Understanding the borderline between implementing agencies and beneficiaries

Sikha Bansal, Partner and Payal Agarwal, Executive



Corporate Social Responsibility or CSR regime has undergone a drastic change with the issue of the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, vide notification dated 22nd of January, 2021 (‘Amendment Rules’) brought by MCA. The Amendment Rules have come into force with immediate effect, except for certain relaxations otherwise provided for in the said rules.

One of the substantive changes which the Amendment Rules have brought in, pertains to CSR implementation. While the companies always had the liberty to ‘undertake’ CSR activities either itself or through certain ‘entities’; the Amendment Rules take a step ahead in regulating such entities by prescribing registration requirements, etc. However, there are more important questions, for example, – with newly introduced provisions as to ‘ongoing projects’ and requirement of transfer of ‘unspent amount’ to scheduled funds and related ‘penal’ provisions (which were not there earlier), do we need to relook how the amounts ‘disbursed’ to such entities shall be treated?

The article seeks to delve into the relationship between the company and these entities vis-à-vis CSR activities, and looks for answers to certain pertinent questions as we discuss below.

What is an ‘implementing agency’?

‘Implementing agency’ is not a defined term under the CSR regime. In fact, the Amended Rules no-where use the term, barring in Annexure II, where one of the columns require details of ‘Implementing Agency’, where the ‘mode of implementation’ is not direct, and is through an implementing agency or multiple implementing agencies. Earlier, the CSR rules used the expression ‘implementing agencies’ under rule 4(6) where companies were allowed to ‘build CSR capacities’ of their personnel as well as those of ‘their implementing agencies’.

Under the Rules, section 8 companies, registered public trusts, and registered societies (collectively, called ‘entities’) can be such implementing agencies. However, should the companies always regard them as their ‘agencies’ and not as ‘beneficiaries’ of their CSR spending? Notably, many such entities would be directly engaged in various activities falling well within the ambit of ‘CSR’, basis contributions/donations received from all and sundry. That is, these entities might themselves be engaged in activities which the company is intending to undertake as its CSR obligation. In such a case, a common question would be – can the company disburse CSR funds to the entity and claim it as a CSR spend? In other words, to put it broadly, what distinguishes the role of such entities as ‘implementing agencies’ from being ‘donees’ or ‘beneficiaries’?

Barring the provision which allows companies to ‘undertake’ CSR activities either itself or ‘through’ such implementing agencies, there is no clarity in the Rules regarding the role and functions as well as limitations of implementing agencies vis-à-vis the companies and their obligation to spend money on CSR activities. However, with the use of the word ‘through’, it is sufficiently clear that the mode of implementation is indirect. Drawing inferences from the language of the law, it can be said that the entity, in order to be regarded as an ‘implementing agency’ should be acting only as an extended arm of the company in ‘undertaking’ CSR activities. As such, all common law rules, as applicable to a principal-agent relationship, should appropriately apply to the relationship between the company and the implementing agency.

Indicia of principal-agent relationship

Sections 182 to 238 of the Indian Contract Act, 1872 (‘contract law’) deals specifically with the rules of agency. An agent is employed by the principal to do any act for the latter or represent the latter in dealings with third persons under an express or implied authority. The agent conducts the business in accordance with the directions of the principal. Where no directions are given, the agent may follow prevailing customs. Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person.

The traits of principal-agent relationship as per established jurisprudence, can be discussed as follows. In deciphering whether an entity is acting as an implementing ‘agency’ of the company or merely as a ‘beneficiary’, cues may be taken from the stance taken by courts over time where similar questions were posed.

As Halsbury’s Laws of England (Hailsham Edition) Vol. 1 states,

An agent is to be distinguished on the one hand from a servant, and on the other from an independent contractor. A servant acts under the direct control and supervision of his master and is bound to conform to all reasona-ble orders given to him in this course of his work; an independent contractor, on the other hand, is entirely independent of any control or interference and merely undertakes to produce a specified result, employing his own means to produce that result. An agent, though bound to exercise his authority in accordance with all lawful instructions which may be given to him from time to time by his principal, is not subject to its exercise to the direct control and supervision of the principal.”

See C.E.S.C. Ltd. etc v. Subhash Chandra Bose and Ors., 1992 AIR 573, where referring to Halsbury (supra), the Supreme Court observed that the agent has an identity distinct from his principal in one sense and a fictional identity with his principal in the other. By undertaking to provide adequate supervision under the provisions of the Electricity Act, the agreement between the company and the electrical contractor nowhere amalgamates the identity of the electrical contractor with that of the principal. Note that the question in the instant case pertained to ESI dues.

Whether the relationship is that of a principal and agent would largely depend on the terms of the contract. Based on evidences, it was clear that the plaintiff was buying vehicles from the defendants for resale. It cannot be disputed that even an agent can become a purchaser when the agent makes payment of the price to the principal on his own responsibility. In such a circumstance the agreement would be one between vendor and purchaser and not one of principal and agent. See Vijay Traders vs M/S. Bajaj Auto Ltd., 1995 SCC (6) 566.

