JSA Prism | Corporate | June 2026

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Corporate Social Responsibility implementation through Zero Coupon Zero Principal instrument

The Ministry of Corporate Affairs (“MCA”), through 2 (two) notifications[1] [2] dated May 27, 2026, has exercised its powers under Section 135 and Section 469 of the Companies Act, 2013 (“CA 2013”) to amend the applicable Corporate Social Responsibility (“CSR”) framework. Accordingly, companies are now permitted to undertake CSR activities through subscription to Zero Coupon Zero Principal (“ZCZP”) instruments issued by eligible Not-for-Profit Organisations (“NPOs”) listed on the Social Stock Exchange (“SSE”).

This development operationalises a regulated mechanism for deployment of CSR funds through market-linked instruments, while retaining oversight under the existing CSR framework.

Background

The CSR framework under Section 135 of the CA 2013 mandates eligible companies to undertake specified social development activities. Traditionally, CSR spending has been routed through direct implementation, implementing agencies, or registered trusts and societies.

The introduction of the SSE as a regulated platform, coupled with recognised fundraising instruments such as ZCZPs, provides an alternative channel for companies to deploy CSR funds in a transparent and standardised manner. The MCA’s clarification integrates this mechanism within the CSR regime, subject to prescribed conditions.

Key features of the notification

Permissibility of ZCZP instruments for CSR

Companies may utilise CSR funds by subscribing to ZCZP instruments issued by NPOs registered with and listed on the SSE. Such instruments do not carry any repayment obligation (principal or interest) and are intended strictly for funding eligible social projects.

This enables companies to participate in pooled funding structures while continuing to meet their statutory CSR obligations.

Regulatory framework governing ZCZP instruments

ZCZP instruments are subject to a defined regulatory structure, including:

issuance only in dematerialised form;
minimum issue size of INR 50,00,000 (Indian Rupees fifty lakh);
minimum application size of INR 10,000 (Indian Rupees ten thousand);
requirement to achieve at least 75% subscription of the proposed issue; and
utilisation of proceeds strictly for specified social objectives within the prescribed timeframe.

NPOs issuing such instruments are required to comply with disclosure and reporting requirements, including submission of fundraising documents and ongoing impact reporting.

Role of the SSE

The SSE, operated by recognised stock exchanges, serves as a regulated platform for listing ZCZP instruments issued by eligible NPOs.

The SSE framework provides for:

pre-screening and registration of eligible NPOs;
standardised disclosure requirements;
monitoring of fund utilisation; and
independent social audits and impact assessments.

This structure enhances transparency and accountability in deployment of CSR funds.

Conditions applicable to CSR expenditure

The MCA has prescribed certain conditions for utilisation of CSR funds through ZCZP instruments, including the following:

CSR expenditure through this route shall not exceed 10% of the total CSR obligation of the company for the relevant financial year;
the funded project should have a maximum duration of 3 (three) financial years; and
upon completion or termination, any unspent amounts are required to be transferred to funds specified under Schedule VII of the CA 2013.

These safeguards ensure that the mechanism operates within the broader objectives of the CSR framework.

Reporting and compliance obligations

NPOs raising funds through ZCZP instruments are required to:

utilise funds strictly for eligible sustainable development goals;
adhere to timelines specified in fundraising documents; and
submit periodic disclosures and impact reports verified by independent social auditors.

Companies, in turn, must ensure that their CSR reporting appropriately reflects such expenditure in accordance with applicable rules.

Conclusion

The MCA’s recognition of ZCZP instruments as a permissible CSR avenue marks an important evolution in the CSR framework by introducing a regulated, market-based mechanism for funding social initiatives.

From a corporate perspective, this route provides an additional option for deploying CSR funds through a structured and transparent system, while leveraging the standardisation and oversight embedded in the SSE framework.

At the same time, the prescribed caps and compliance conditions ensure that companies continue to maintain direct oversight over their CSR strategy and obligations.

Companies may evaluate the suitability of this mechanism in the context of their CSR policies, project preferences, and compliance considerations.

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