 45 working days Report Submission of findings to Audit Committee Within

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Insolvency & Bankruptcy Code (IBC) 2016

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Insolvency & Bankruptcy Code (IBC) 2016  What Is the Insolvency and Bankruptcy Code (IBC), 2016? The Insolvency and Bankruptcy Code (IBC), 2016 is a landmark legislation enacted by the Parliament of India on 28th May 2016 and brought into force in stages between 2016 and 2017. It is codified as Act No. 31 of 2016 and represents the most significant reform in India’s insolvency law landscape in decades. Before IBC, India had a fragmented, multi-statute framework for dealing with insolvency – including the Sick Industrial Companies Act (SICA), the Companies Act, the Presidency Towns Insolvency Act, and the Provincial Insolvency Act – none of which were efficient or time-bound. The IBC consolidated all these statutes into a single unified code. It introduced time-bound resolution of insolvency and bankruptcy for companies, partnership firms, and individuals in India. It established a new institutional ecosystem comprising the National Company Law Tribunal (NCLT) as the adjudicating authority for corporates, the Debt Recovery Tribunal (DRT) for individuals and partnerships, the Insolvency and Bankruptcy Board of India (IBBI) as the regulator, and licensed Insolvency Professionals (IPs) to manage the resolution process. As of 2026, IBC has undergone multiple amendments – in 2018, 2019, 2020, 2021, and most recently in 2024 – continuously strengthening and streamlining the insolvency framework. It is widely credited with transforming India’s credit culture and improving the country’s ranking in the World Bank’s Ease of Doing Business index.   Key Objectives of IBC 2016 The Preamble of the IBC itself outlines its core objectives: Consolidation and amendment of laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals Ensuring time-bound resolution of insolvency (maximisation of value of assets) Promoting entrepreneurship by providing a clear exit mechanism Maximising the value of assets of corporate debtors Balancing the interests of all stakeholders – creditors, debtors, shareholders, employees Establishing an orderly and predictable insolvency process Creating a modern, globally comparable insolvency framework for India Improving the credit ecosystem and ease of doing business in India IBC introduced the concept of creditor-in-control, replacing the earlier debtor-in-possession approach. Under IBC, once insolvency is admitted, control of the corporate debtor vests with a Resolution Professional under the supervision of the Committee of Creditors (CoC) – not with the promoters or management.   Structure and Architecture of IBC 2016 Parts of the IBC The IBC is divided into 5 Parts, 12 Chapters, and 255 Sections: Part Title Key Provisions Part I Preliminary Sections 1–3: Title, Extent, Definitions Part II Insolvency Resolution & Liquidation: Corporate Persons Sections 4–77: CIRP, Liquidation, Fast Track Part III Insolvency Resolution & Bankruptcy: Individuals & Partnership Firms Sections 78–187: Fresh Start, IRP for Individuals Part IV Regulation of Insolvency Professionals, Agencies & IU Sections 188–223: IBBI, IPs, IPAs, IUs Part V Miscellaneous Sections 224–255: Cross-border, Offences, Penalties   Institutional Ecosystem Under IBC IBC created a four-pillar institutional framework: Adjudicating Authority – NCLT for corporates; DRT for individuals and partnerships Appellate Authority – NCLAT for corporates; DRAT for individuals and partnerships Regulator – Insolvency and Bankruptcy Board of India (IBBI) Insolvency Professionals (IPs) – Licensed professionals who manage the resolution/liquidation process (Interim Resolution Professionals, Resolution Professionals, Liquidators) Information Utilities (IUs) – Entities that store financial data about debtors and creditors (National E-Governance Services Ltd. – NeSL is the registered IU) Insolvency Professional Agencies (IPAs) – Bodies that regulate and admit IPs (ICSI IPA, IPA of ICAI, IIIPI)   Who Is Covered Under IBC 2016? Corporate Persons (Part II of IBC) The following are covered under Part II of IBC for Corporate Insolvency Resolution Process (CIRP) and liquidation: Companies registered under the Companies Act, 2013 or any previous company law Limited Liability Partnerships (LLPs) registered under the LLP Act, 2008 Any other body corporate (as notified by the Central Government) Note: Financial Service Providers (banks, NBFCs, insurance companies, etc.) are generally excluded from CIRP under IBC unless specifically notified