India was one of the first countries in the world to mandate Corporate Social Responsibility (CSR) expenditure for qualifying companies under a national statute. Since Section 135 of the Companies Act, 2013 came into effect, hundreds of thousands of crores of rupees have been directed by Indian companies towards social, environmental, and developmental activities across the country.

Today, CSR has evolved into something far larger than a compliance obligation. Environmental, Social, and Governance (ESG) considerations have become a core lens through which institutional investors, global supply chain partners, credit rating agencies, and increasingly regulators evaluate Indian companies. The integration of CSR strategy, ESG performance, and sustainability reporting is now a boardroom priority — not just a CSR department function.

The CSR Mandate: Who Qualifies and What Is Required

Section 135 of the Companies Act, 2013 mandates CSR for every company — private limited, public limited, or foreign — that meets any one of the following thresholds in the immediately preceding financial year: net worth of Rs. 500 crore or more; turnover of Rs. 1,000 crore or more; or net profit of Rs. 5 crore or more.

Qualifying companies must spend at least 2% of the average net profits of the immediately preceding three financial years on CSR activities. Net profit for this purpose is calculated under Section 198 of the Act — a computation that differs from accounting profit in several respects, including exclusions for capital gains and dividends. The computation must be done carefully to arrive at the correct CSR obligation.

CSR activities must be carried out in accordance with Schedule VII of the Act, which specifies permitted activities across areas including eradicating extreme hunger and poverty; promoting education, gender equality, and women empowerment; ensuring environmental sustainability; healthcare including sanitation and safe drinking water; rural development; slum area development; and support to national funds and development initiatives.

CSR Governance: The CSR Committee and Policy

Companies meeting the CSR threshold must constitute a CSR Committee of the Board comprising at least three directors, including at least one independent director (for companies required to have independent directors). The CSR Committee is responsible for formulating and recommending the CSR Policy to the Board; recommending the amount of expenditure; and monitoring CSR policy implementation.

The CSR Policy must be approved by the Board and published on the company’s website. It must specify the areas of CSR activity, the implementing mechanism (through own foundation, registered societies, Section 8 companies, or approved implementing agencies), the monitoring and reporting framework, and the surplus utilisation policy.

The Board’s Report must include an annual report on CSR activities — disclosing the CSR obligation, the amount spent, project-wise details, and, where the company has not spent the full obligated amount, the reasons and the amount transferred to Unspent CSR Account or specified funds.

Unspent CSR: The 2021 Amendment and Its Implications

The Companies (CSR Policy) Amendment Rules, 2021 introduced a fundamental change in the treatment of unspent CSR funds. Companies now have a mandatory obligation to transfer any unspent ongoing project funds to a special Unspent CSR Account within 30 days of the financial year end, and utilise these funds within three years. Unspent amounts not pertaining to ongoing projects must be transferred to specified Government funds within six months of the financial year end.

The amendment also introduced an impact assessment obligation for companies with annual CSR expenditure of Rs. 10 crore or more — requiring independent third-party evaluation of at least 5 projects. The impact assessment report must be included in the Annual Report and filed with the Board.

These provisions have significantly tightened CSR compliance. Companies can no longer carry forward unspent amounts indefinitely — non-compliance results in penalties of twice the amount required to be transferred or Rs. 1 crore, whichever is less, for the company, and penalties for defaulting officers.

ESG: Beyond Compliance into Strategy

While CSR is about what a company does for society, ESG is about how a company operates — its environmental footprint, social practices, and governance quality. The two are related but distinct. A company can be CSR compliant while having poor environmental practices in its own operations; a company can have excellent ESG scores while spending minimally on external CSR.

SEBI’s Business Responsibility and Sustainability Reporting (BRSR) framework, which replaced the Business Responsibility Report (BRR) from 2022-23 for the top 1,000 listed companies and is being progressively extended, represents India’s most comprehensive ESG disclosure framework. BRSR requires companies to disclose against nine principles covering ethics, product sustainability, employee wellbeing, stakeholder engagement, human rights, environmental stewardship, public policy, customer protection, and inclusive growth.

Global investors, particularly foreign institutional investors and development finance institutions, now conduct ESG due diligence as part of investment decisions. Indian companies in global supply chains face ESG requirements from their multinational customers. Credit rating agencies are integrating ESG risk factors into credit analysis. The business case for robust ESG performance has never been stronger.

How Sudhir Hulyalkar & Co. Can Help

Navigating CSR compliance, ESG strategy, and sustainability reporting requires both technical expertise and strategic clarity. Sudhir Hulyalkar & Co. offers a full spectrum of CSR and ESG advisory services — from computing the annual CSR obligation and constituting the CSR Committee to drafting the CSR Policy, advising on implementing agency selection and project structuring, managing the Unspent CSR Account, and preparing BRSR disclosures for listed companies.

Our CSR professionals are qualified Company Secretaries with deep expertise in both the statutory framework and practical implementation challenges. We work with companies of all sizes — from large listed corporations to mid-sized manufacturers entering the CSR obligation threshold for the first time. Our approach combines rigorous statutory compliance with strategic counsel on building CSR and ESG narratives that resonate with investors, regulators, and communities.

