Penalty imposed for Non Disclosure about the CSR under Directors Report

Penalty imposed for Non Disclosure about the CSR under Directors Report . Non-compliance of Section 134(3)(o) of the Companies Act, 2013 for CSR Details 
The Companies Act, 2013 mandates transparency and accountability in corporate governance by requiring the Board of Directors to provide a comprehensive report containing prescribed disclosures. Among these, Section 134(3)(o) specifically requires the inclusion of details relating to CSR policy, the amount required to be spent, and the actual amount spent on CSR during the financial year. The provision ensures that stakeholders are informed not only of the company’s compliance with CSR obligations but also of the manner in which such obligations are discharged.
Learn more about CSR Services.
In the present case, while the company duly complied with its CSR spending obligations and in fact incurred expenditure in excess of the statutory requirement, it failed to include the mandatory disclosure in its Director’s Report. Recognizing this lapse, the company and its directors voluntarily approached the Registrar through GNL-1 filing, thereby placing themselves before the adjudicating process. The matter thus involves the examination of whether the omission constitutes a contravention attracting penalties under Section 134(8), and the extent to which the bona fide nature of the omission, first-time applicability, and voluntary disclosure may be considered as mitigating factors by the Adjudicating Authority.
Facts of the Case
For the financial year 2022–23, the provisions of Section 135 of the Companies Act, 2013 relating to Corporate Social Responsibility (CSR) became applicable to the company. Based on the financial thresholds prescribed under the law, the company was required to spend an amount of Rs.7,49,248.28 towards CSR activities during the said financial year. In compliance with Section 135, the company not only met its CSR obligation but also incurred expenditure in excess of the required amount. The company spent a total sum of Rs.10,51,066 towards CSR activities, thereby resulting in an  excess expenditure of Rs.3,01,871.72 over and above the mandated requirement. This establishes that the company did not default in terms of actual CSR spending. As per Section 134(3)(o) of the Act, the Board’s Report is required to include a detailed disclosure of CSR particulars, including the CSR policy, amount required to be spent, actual expenditure incurred, and related explanations. However, due to oversight and first-time applicability of CSR provisions, the company failed to incorporate the relevant CSR details in its Director’s Report for FY 2022–23. Thus, while the substantive requirement of spending was met, the company defaulted in respect of the statutory disclosure requirement. Acknowledging the lapse, the company and its directors voluntarily approached the Registrar of Companies by filing a suo-moto application in Form GNL-1 under SRN N21174321 dated 28.11.2024. In this application, the company candidly admitted the non-compliance with Section 134(3)(o), explained that the omission was inadvertent, and highlighted the fact that CSR spending had been carried out in excess of the required amount. On receipt of the suo-moto application, the office of the Adjudicating Officer took cognizance of the default under Section 134(3)(o) read with Section 134(8) of the Companies Act, 2013. In exercise of the powers conferred under Section 454 of the Act, a notice was issued to the company and its officers in default. Based on their request, the office has scheduled an e-hearing through video conferencing on 12.02.2025, and a system-generated link for the same has been shared with the noticees.
Issues Raised

Whether the omission of CSR particulars in the Board’s Report for FY 2022–23 constitutes a contravention of Section 134(3)(o) of the Companies Act, 2013, even though the company duly spent and exceeded the CSR obligation under Section 135?

Whether the filing of a suo-moto application in Form GNL-1 by the company and directors can mitigate or absolve liability for the default?

Whether the default can be treated as a “technical/clerical” lapse arising out of oversight and first-time applicability of CSR provisions, and if so, whether this justifies imposition of a lesser or token penalty?

Who should be identified as ‘officers in default’ under Section 134(8) read with Section 2(60) of the Act?

What is the appropriate quantum of penalty under Section 134(8) in the present case, considering the statutory limits and mitigating circumstances?

Penality
While the law prescribes specific penalties, the AO under Section 454 has discretion to consider:
This is a disclosure omission, not financial non-compliance or diversion of CSR funds. This leans towards leniency. The company has admitted that FY 2022–23 was the first year of CSR applicability, which is a mitigating factor. The company spent Rs.10,51,066, more than the required Rs.7,49,248.28, showing bona fide compliance in substance.The company voluntarily filed a GNL-1 application (SRN N21174321 dated 28.11.2024) admitting the lapse before being caught in scrutiny. This demonstrates good faith and cooperation. If the company has updated internal compliance mechanisms and ensures proper disclosures in future Board’s Reports, the AO may consider this in reducing penalties. 
Kabra Jewels Limited: 300000 and additional penalty of 463000
Kailash Satyanarayan Kabra: 50000 and additional penalty of 463000
Jyothi Kailash Kabra: 50000 and additional penalty of 463000 
Final Note of the Article
The company may be held liable for contravention of Section 134(3)(o) and subjected to a reduced or token penalty under Section 134(8).Penalty on officers in default may be confined only to those directly responsible (i.e., signatories of the Board’s Report or the Company Secretary), and may also be moderated considering their good faith.Non-executive or independent directors may reasonably be exempted from liability, as they are not directly responsible for preparation and certification of the Board’s Report.
Thus, while contravention stands established, the principle of proportionality requires that the penalty imposed be moderate, keeping in view the company’s voluntary disclosure, excess CSR compliance, and first-time default.
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Non-compliance of Section 134(3)(o) of the Companies Act, 2013 for CSR Details

The Companies Act, 2013 mandates transparency and accountability in corporate governance by requiring the Board of Directors to provide a comprehensive report containing prescribed disclosures. Among these, Section 134(3)(o) specifically requires the inclusion of details relating to CSR policy, the amount required to be spent, and the actual amount spent on CSR during the financial year. The provision ensures that stakeholders are informed not only of the company’s compliance with CSR obligations but also of the manner in which such obligations are discharged.