by the Central Government under a separate framework. In 2019, the Government notified a special framework for systemically important FSPs under Sections 227 and 239 of IBC. Individuals and Partnership Firms (Part III of IBC) Part III of IBC covers: Individuals (excluding personal guarantors who are covered under Chapter III-A introduced in 2019) Partnership firms and proprietorship firms Note: As of 2026, Part III of IBC (individual insolvency) has been only partially operationalised. The Fresh Start Process and Insolvency Resolution Process for individuals are administered by Debt Recovery Tribunals (DRTs). The bankruptcy process for individuals is not yet fully operationalised. Personal Guarantors to Corporate Debtors Following the landmark Supreme Court decision in Lalit Kumar Jain v. Union of India (2021), personal guarantors (such as promoters, directors, and guarantors of corporate debts) can be proceeded against under IBC even when the CIRP of the corporate debtor is ongoing. NCLT is the adjudicating authority for personal guarantors.   Important Definitions Under IBC 2016 (Section 3 & Section 5) Understanding the key definitions in IBC is fundamental to understanding the entire code: Term Definition Under IBC 2016 Corporate Debtor A corporate person who owes a debt to any person (Section 3(8)) Financial Debt Debt disbursed against consideration for time value of money – includes loans, debentures, bonds, mortgage, financial lease, etc. (Section 5(8)) Operational Debt Claim for goods/services, employment dues, or statutory dues (Section 5(21)) Financial Creditor Person to whom a financial debt is owed – includes banks, NBFCs, debenture holders, homebuyers (Section 5(7)) Operational Creditor Person to whom an operational debt is owed – suppliers, employees, workmen, government authorities (Section 5(20)) Default Non-payment of debt when due – including partial payment (Section 3(12)) Resolution Professional (RP) Insolvency Professional who conducts CIRP (Section 5(27)) Committee of Creditors (CoC) Body comprising financial creditors formed during CIRP; makes key commercial decisions (Section 21) Resolution Plan A plan proposed by a resolution applicant for resolution of insolvency of corporate debtor (Section 5(26)) Moratorium A stay on all legal proceedings, asset transfers, and security enforcement against corporate debtor during CIRP (Section 14) Avoidance Transactions Preferential, undervalued, fraudulent, and extortionate credit transactions

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NCLT – National Company Law Tribunal

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NCLT – National Company Law Tribunal A Complete Guide for 2026 | Indian Law & Legal Practice  NCLT – National Company Law Tribunal The National Company Law Tribunal (NCLT) is a quasi-judicial body established under Section 408 of the Companies Act, 2013. It was officially constituted on 1st June 2016 and serves as the primary adjudicating authority for all company-related disputes and insolvency matters in India. NCLT replaced the erstwhile Company Law Board (CLB), the Board for Industrial and Financial Reconstruction (BIFR), and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). As of 2026, NCLT plays an indispensable role in corporate governance, resolving disputes between shareholders and companies, adjudicating insolvency and bankruptcy matters under the Insolvency and Bankruptcy Code (IBC), 2016, and overseeing mergers, amalgamations, and restructuring of companies in India. This comprehensive guide covers everything you need to know about NCLT – its establishment, jurisdiction, bench structure, powers, filing procedures, fees, important case laws, and the appeal process for 2026. Legal Framework and Establishment of NCLT Governing Legislation NCLT draws its authority from the following legislative instruments: Companies Act, 2013 – Sections 408 to 434 Insolvency and Bankruptcy Code (IBC), 2016 National Company Law Tribunal Rules, 2016 Companies (Amendment) Acts of 2017, 2019, 2020, and 2024 Limited Liability Partnership Act, 2008 (for LLP insolvency) Historical Background The concept of a specialised tribunal for company law disputes was recommended by the Eradi Committee in 2000. The Companies Act, 2013 formally established NCLT, but it became operational only on 1st June 2016. Its establishment unified multiple fragmented forums under one roof, ensuring speedier justice and domain expertise in corporate law. Key Milestones 2000 – Eradi Committee recommends specialised tribunal 2013 – Companies Act, 2013 enacted; NCLT established under Section 408 2016 – NCLT becomes operational