-
The MCA has integrated India's CSR framework with the Social Stock Exchange ecosystem by recognising ZCZP Instruments as a valid channel for CSR deployment, thereby opening a regulated pathway for corporate CSR capital to support SSE-listed social impact projects.
-
The framework seeks to balance innovation with accountability through investment limits, enhanced disclosure-based oversight and specific obligations on issuing NPOs, signalling a measured expansion of market-based social finance within the CSR regime.
INTRODUCTION
India's Corporate Social Responsibility (“CSR”) framework, embodied under Section 135 of the Companies Act, 2013 (“Act”) and the Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”), has progressively evolved from a compliance-driven grant-making regime towards a more structured and accountable impact-finance ecosystem. Reflecting this shift, the Ministry of Corporate Affairs (“MCA”), through its notification dated May 27, 2026, has introduced the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026 (“Amendment Rules”).
A key feature of the Amendment Rules is the recognition of the Zero Coupon Zero Principal Instrument (“ZCZP Instrument”) as a permissible channel for CSR implementation. In doing so, the MCA has for the first time created a formal linkage between the CSR framework and the Social Stock Exchange (“SSE”) ecosystem, enabling corporates to deploy a portion of their CSR expenditure through regulated social-finance instruments.
The SSE operates as a distinct segment of recognised stock exchanges and is regulated by the Securities and Exchange Board of India (“SEBI”) under Chapter X-A of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”), read with Chapter IX-A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). By recognising subscriptions to ZCZP Instruments issued by eligible not-for-profit organisations (“NPOs”) on the SSE as a valid mode of CSR implementation, the Amendment Rules seek to channel CSR capital through a transparent, disclosure-driven and market-regulated framework for social impact financing.
BRIEF OVERVIEW OF ZERO COUPON ZERO PRINCIPAL INSTRUMENT
A ZCZP Instrument is a security issued by a NPO registered with SSE for the purpose of raising funds for a specified social project. Unlike conventional debt securities, a ZCZP Instrument does not carry any coupon payments and does not provide for repayment of the principal amount upon maturity. Accordingly, subscribers do not receive any financial return on their investment; rather, their participation is intended solely to support the achievement of measurable social outcomes. 1
The issuance of ZCZP Instruments is governed by Chapter X-A of the ICDR Regulations. An NPO seeking to issue such instruments must first obtain registration with the SSE segment of a recognised stock exchange under Regulation 292F of the ICDR Regulations. Once registered, the NPO may issue ZCZP Instruments either through a public issue to institutional and non-institutional investors, or through a private placement to Social Impact Funds registered under the Alternative Investment Funds Regulation, 2012 (“AIF Regulation”).
The regulatory framework has been designed to broaden access to social-impact investing while maintaining appropriate safeguards. A ZCZP issuance must have a minimum issue size of INR 50 lakh, while the minimum application size has recently been reduced to INR 1,000, thereby facilitating wider retail participation.
To ensure transparency and accountability, NPOs issuing ZCZP Instruments remain subject to an ongoing disclosure regime under Chapter IX-A of the LODR Regulations. Such entities are required to make annual disclosures relating to their governance, financial and operational affairs, furnish annual impact reports detailing the qualitative and quantitative outcomes achieved through the funded project, and provide periodic disclosures regarding the utilisation of funds raised through the issuance. These reporting and disclosure obligations form the cornerstone of the SSE framework and are intended to provide subscribers with continuous visibility into the social impact generated through their contribution.
KEY AMENDMENTS
1. Introduction of Enabling Definitions
The Amendment Rules introduce two important definitions into Rule 2(1) of the CSR Rules, thereby formally integrating the CSR framework with the SSE ecosystem.2 First, the term “Not for Profit Organization” has been adopted by reference to clause (e) of Regulation 292A of the ICDR Regulations.3 Secondly, the “ZCZP instrument” has been defined as a security, issued by a NPO registered with the SSE segment of a recognised stock exchange in accordance with the regulations made by SEBI.
By incorporating these definitions, the Amendment Rules establish the legal foundation for recognising SSE-linked instruments within the CSR framework and ensure consistency between the regulatory regimes administered by the Ministry of Corporate Affairs (“MCA”) and SEBI.
2. Recognition of ZCZP Instruments as a Mode of CSR Implementation
The substantive core of the Amendment Rules lies in the insertion of Rule 4A, which expressly permits companies to carry out their CSR activities through a ZCZP Instrument issued by NPOs.4
This marks a significant expansion of the recognised modes of CSR implementation by bringing market-linked social finance instruments within the ambit of the CSR framework. However, the Amendment Rules adopt a calibrated approach by limiting such deployment to ten percent of a company's total CSR expenditure for the relevant financial year.5
Accordingly, the existing modes of CSR implementation under Rule 4 continue to remain the primary channels for CSR deployment. These include implementation directly by the company or through eligible implementing agencies such as Section 8 companies, registered public trusts and registered societies satisfying the prescribed eligibility conditions and registered with the Central Government through Form CSR-1. The ten percent cap reflects a policy objective of encouraging participation in the SSE ecosystem while ensuring that the majority of CSR expenditure continues to flow through established implementation structures.