As India’s regulatory and investor expectations around sustainability continue to evolve, companies that invest in building genuine CSR and ESG capability — rather than treating it as a form-filing exercise — will find themselves at a significant competitive advantage. We would be delighted to help you build that advantage.

The board of directors is the apex governance body of any company. It sets strategic direction, oversees management, protects shareholder interests, and bears ultimate responsibility for the company’s compliance, risk management, and long-term sustainability. Yet across India, boardroom governance remains a work in progress — with many boards functioning as rubber-stamp bodies rather than genuine oversight mechanisms.

The consequences of weak board governance are not merely theoretical. High-profile corporate governance failures — from the IL&FS crisis to various bank NPL controversies — have underscored how inadequate board oversight can precipitate systemic financial crises. The Companies Act, 2013 and SEBI’s LODR Regulations represent India’s legislative response, establishing a comprehensive framework for board composition, processes, and accountability.

The Legal Framework: Board Composition and Requirements

Under the Companies Act, 2013, every company must have a minimum of two directors (three for public companies, seven for listed companies at the maximum). Listed companies are required to have at least one-third of the board as independent directors; where the chairman is an executive director or a promoter, the requirement rises to one-half.

The concept of the independent director — introduced comprehensively by the Companies Act, 2013 — is central to modern board governance. An independent director brings external perspective, professional expertise, and the ability to challenge management assumptions. The Act and SEBI regulations lay down eligibility criteria, tenure limits (two terms of five years each), and onboarding requirements including registration on the Independent Directors Databank maintained by ICSI.

Board committees — the Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee, and Risk Management Committee — are mandated for specified categories of companies. These committees are the workhorses of effective board governance, providing specialist oversight of financial reporting, executive compensation, investor relations, and enterprise risk.

Board Meeting Compliance: Secretarial Standards and Best Practices

The ICSI’s Secretarial Standard on Meetings of the Board of Directors (SS-1) provides a detailed framework for board meeting processes. Compliance with SS-1 is mandatory under the Companies Act. Key requirements include issuing notice of board meetings at least seven days in advance in writing; including a detailed agenda and notes with every notice; ensuring quorum requirements are met throughout the meeting; maintaining proper minutes with adequate detail; circulating draft minutes within 15 days and approving them at the next meeting; and safeguarding minutes books as permanent company records.

Companies frequently fail on seemingly minor but technically significant SS-1 requirements: notices issued by email without adequate lead time; agendas that are too skeletal to satisfy the ‘detailed’ requirement; minutes that record only resolutions without adequate discussion summaries; and quorum breaks that go unrecorded. Each of these gaps is identified in a secretarial audit — and each can attract a qualification in the secretarial audit report.

Director Responsibilities and Liability Framework

Being a director is a position of significant legal responsibility. The Companies Act, 2013 imposes statutory duties on directors including duty to act in good faith, duty to exercise due and reasonable care, duty not to engage in self-dealing, and duty to disclose conflicts of interest. The Act also creates specific criminal liability for officers in default — a category that can include the managing director, whole-time director, company secretary, and in some cases all directors — for contraventions of specified provisions.

SEBI regulations impose additional obligations on directors of listed companies, including trading restrictions under insider trading regulations, disclosure obligations for transactions in securities, and personal accountability for corporate disclosures. Independent directors carry specific responsibilities regarding the quality of financial reporting and the functioning of the Audit Committee.

The proliferation of personal liability provisions makes it imperative for directors to ensure that the company has robust compliance systems in place and that board processes are conducted in strict accordance with applicable law and secretarial standards. Directors who take governance seriously — attending board meetings, engaging meaningfully with agenda items, asking probing questions — are in a far stronger legal position than those who simply sign off on pre-approved resolutions.

Board Evaluation: A Tool for Governance Excellence

The Companies Act, 2013 and LODR Regulations require listed companies and certain other companies to carry out an annual evaluation of the board as a whole, its committees, and individual directors. Board evaluation, when conducted meaningfully, is a powerful governance tool — not a compliance checkbox.

An effective board evaluation process assesses the board’s strategic contribution, the quality of board dynamics and decision-making, individual director participation and expertise, committee effectiveness, and the board’s relationship with management. The evaluation should result in concrete action plans — for board composition changes, skill additions, process improvements, and individual director development.

Sudhir Hulyalkar & Co. assists boards in designing and facilitating rigorous evaluation processes — providing confidential questionnaires, facilitating one-on-one director interviews, analysing results, and presenting findings to the board and nomination and remuneration committee. Our approach is tailored to the company’s size, sector, and governance maturity.

Building a Governance-First Culture

Ultimately, governance is about culture. The most sophisticated compliance frameworks are ineffective if the tone at the top does not genuinely value transparency, accountability, and ethical conduct. Boards that model good governance — by engaging seriously with their responsibilities, maintaining independence, asking hard questions, and insisting on timely and accurate disclosures — create organisations that are resilient, trusted, and attractive to the best talent and capital.