on 1st June 2016 2016 – IBC enacted; NCLT designated as Adjudicating Authority 2020 – Companies (Amendment) Act strengthens NCLT powers 2024 – Further amendments streamline procedures and timelines 2026 – 16 operational benches across India Structure and Composition of NCLT Principal Bench The Principal Bench of NCLT is located in New Delhi. It is presided over by the President of NCLT, who must be a retired or sitting Judge of a High Court. The President exercises administrative and judicial control over all NCLT benches across India. NCLT Benches in India – 2026 As of 2026, NCLT operates through 16 benches across major cities in India. Below is the list: S.No NCLT Bench Location States/UTs Covered 1 New Delhi (Principal Bench) Delhi, Haryana, Punjab, HP, J&K, Ladakh 2 Mumbai Maharashtra, Goa, Dadra & Nagar Haveli 3 Kolkata West Bengal, Odisha, Sikkim, Andaman & Nicobar 4 Chennai Tamil Nadu, Puducherry 5 Allahabad Uttar Pradesh, Uttarakhand 6 Ahmedabad Gujarat, Rajasthan 7 Hyderabad Telangana 8 Bengaluru Karnataka 9 Chandigarh Punjab, Haryana, Himachal Pradesh 10 Guwahati Assam, Meghalaya, Arunachal Pradesh, Nagaland, Mizoram, Tripura, Manipur 11 Jaipur Rajasthan 12 Kochi Kerala, Lakshadweep 13 Amravati Andhra Pradesh 14 Cuttack Odisha 15 Indore Madhya Pradesh, Chhattisgarh 16 Agartala Tripura Composition of Each Bench Each NCLT bench comprises: One Judicial Member (who must be a retired or sitting High Court Judge or an advocate of at least 10 years’ standing in Company Law) One Technical Member (who must be a person of proven expertise in accountancy, industry, banking, finance, law or administration for at least 15 years) The President of NCLT must be a person who has been a Judge of a High Court. Jurisdiction of NCLT – What Cases Does It Handle? Original Jurisdiction NCLT has original jurisdiction to hear and decide on: Oppression and mismanagement cases (Sections 241-244, Companies Act 2013) Winding up of companies (Sections 270-365, Companies Act 2013) Reduction of share capital Class action suits by shareholders and depositors Conversion of public company to private company Removal of company name from Registrar of Companies Rectification of register of members Revival and rehabilitation of sick companies Corporate Insolvency Resolution Process (CIRP) under IBC 2016 Jurisdiction under Insolvency and Bankruptcy Code (IBC), 2016 NCLT is the Adjudicating Authority under IBC for corporate persons including companies and LLPs. It handles: Admission of insolvency applications by Financial Creditors (Section 7, IBC) Admission of insolvency applications by Operational Creditors (Section 9, IBC) Admission of voluntary insolvency by Corporate Debtor (Section 10, IBC) Liquidation orders for corporate persons Approval of Resolution Plans submitted by Resolution Applicants Avoidance transactions (preferential, undervalued, fraudulent transactions) Applications against personal guarantors of corporate debtors Jurisdiction for Mergers & Amalgamations Under Sections 230 to 240 of the Companies Act, 2013, NCLT has the power to: Approve schemes of compromise or arrangement between a company and its creditors or shareholders Sanction mergers and amalgamations between Indian companies Approve demergers and corporate restructuring Order cross-border mergers (Section 234, Companies Act 2013) What NCLT Does NOT Handle It is equally important to understand the limitations of NCLT’s jurisdiction: NCLT does not handle criminal matters – those go to courts under the Companies Act Personal insolvency of individuals (other than personal guarantors) – handled by Debt Recovery Tribunals (DRT) Tax matters – handled by Income Tax Appellate Tribunal (ITAT) and GST Appellate Authorities Labour law disputes – handled by Labour Courts and Industrial Tribunals Corporate Insolvency Resolution Process (CIRP) – Step-by-Step Who Can Initiate CIRP? Under IBC 2016, the following parties can initiate insolvency proceedings before NCLT: Financial Creditor (Section 7) – Banks, NBFCs, debenture holders, any party with a financial debt Operational Creditor (Section 9) – Suppliers, employees, workmen, service providers Corporate Debtor itself (Section 10) – Voluntary insolvency Minimum Default Threshold As per the latest amendment (effective 2020 and continued in 2026), the minimum default amount required to file insolvency application is: For financial creditors and operational creditors: Rs. 1 Crore (increased from Rs. 1 Lakh by COVID-era amendment, retained as of 2026) For MSME sector: Special provisions apply under Section 240A of IBC Step-by-Step CIRP Process Step 1 – Filing of Application: Financial Creditor files under Section 7 or Operational Creditor files under Section 9 of IBC before the relevant NCLT

