New Delhi: The Ministry of Corporate Affairs (MCA) has expanded the scope of Corporate Social Responsibility (CSR) by enabling investments through the Zero Coupon Zero Principal Instrument, marking a significant step toward strengthening social financing mechanisms in India.
The move comes through an amendment to Schedule VII of the Companies Act, 2013, in line with the vision of Viksit Bharat.
The Ministry of Corporate Affairs has widened the ambit of Schedule VII by introducing a new item, clause (xiii), titled “Subscription to zero coupon zero principal instruments on Social Stock Exchange.”
Through this amendment, MCA has facilitated Corporate Social Responsibility implementation via the Zero Coupon Zero Principal Instrument by expanding the scope of eligible CSR activities under the Companies Act, 2013.
To operationalize CSR funding through the Zero Coupon Zero Principal Instrument, amendments have also been made to the Companies (Corporate Social Responsibility Policy) Rules, 2014.
The revised rules introduce definitions for “Not for Profit Organization” and “Zero Coupon Zero Principal Instrument” under Rule 2, while a new Rule 4A lays down the criteria and framework for implementing CSR initiatives through such instruments.
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Under the amended framework, responsibility for project execution and project evaluation will rest with the Not for Profit Organization (NPO) that raises funds through the Zero Coupon Zero Principal Instrument.
These organizations will function in accordance with the provisions outlined under Rule 4A.
The amendment is designed to provide significant ease of compliance for companies undertaking CSR activities.
At the same time, it is expected to create new avenues for Not for Profit Organisations (NPOs) to raise funds for public welfare projects through a transparent and regulated mechanism.
With the inclusion of the Zero Coupon Zero Principal Instrument under the CSR framework, eligible NPOs will be able to issue these instruments on the Social Stock Exchange (SSE) in accordance with regulations prescribed by the Securities and Exchange Board of India (SEBI).
This is expected to strengthen the social impact ecosystem by enabling structured fundraising for developmental and welfare initiatives.
As per the revised provisions, expenditure incurred by CSR-mandated companies toward subscription of a Zero Coupon Zero Principal Instrument shall not exceed ten percent of the total Corporate Social Responsibility expenditure for the relevant financial year.
The legal framework governing Corporate Social Responsibility in India is provided under Section 135 of the Companies Act, 2013, Schedule VII of the Act, and the Companies (Corporate Social Responsibility Policy) Rules, 2014.
Schedule VII outlines the activities that qualify as CSR initiatives and are aligned with national priorities aimed at promoting inclusive and sustainable development.
The introduction of the Zero Coupon Zero Principal Instrument within the CSR ecosystem is intended to facilitate greater participation by corporates in social development projects while providing regulated funding opportunities for Not for Profit Organizations through the Social Stock Exchange.