3. Exemption from Impact Assessment Requirements under CSR Rules
The Amendment Rules further provide that a company subscribing to a ZCZP Instrument shall be exempted from undertaking impact assessment in respect of any project funded through such instrument.6
This exemption appears to recognise that such projects funded through ZCZP Instruments are already subject to a comprehensive disclosure and reporting framework under Chapter IX-A of LODR Regulations and Chapter X-A of the ICDR Regulations.7 NPOs issuing such instruments are required to make periodic disclosures, furnish annual impact reports and provide statements regarding the utilisation of funds raised, in addition to being subject to social audit requirements.
The exemption therefore reduces duplicative compliance obligations for subscribing companies without materially diminishing accountability or transparency.
4. Additional Obligations of the Issuing NPOs
The Amendment Rules also prescribe specific obligations on the NPOs issuing ZCZP Instruments. An issuing NPO is required to undertake a project having a duration of not more than three succeeding financial years from the date of issuance of the instrument. Further, upon termination of the listing of the ZCZP Instrument, any unspent amount must be transferred to a fund specified under Schedule VII of the Companies Act, 2013, and a compliance report must be submitted to SEBI.
These requirements introduce an additional layer of discipline within the CSR context. Notably, while the ICDR Regulations link the tenure of a ZCZP Instrument to the duration of the underlying project, they do not prescribe an express outer time limit. The introduction of a three-year project horizon under the CSR framework therefore represents a more prescriptive approach aimed at ensuring timely deployment and utilisation of CSR funds.
|
Particulars
|
Position under the Amendment Rules
|
|
New CSR mode
|
Company may discharge CSR by subscribing to a ZCZP Instrument issued by an NPO on the SSE (new Rule 4A).
|
|
Cap on use
|
Spend through ZCZP Instruments capped at 10% of the company's total CSR expenditure for the financial year.
|
|
Impact assessment
|
Subscribing company exempt from impact assessment for ZCZP-funded projects (already covered by SEBI disclosure, social audit and impact reporting).
|
|
Project timeline
|
Issuing NPO must complete the project within 3 succeeding financial years from issue of the instrument.
|
|
Unspent amount
|
On termination of listing, unspent amount to be transferred to a Schedule VII fund and a compliance report filed with SEBI.
|
CONCLUSION
The Amendment Rules represent an important step in integrating India's CSR framework with the broader social finance ecosystem. By recognising ZCZP Instruments as a permissible mode of CSR implementation, the MCA has created a regulated pathway through which corporate capital can be channelled towards social impact projects through the SSE framework.
While the immediate impact may be moderated by the prescribed safeguards and investment limits, the amendment lays the foundation for greater convergence between CSR funding and market-based impact financing. Its long-term success will depend on the extent to which companies, NPOs and market participants embrace the framework and demonstrate its effectiveness as a credible channel for delivering measurable social outcomes.
Sehar Sharma and Rahul Rishi
You can direct your queries or comments to the authors.
The authors would like to acknowledge and thank Ms. Aishana Deeksha for her assistance to this hotline.
1Zero coupon zero principal instruments were declared “securities” under Section 2(h)(iia) of the Securities Contracts (Regulation) Act, 1956 by the Central Government, vide notification dated July 16,2022.
2Rule 2(1)(ha) and Rule 2(1)(l), the Companies (Corporate Social Responsibility Policy) Rules, 2014, as inserted by the Amendment Rules.
3Regulation 292A(e), the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (definition of “Not for Profit Organization”).
4Rule 4A(1), the Companies (Corporate Social Responsibility Policy) Rules, 2014, as inserted by the Amendment Rules, including the proviso capping such expenditure at ten percent of total CSR expenditure for the financial year.
5Proviso to Rule 4A(1), the Companies (Corporate Social Responsibility Policy) Rules, 2014, as inserted by the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026, notified vide, dated May 27, 2026.
6Rule 4A(2), the Companies (Corporate Social Responsibility Policy) Rules, 2014. Impact assessment is otherwise mandated under Rule 8(3) for companies with an average CSR obligation of INR 10 crore or more in the three immediately preceding financial years, in respect of projects with outlays of INR 1 crore or more completed at least one year prior.
7Regulations 91C (annual disclosures), 91E (audited Annual Impact Report) and 91F (statement of utilisation of funds), the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, read with the SEBI Master Circular on the Social Stock Exchange. NPOs raising funds through ZCZP instruments are independently subject to social audit and impact reporting under this framework.