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Compounding of Offences under the Companies Act

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Compounding of Offences under the Companies Act What is Compounding of Offences under the Companies Act? The Indian corporate regulatory landscape has undergone a significant transformation since the enactment of the Companies Act, 2013. One of the most practical and business-friendly features of this legislation is the concept of ‘Compounding of Offences’ — a legal mechanism that allows companies and their officers to voluntarily settle and regularise certain statutory violations without undergoing the full rigours of criminal prosecution. In simple terms, compounding means paying a sum of money as settlement to the competent authority — the National Company Law Tribunal (NCLT) or the Regional Director (RD) — in lieu of criminal prosecution for a specific class of offences under the Companies Act, 2013. This concept is embedded in Section 441 of the Companies Act, 2013 and further reinforced by the Companies (Compounding of Offences) Rules. Given that corporate India deals with thousands of filings, board meetings, Annual General Meetings, statutory disclosures, and regulatory returns every year, procedural lapses and technical violations are not uncommon. For 2026, with the MCA21 Version 3 portal fully operational and XBRL filings mandatory for broader categories of companies, the scope of potential compoundable offences has both widened and become more precisely trackable by the Registrar of Companies (ROC). Key Philosophy: Compounding is NOT an admission of guilt. It is a civil settlement mechanism that enables corporates to regularise technical violations, avoid prolonged litigation, and maintain clean compliance records — which is critical for fundraising, mergers, and public listings. Legal Framework: Section 441 of the Companies Act, 2013 Section 441 of the Companies Act, 2013 is the cornerstone provision governing compounding of offences. It was significantly amended by the Companies (Amendment) Act, 2019 and the Companies (Amendment) Act, 2020 to further decriminalise minor procedural violations and shift them from criminal prosecution to civil monetary penalties. These changes remain in full force as of 2026. Text and Interpretation of Section 441 Section 441(1) provides that: Any offence punishable under the Companies Act — whether with fine only, or with fine or imprisonment — may be compounded by the NCLT or, where the maximum fine does not exceed ₹25,00,000 (Twenty-Five Lakh Rupees), by the Regional Director (or any officer authorised by the Central Government) The compounding can be done either before or after the institution of any prosecution Upon compounding, no further proceedings shall be taken against the company or the officer in default in respect of the compounded offence The sum of money paid as compound shall not exceed the maximum fine prescribed for the offence Key Amendments — Companies (Amendment) Act 2019 & 2020 The Companies (Amendment) Acts of 2019 and 2020 collectively decriminalised 76 offences under the Companies Act, 2013 by converting criminal penalties (imprisonment + fine) to civil in-house adjudication (penalty orders by Registrar/adjudicating officer). As of 2026: Offences punishable with imprisonment or imprisonment + fine: These CANNOT be compounded under Section 441 Offences punishable with fine only (post-2019/2020 decriminalisation): These CAN be compounded In-house adjudication offences: Handled by ROC as adjudicating officer under Section 454 — separate from compounding Offences where prosecution has already been instituted: Compounding still permitted but requires court’s permission Critical Update 2026:  As per MCA notification dated January 2026, the list of compoundable offences has been further reviewed. Companies must check the latest Schedule VI of the Companies Act 2013 read with MCA’s Office Memorandum before filing a compounding application to ensure the offence remains compoundable. Compoundable vs. Non-Compoundable Offences: The Critical Distinction Not all offences under the Companies Act, 2013 are compoundable. Understanding this distinction is the first step in any compliance strategy. The dividing line is the nature of punishment prescribed by the relevant section. Criterion Compoundable Offences Non-Compoundable Offences Nature of Punishment Fine only (no imprisonment) Imprisonment (with or without fine) Settlement Authority NCLT / Regional Director Criminal Court only (no