CSR Non-Compliance: ROC Chennai Imposes Penalty Despite Later Rectification

The Registrar of Companies, Chennai has recently passed an adjudication order under Section 454 of the Companies Act, 2013, imposing penalties on a company and its key managerial personnel for violation of Section 135(5), Section 135(6) and consequentially Section 135(7) relating to Corporate Social Responsibility (CSR).

This order serves as a clear reminder that subsequent rectification of CSR defaults does not erase the original statutory non-compliance. Even though the company eventually transferred the entire unspent CSR amount to a Schedule VII fund, the delay itself attracted penal consequences.

Background of the Proceedings

Appointment of Adjudicating Officer

The Ministry of Corporate Affairs, by way of Gazette Notification No. S.O. 831(E) dated 24/03/2015, designated the Registrar of Companies, Chennai, as the Adjudicating Officer under Section 454 of the Companies Act, 2013. The appointment empowers the Adjudicating Officer to determine and levy penalties in line with the Companies (Adjudication of Penalties) Rules, 2014.

In the present matter, these powers were invoked in relation to CSR non-compliance by AIRFLOA RAIL TECHNOLOGY LIMITED, resulting in an adjudication order dated 20/01/2026.

Company and Officer Details

The adjudication related to:

  • Company: AIRFLOA RAIL TECHNOLOGY LIMITED

    • CIN: U30204TN1998PLC041571
    • Registered Office: NO 9 CHELLIAMMAN KOILSTREET KEELKTTALAI CHENNAI-117 NA CHENNAI-117 TAMIL NADU INDIA 600117

  • Officers in default:

    • DAKSHINAMOORTHY VENKATESAN
    • DAKSHNA MOORTHY MANIKANDAN

These individuals were treated as “officers in default” for the purposes of imposing liability under the CSR provisions.

Statutory Framework: CSR Obligations and Penalties

CSR Spending Requirement – Section 135(5)

Under Section 135(5) of the Companies Act, 2013, every company that crosses the thresholds specified in Section 135(1) is required to:

  • Ensure that, in each financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years is spent towards CSR activities;
  • Frame and implement a Corporate Social Responsibility Policy, with a preference for the local area and areas around where it operates;
  • Where the company fails to spend the prescribed amount:
    • Disclose the reasons for such failure in the Board’s Report under Section 134(3)(o); and
    • Transfer any unspent amount (other than in respect of ongoing projects covered under Section 135(6)) to a fund specified in Schedule VII within six months from the end of the relevant financial year.

The provision also allows for set-off of excess CSR spending in prescribed circumstances.

Treatment of Unspent CSR Amount – Section 135(6)

Section 135(6) deals with unspent CSR amounts related to ongoing projects:

  • Any unspent CSR amount pertaining to an ongoing project must be transferred, within 30 days from the end of the financial year, to a special bank account called the “Unspent Corporate Social Responsibility Account”.
  • The company must spend the amount lying in this account within three financial years from the date of transfer.
  • If it fails to do so, the remaining unspent amount must then be transferred to a fund specified in Schedule VII within 30 days from the completion of the third financial year.

Penalty for Non-Compliance – Section 135(7)

The adjudicating authority relied on Section 135(7) for imposing penalties. This provision states:

If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.