At Sudhir Hulyalkar & Co., we are committed to helping our clients build governance-first organisations. From board structuring and director onboarding to secretarial compliance and board evaluation, we provide the expertise and infrastructure that enables boards to focus on what they do best: governing.

Corporate India has undergone a sweeping transformation in governance expectations over the past decade. The Companies Act, 2013, along with SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, has significantly raised the bar for compliance. At the centre of this governance revolution lies a powerful tool: the Secretarial Audit.

Yet, for many promoters, directors, and management teams, secretarial audit remains an abstract obligation — something managed at year-end, signed off, and filed. This approach misses the forest for the trees. A properly conducted secretarial audit is not merely a compliance formality; it is a governance diagnostic that can protect the company, its directors, and its shareholders from serious legal and regulatory exposure.

What is a Secretarial Audit?

A secretarial audit is an independent verification process conducted by a practising Company Secretary (PCS) to assess whether a company has complied with all applicable laws, rules, regulations, and procedural requirements. It examines the legal and procedural compliance of a company from a secretarial and governance standpoint — going well beyond the financial audit conducted by a chartered accountant.

Under Section 204 of the Companies Act, 2013, secretarial audit is mandatory for listed companies, public companies with a paid-up capital of Rs. 50 crore or more, and public companies with a turnover of Rs. 250 crore or more. The audit is conducted in Form MR-3 and forms part of the Board’s Report.

For every other company, while not mandated by statute, a voluntary secretarial audit is rapidly becoming best practice among well-governed organisations — particularly those seeking investment, undergoing restructuring, or preparing for public listing.

What Does a Secretarial Audit Cover?

The scope of a secretarial audit is comprehensive. A practising Company Secretary examines compliance across multiple statutes and regulations, including the Companies Act, 2013 and its rules; the Securities Contracts (Regulation) Act, 1956; the Depositories Act, 1996; SEBI regulations including LODR, Takeover Code, Insider Trading Regulations, ESOP guidelines, and others; the Foreign Exchange Management Act (FEMA) relating to foreign investments and overseas transactions; sector-specific laws applicable to the company’s business; and all secretarial standards issued by the ICSI.

• Board and committee meeting compliance: notices, quorums, minutes, resolutions
• Annual General Meeting and Extraordinary General Meeting procedural compliance
• Directors’ appointment, cessation, and disclosure obligations
• Share capital changes: allotments, buybacks, rights issues, and ESOP
• Related party transactions: approvals, disclosures, and pricing
• Statutory registers and records maintenance
• Filing of returns and forms with MCA, SEBI, RBI, and other regulators
• Compliance with secretarial standards SS-1 and SS-2

The Strategic Value of Secretarial Audit

Beyond statutory obligation, a secretarial audit delivers significant strategic value to an organisation. It functions as an early warning system — identifying compliance gaps before they escalate into penalties, prosecutions, or regulatory action. For listed companies, compliance failures under LODR can result in trading suspensions, penalties, and public embarrassment. A well-conducted secretarial audit prevents such crises.

For unlisted companies eyeing public markets, private equity investment, or strategic partnerships, a clean secretarial audit trail is often a prerequisite for due diligence. Investors and acquirers routinely examine secretarial audit reports as part of legal due diligence — and gaps discovered at that stage can delay or derail transactions.

Directors benefit immensely from secretarial audits as well. Directors carry personal liability for compliance failures under the Companies Act and SEBI regulations. A secretarial audit report that identifies and addresses non-compliances provides a documented record of the company’s compliance posture — a vital shield in any subsequent proceedings.

Common Non-Compliances Identified in Secretarial Audits

In our experience of auditing hundreds of companies across India, certain compliance gaps recur with alarming frequency. These include delays in filing statutory forms with MCA beyond prescribed timelines; inadequate board meeting notices — particularly failure to provide the requisite clear days’ notice; non-compliance with secretarial standard SS-2 on general meetings; gaps in related party transaction disclosures and approvals; FEMA non-compliances relating to FDI filings and annual returns; failure to maintain updated statutory registers; and missing or delayed intimation to stock exchanges for listed companies.

• Late or defective MCA filings — a leading cause of compounding applications
• Board meeting notice deficiencies under SS-1
• AGM and EGM procedural lapses under SS-2
• Incomplete or delayed related party transaction disclosures
• FEMA filing defaults — FLA, ODI, and FC-GPR returns
• Statutory register maintenance lapses
• SEBI LODR deadline violations for listed entities

Choosing the Right Secretarial Auditor

A secretarial audit is only as good as the professional conducting it. The right PCS brings not just technical knowledge but sector experience, regulatory relationship depth, and practical judgment developed over years of practice. Sudhir Hulyalkar & Co. has been conducting secretarial audits since 2004, and our practice has been peer-reviewed by the Institute of Company Secretaries of India (ICSI) and successfully audited by the ICSI Quality Review Board — among the highest quality certifications available to a CS firm in India.

Our audit clients span listed blue-chip corporations, NBFCs, manufacturing companies, startups, and government-linked entities. Each engagement is handled with the depth and rigour that reflects our firm’s commitment to governance excellence.