compounding) Examples Late filing of Annual Return, failure to maintain registers, delay in share allotment intimation Fraud (Section 447), falsification of books, fraudulent trading Effect of Compounding No further prosecution for that offence N/A — prosecution must proceed Repeat Offence Compounding barred within 3 years for same offence Enhanced penalties applicable Adjudication Alternative Many now adjudicated in-house under Section 454 post-2020 amendments Must face criminal court proceedings Commonly Compounded Offences in Practice (2026) Based on MCA records and company secretarial practice, the most frequently compounded offences under the Companies Act, 2013 as of 2026 include: Section Offence Description Maximum Fine (₹) 92(5) Failure to file Annual Return (MGT-7) within prescribed time ₹5,00,000 company + ₹50,000 per officer 137(3) Failure to file Financial Statements (AOC-4) within prescribed time ₹10,00,000 company + ₹1,00,000 per officer 73/76 Acceptance of deposits in contravention of provisions ₹1,00,00,000 (₹1 Crore) 149/165 Excess directorship beyond permissible limit ₹2,000 per day (max ₹2,00,000) 185 Loans to directors in contravention of provisions ₹5,00,000 to ₹25,00,000 186 Loans and investments by company beyond limits ₹25,00,000 company; ₹1,00,000 officer 188(4) Related Party Transactions without board/shareholder approval ₹25,00,000 company; ₹5,00,000 officer 197/198 Managerial remuneration in excess of prescribed limits ₹25,00,000 per violation 203 Non-appointment of Key Managerial Personnel (KMP) ₹5,00,000 company; ₹50,000 per officer/month 204(4) Non-compliance with secretarial audit provisions ₹5,00,000 company; ₹1,00,000 officer 105 Proxy irregularities / failure to send notices properly ₹5,000 per default 118 Failure to maintain minutes of meetings ₹25,000 company; ₹5,000 per officer 42/62 Private placement / rights issue procedural violations ₹2,00,00,000 (₹2 Crore) Competent Authorities for Compounding: NCLT vs. Regional Director The two principal authorities empowered to compound offences under Section 441 are the National Company Law Tribunal (NCLT) and the Regional Director (RD) under the Ministry of Corporate Affairs (MCA). The choice of authority depends on the quantum of maximum fine prescribed for the offence. Jurisdiction Based on Maximum Fine Parameter Regional Director (RD) NCLT (National Company Law Tribunal) Fine Threshold Maximum fine does NOT exceed ₹25,00,000 Maximum fine EXCEEDS ₹25,00,000 Delegated Authority RD or officer authorised by Central Government NCLT bench having jurisdiction over company Speed of Disposal

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Corporate Social Responsibility (CSR) Rules in India

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Corporate Social Responsibility (CSR) Rules in India A Complete 2026 Guide — Laws, Thresholds, Compliance & Best Practices CSR in India Corporate Social Responsibility (CSR) is no longer a voluntary goodwill gesture in India — it is a statutory obligation enshrined in law. India became one of the first countries in the world to make CSR spending mandatory when Section 135 of the Companies Act, 2013 came into force. Over the past decade, the CSR framework has evolved significantly, and as of 2026, it stands as one of the most robust and structured corporate governance mechanisms in the country. In the financial year 2024-25 alone, India’s top listed companies collectively spent over ₹25,000 crore on CSR activities, touching millions of lives across education, healthcare, environment, and rural development. The Ministry of Corporate Affairs (MCA) continues to tighten compliance norms, making it imperative for every eligible business to understand the rules thoroughly. This comprehensive guide covers every dimension of India’s CSR rules — the legal framework, eligibility thresholds, approved activities, unspent fund management, penalties, reporting requirements, and best practices — all updated for 2026. Legal Framework Governing CSR in India Section 135 of the Companies Act, 2013 The primary legal basis for CSR in India is Section 135 of the Companies Act, 2013, read together with Schedule VII of the Act and the Companies (Corporate Social Responsibility Policy) Rules, 2014 (as amended). The law makes it mandatory for qualifying companies to spend a minimum of 2% of their average net profits on CSR activities. Key Amendments and Updates (2020–2026) The CSR framework has undergone multiple amendments since 2013. The most significant overhaul came through the Companies (Amendment) Act, 2019 and the revised CSR Rules notified in January 2021. Further amendments in 2022 