MCA facilitates Corporate Social Responsibility through Zero Coupon Zero Principal Instrument by expanding the scope of Schedule VII of the Companies Act, 2013

📌 Summary:

• Ministry of Corporate Affairs (MCA) widened the ambit of Schedule VII of the Companies Act, 2013 by introducing new item (xiii): "Subscription to Zero Coupon Zero Principal Instruments on Social Stock Exchange"
• Aim: facilitate CSR through Zero Coupon Zero Principal Instruments (ZCZPIs); align CSR funding with the Social Stock Exchange (SSE) ecosystem
• CSR Policy Rules, 2014 amended — defines "Not for Profit Organization" and "Zero Coupon Zero Principal Instrument" in Rule 2; criteria for CSR implementation through ZCZPIs in new Rule 4A
• Cap: expenditure on such instruments shall NOT exceed 10% of total CSR expenditure for that financial year (ensures diversification)
• NPOs can now issue ZCZPIs on Social Stock Exchange as per SEBI Regulations to raise public welfare project funding in a transparent, regulated manner
• Project execution & evaluation responsibility lies with the NPO raising funds (accountability anchored at NPO level)
• Legal framework: Section 135 + Schedule VII of Companies Act 2013 + Companies (CSR Policy) Rules, 2014
• Gazette notifications G.S.R. 415(E) and G.S.R. 416(E) dated 27.05.2026 give effect to the amendments

🎯 UPSC Relevance: GS2/GS3 — CSR governance and accountability; role of NGOs/NPOs in welfare delivery; Social Stock Exchange as innovative finance instrument; convergence of corporate finance with social sector funding.

📝 Prelims Facts:

• Schedule VII of the Companies Act, 2013 lists permissible CSR activities
• Section 135: companies with net worth ≥ ₹500 cr OR turnover ≥ ₹1000 cr OR net profit ≥ ₹5 cr must spend 2% of average net profit on CSR
• Social Stock Exchange (SSE) launched under SEBI in 2023; separate segment of BSE/NSE for listing NPOs and social enterprises
• ZCZPI = a debt-like instrument with zero coupon (no interest) and zero principal repayment; effectively a donation routed via exchange for transparency
• 10% cap on CSR spend via ZCZPIs in any financial year

🔑 Key Term: Zero Coupon Zero Principal Instrument (ZCZPI) — a SEBI-regulated security through which NPOs raise funds on the Social Stock Exchange; carries no coupon and no principal repayment, making it functionally a transparent grant/donation.