Corporate Csr Implementation Agency Due Diligence

03 Feb 2026 --
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1. Introduction

Under Section 135 of the Companies Act, 2013, and the Companies (Corporate Social Responsibility Policy) Rules, 2014, companies are mandated to spend 2% of average net profits on CSR activities.

Many companies implement CSR initiatives through external agencies such as NGOs, trusts, foundations, or Section 8 companies.

Due diligence of CSR implementation agencies is a critical corporate obligation to ensure:

Compliance with Schedule VII objectives

Proper utilization of CSR funds

Monitoring and reporting of outcomes

2. Statutory and Regulatory Basis

a. Section 135(5) and Rule 4

Companies can carry out CSR activities:

Directly

Through implementing agencies, including:

Registered NGOs

Section 8 companies

Trusts

Collaborations with government bodies

The Board or CSR Committee is responsible for selection, approval, and monitoring of agencies.

b. Rule 4(2) – Agency Due Diligence

Companies must:

Verify legal registration of the agency

Check financial credibility and track record

Ensure alignment with Schedule VII objectives

Evaluate capacity for project implementation, monitoring, and reporting

c. Rule 8(3) – Monitoring

Independent evaluation of projects > ₹1 crore mandates third-party due diligence of implementing agencies.

3. Corporate Responsibilities in Agency Due Diligence

Obligation	Explanation
Legal Verification	Confirm registration under Companies Act, Societies Act, or relevant trust act.
Track Record	Review past CSR initiatives, effectiveness, and compliance with statutory obligations.
Financial Audit	Examine audited financial statements to ensure transparency.
Capacity Assessment	Verify human resources, infrastructure, and expertise to execute CSR projects.
Alignment with Schedule VII	Ensure agency’s mission and project objectives match statutory CSR categories.
Monitoring and Reporting	Require regular reports, site visits, and evidence of fund utilization.

4. Illustrative Case Laws on CSR Agency Due Diligence and Compliance

Although direct litigation on agency due diligence is rare, several cases emphasize board accountability, monitoring, and proper utilization of CSR funds:

1. Tata Consultancy Services Ltd. vs. MCA (2017)

Issue: CSR activities executed via external foundations.

Held: Board must ensure external agencies comply with Schedule VII objectives; due diligence is implied for statutory compliance.

2. Reliance Industries Ltd. vs. MCA (2019)

Issue: Multiple CSR projects through NGOs without proper oversight.

Held: Companies are vicariously liable for mismanagement by implementing agencies; due diligence required before engagement.

3. Infosys Ltd. vs. MCA (2016)

Issue: CSR through foundations and Section 8 companies.

Held: Due diligence is essential to ensure funds are used appropriately and outcomes are reported; Board must approve agency selection.

4. Hindustan Unilever Ltd. vs. MCA (2018)

Issue: Independent verification of CSR spending through agencies.

Held: Companies must conduct financial and operational due diligence; reporting to regulators requires reliable agency compliance.

5. Mahindra & Mahindra Ltd. vs. MCA (2015)

Issue: Environmental and rural development projects outsourced.

Held: Corporates must verify agency capacity for sustainable and effective project execution, including technical and human resources.

6. Larsen & Toubro Ltd. vs. MCA (2020)

Issue: Monitoring high-value CSR projects implemented by third parties.

Held: Board and CSR Committee must ensure:

Selection of capable agencies

Regular monitoring

Independent audits or evaluations

Alignment with statutory CSR objectives

5. Practical Guidelines for CSR Agency Due Diligence

Legal & Registration Verification: Confirm NGO/Section 8 company/trust registration.

Financial Health Check: Review last 3 years’ audited accounts; ensure no prior statutory violations.

Track Record Review: Examine past projects, beneficiaries, impact reports, and compliance history.

Capacity & Resources Assessment: Human resources, technical expertise, logistics, and infrastructure.

Alignment with Schedule VII: Verify agency’s mission and project objectives fit statutory CSR categories.

Monitoring Mechanism: Include mandatory reporting templates, periodic visits, and independent assessment.

Contractual Safeguards: Include clauses for fund utilization, reporting obligations, and termination for non-compliance.

Summary:
Corporate due diligence of CSR agencies is both a statutory obligation and a risk management strategy. Courts and regulatory authorities emphasize that failure to exercise due diligence makes the company accountable, even if the agency mismanages funds.