and 2023 strengthened monitoring and reporting. In 2026, the MCA has introduced enhanced digital reporting requirements via the CSR-2 form and mandatory geo-tagging of CSR projects. Governing Ministry & Regulatory Authority The Ministry of Corporate Affairs (MCA) is the primary regulator overseeing CSR compliance in India. The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) also mandate Business Responsibility and Sustainability Reports (BRSR) for the top 1,000 listed companies by market capitalisation, adding another layer of accountability. CSR Eligibility Criteria for Companies in 2026 As per Section 135(1) of the Companies Act, 2013, a company is required to constitute a CSR Committee and spend on CSR if it meets any ONE of the following financial thresholds in any of the immediately preceding three financial years: Criterion Threshold Net Worth ₹500 crore or more Turnover ₹1,000 crore or more Net Profit ₹5 crore or more (net profit as per Section 198) Note: The thresholds apply to every company including holding or subsidiary companies, and foreign companies having their branch or project office in India. Constitution of the CSR Committee Composition Requirements Every eligible company must constitute a CSR Committee of the Board of Directors. The composition requirements under Section 135(1) are: Minimum three directors, including at least one Independent Director For companies not required to appoint an Independent Director: at least two directors For private companies with a single director: that director alone may constitute the committee For foreign companies: two persons, one of whom shall be the person resident in India authorised to accept service of process Functions of the CSR Committee Formulate and recommend the CSR Policy to the Board Recommend the amount of expenditure to be incurred on CSR activities Monitor the CSR Policy of the company from time to time Review and approve annual CSR Action Plans Ensure that the Annual Report on CSR is prepared and placed before the Board The 2% CSR Spending Mandate — How to Calculate Calculating Average Net Profit The mandatory CSR spend is 2% of the average net profits made during the three immediately preceding financial years. Net profit for this purpose is calculated as per Section 198 of the Companies Act, 2013, which has specific inclusions and exclusions different from the P&L account profit. Inclusions in Net Profit (Section 198) Profit from operations of the company Bounties and subsidies received from any Government Profit on sale of immovable property or fixed assets Profit from shares, debentures, or other securities Exclusions from Net Profit (Section 198) Capital gains arising from sale of investments and assets Profits of foreign subsidiaries Dividend paid or payable Any amount representing unrealised gains or notional gains Worked Example (FY 2025-26) Financial Year Net Profit (₹ Crore) FY 2022-23 80 FY 2023-24 100 FY 2024-25 120 Average 100 2% CSR Obligation ₹2 Crore Approved CSR Activities — Schedule VII (Updated 2026) Schedule VII of the Companies Act, 2013 lists the activities eligible for CSR spending. The list has been progressively expanded. Here are all approved CSR activity heads as of 2026: 1. Eradicating Hunger, Poverty & Malnutrition Activities promoting preventive healthcare, sanitation, and safe drinking water. This includes mid-day meal programs, nutrition initiatives, anganwadi support, and clean drinking water projects. PM POSHAN and Jal Jeevan Mission aligned activities are eligible. 2. Promoting Education Activities relating to education — including special education, vocational skills development among children, women, elderly, and the differently abled — qualify under CSR. Setting up schools, providing scholarships, digital literacy programs, and supporting Government schools with infrastructure are all covered. 3. Promoting Gender Equality & Women Empowerment Setting up homes, hostels for women and orphans; old age homes; day care centres; and other facilities for senior citizens; measures for reducing inequality faced by socially and economically backward groups. Self-help group funding and livelihood support for women entrepreneurs are covered. 4. Ensuring Environmental Sustainability Ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources, and maintaining quality of soil, air, and water. Clean energy projects, EV infrastructure, renewable energy installations, and climate action programs qualify here. 5. Protection of National Heritage, Art & Culture Protection and restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts

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