Learn more about CSR Services.

In the present case, while the company duly complied with its CSR spending obligations and in fact incurred expenditure in excess of the statutory requirement, it failed to include the mandatory disclosure in its Director’s Report. Recognizing this lapse, the company and its directors voluntarily approached the Registrar through GNL-1 filing, thereby placing themselves before the adjudicating process. The matter thus involves the examination of whether the omission constitutes a contravention attracting penalties under Section 134(8), and the extent to which the bona fide nature of the omission, first-time applicability, and voluntary disclosure may be considered as mitigating factors by the Adjudicating Authority.

Facts of the Case

For the financial year 2022–23, the provisions of Section 135 of the Companies Act, 2013 relating to Corporate Social Responsibility (CSR) became applicable to the company. Based on the financial thresholds prescribed under the law, the company was required to spend an amount of Rs.7,49,248.28 towards CSR activities during the said financial year. In compliance with Section 135, the company not only met its CSR obligation but also incurred expenditure in excess of the required amount. The company spent a total sum of Rs.10,51,066 towards CSR activities, thereby resulting in an excess expenditure of Rs.3,01,871.72 over and above the mandated requirement. This establishes that the company did not default in terms of actual CSR spending. As per Section 134(3)(o) of the Act, the Board’s Report is required to include a detailed disclosure of CSR particulars, including the CSR policy, amount required to be spent, actual expenditure incurred, and related explanations. However, due to oversight and first-time applicability of CSR provisions, the company failed to incorporate the relevant CSR details in its Director’s Report for FY 2022–23. Thus, while the substantive requirement of spending was met, the company defaulted in respect of the statutory disclosure requirement. Acknowledging the lapse, the company and its directors voluntarily approached the Registrar of Companies by filing a suo-moto application in Form GNL-1 under SRN N21174321 dated 28.11.2024. In this application, the company candidly admitted the non-compliance with Section 134(3)(o), explained that the omission was inadvertent, and highlighted the fact that CSR spending had been carried out in excess of the required amount. On receipt of the suo-moto application, the office of the Adjudicating Officer took cognizance of the default under Section 134(3)(o) read with Section 134(8) of the Companies Act, 2013. In exercise of the powers conferred under Section 454 of the Act, a notice was issued to the company and its officers in default. Based on their request, the office has scheduled an e-hearing through video conferencing on 12.02.2025, and a system-generated link for the same has been shared with the noticees.

Issues Raised

Whether the omission of CSR particulars in the Board’s Report for FY 2022–23 constitutes a contravention of Section 134(3)(o) of the Companies Act, 2013, even though the company duly spent and exceeded the CSR obligation under Section 135?
Whether the filing of a suo-moto application in Form GNL-1 by the company and directors can mitigate or absolve liability for the default?
Whether the default can be treated as a “technical/clerical” lapse arising out of oversight and first-time applicability of CSR provisions, and if so, whether this justifies imposition of a lesser or token penalty?
Who should be identified as ‘officers in default’ under Section 134(8) read with Section 2(60) of the Act?
What is the appropriate quantum of penalty under Section 134(8) in the present case, considering the statutory limits and mitigating circumstances?

Penality

While the law prescribes specific penalties, the AO under Section 454 has discretion to consider:

This is a disclosure omission, not financial non-compliance or diversion of CSR funds. This leans towards leniency. The company has admitted that FY 2022–23 was the first year of CSR applicability, which is a mitigating factor. The company spent Rs.10,51,066, more than the required Rs.7,49,248.28, showing bona fide compliance in substance.The company voluntarily filed a GNL-1 application (SRN N21174321 dated 28.11.2024) admitting the lapse before being caught in scrutiny. This demonstrates good faith and cooperation. If the company has updated internal compliance mechanisms and ensures proper disclosures in future Board’s Reports, the AO may consider this in reducing penalties.

Kabra Jewels Limited: 300000 and additional penalty of 463000

Kailash Satyanarayan Kabra: 50000 and additional penalty of 463000

Jyothi Kailash Kabra: 50000 and additional penalty of 463000

Final Note of the Article

The company may be held liable for contravention of Section 134(3)(o) and subjected to a reduced or token penalty under Section 134(8).Penalty on officers in default may be confined only to those directly responsible (i.e., signatories of the Board’s Report or the Company Secretary), and may also be moderated considering their good faith.Non-executive or independent directors may reasonably be exempted from liability, as they are not directly responsible for preparation and certification of the Board’s Report.

Thus, while contravention stands established, the principle of proportionality requires that the penalty imposed be moderate, keeping in view the company’s voluntary disclosure, excess CSR compliance, and first-time default.