A Trust Bank Ltd. is a private sector bank incorporated under the Companies Act, 2013. For the financial year 2024-25, it reported substantial profits but did not allocate 2% of its net profits towards CSR activities, ar

In terms of Section 135 of the Companies Act, 2013, CSR provisions are applicable to companies incorporated under the Act, including private sector banks registered as companies. Such entities are required to spend at least 2% of their average net profits earned in the three immediately preceding financial years on CSR activities. Since the Nationalized Banks are not incorporated as a company under the Companies Act, 2013, they are not covered under section 135 of the Act and accordingly, the requirement to spend 2% of net profits on CSR activities remains voluntary for such banks. However, as per RBI Circular dated 21 December 2005, banks are permitted to make donations of upto 1% of their published net profits. These donations are voluntary contributions and are distinct from CSR, which involves structured, monitored, and policy-driven activities. In the present case, Trust Bank Ltd., being a private sector bank incorporated under the Companies Act, 2013, is clearly covered under Section 135. Therefore, it is under a statutory obligation to spend 2% of its average net profits of three immediately preceding financial years on CSR activities. Its contention that banks are primarily governed by RBI norms is not valid, as compliance with RBI regulations does not override statutory obligations under the Companies Act. Accordingly, failure to spend the prescribed CSR amount amounts to non-compliance, and the bank must follow provisions relating to unspent CSR amount and disclosures. In contrast, the State Bank of India, being a public sector bank, is not governed by Section 135 of the Companies Act. Hence, it is not mandatorily required to spend 2% of its profits on CSR activities but it is permitted to make donations of up to 1% of net profits as per RBI guidelines. In this case, State Bank of India has contributed 1.5% of its net profits, which exceeds the prescribed limit. Therefore, its action is not in conformity with RBI guidelines, unless such excess falls within exempted categories like contributions to specified funds or institutions. Distinction between CSR obligations and Donations: CSR is a mandatory, structured, and policy-driven obligation applicable to companies under the Companies Act, focusing on sustainable and monitored social development activities. Donations, on the other hand, are voluntary contributions governed by RBI guidelines in the case of banks and are not equivalent to CSR in terms of scope, accountability, or reporting requirements. Trust Bank Ltd. has failed to comply with mandatory CSR provisions under the Companies Act, 2013. State Bank of India is not bound by CSR provisions but appears to have exceeded the permissible donation limit under RBI guidelines. Therefore, both entities must align their actions with their respective regulatory frameworks to ensure compliance.