An agent is merely an extended hand of the principal and cannot claim independent rights. National Textile Corporation Ltd v. Nareshkumar Badrikumar Jagad , 2011 12 SCC 695.

Therefore, in order to be considered an ‘implementing agency’, the relationship between the company and the entity has to be a ‘principal-agent’ relationship. The entity has to –

  • be an agent of the company, rather than an independent principal transacting with the company, and
  • be an instrumentality of the company in implementing the CSR activity.

If, in the given circumstances, the factors as discussed above exist, it can be said that the entity is acting only as an implementing agency of the company. The company is merely outsourcing its functions so as to achieve desired results. As the Technical Guide on Accounting of CSR Funds by Third Parties also says:


The implication of this rule is that requirements for CSR have been robust so as to utilise the expertise of a third party to undertake CSR activities on behalf of the Company. Also, such outsourcing may be desirable as it allows for non-profits organizations who are specialised in carrying out a particular kind of social activity, to undertake it for other companies as well. . . .A company must follow a thorough and stringent selection process to ensure that the organizational goals towards CSR are achieved in the most transparent, effective and efficient manner.”

What constitutes ‘spending’?

As is clear from the language of the law, the company has a minimum ‘spending’ obligation – see section 135(5). So, what constitutes ‘spending’? Surely enough, an amount given to an agent to undertake the required task cannot be termed as an expense. In that case, the expense is being made ‘through’ the agent, and not ‘for’ the entity.

Therefore, where an amount is disbursed to the entity, where the entity is acting as the implementing agent of the company, the same cannot be termed as ‘expense’ or amount ‘spent’ in terms of CSR obligations. Hence, parking of the CSR funds by a company in its implementing agency cannot be considered as ‘spending’ in compliance with section 135(5).

However, where there is no principal-agent relationship, but only disbursement of funds to an independent entity, in line with the activities specified under Schedule VII of the Act, the same will be taken as undertaking of CSR by the company itself. In that case, the entity would be in the capacity of a ‘beneficiary’ rather than an ‘agency’. Such a disbursement can be recognised as CSR expenditure with immediate effect, that is, as soon as the amount is paid to the beneficiary.

However, note that there might be cases where the beneficiary entity is undertaking non-CSR activities as well. Then, it has to be ensured that the company’s contribution is towards only CSR activities. In that regard, guidance may be taken from MCA Circular No. 21/2014 which stated that contribution to such entities will qualify as CSR expenditure as long as either of the two conditions are met –

  • the entity is created exclusively for undertaking CSR activities, or
  • the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Companies Act.

Hence, where the entity, even when engaged in non-CSR activities as well, earmarks fund/funds for the purpose of specific CSR activities, company’s contribution to such fund(s) should qualify as CSR expenditure.

Agency vs. beneficiary – how classification impacts the company

Whether the entity is acting in the capacity of an implementing agency or a beneficiary would have an impact on the company as follows –

  • Unspent amount – Amount paid to implementing agency for CSR projects, but not ‘spent’ by the agency as required under the CSR Rules, would be treated as ‘unspent’ amount and be treated accordingly. All rules (that is, transfer of unspent amount within 6 months of the end of financial year, etc.) would apply in cases where the amount has been paid to implementing agency and a part of that amount remains unspent. However, where the entity is not an agent, the amount disbursed to the entity should be treated as a CSR spend and would be treated as fulfilment of CSR obligation under section 135(5), subject to the conditions as discussed above.
  • Classification of projects as ‘ongoing’ or otherwise – Notably, classification of projects as ‘ongoing’ or otherwise is at the ‘company’ level. Where the company contributes CSR funds to an entity (being beneficiary of such funds), it should ideally be classified as a one-time activity and not any kind of project, irrespective of the fact whether the money is utilised by the entity in multi-year projects. As such, contributions to entities’ funds would not assume the nature of ongoing projects and unspent amounts cannot be retained in the special bank account maintained under section 135(6).
  • Registration – The implementing agencies need to be registered with MCA (by filing CSR-1) for carrying out the activities under CSR on behalf of the company. Therefore, where the entity is being engaged by the company as an implementing agency, the company needs to ensure that the entity is registered with MCA. In other cases, that is, where the entity is acting only as a beneficiary, the registration is not required.
  • Monitoring and evaluation –While it is the general mandate for the board to ensure that the CSR funds are spent in accordance with the CSR policy of the company (see, section 135(5)), the specific responsibility of the board with respect to ongoing projects has been provided for in rule 4(6) of CSR Rules, where the board has to monitor the implementation of the project with reference to the approved timelines and year-wise allocation. Further, rule 4(5) requires that the company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it, and the CFO shall give a certification to that effect. Hence, is the company/board of directors obliged to monitor the amounts given to the entity and see whether the amounts have been ‘utilised’ by the entity for which the funds were given? On one hand, it may be contended that the word ‘utilisation’ as appearing in rule 4(5) has to be read with reference to the company. That is, where the company has contributed CSR funds to a beneficiary entity, the utilisation of CSR funds happens instantly. However, another view is that CSR is a result oriented obligation, where there must be an ‘impact’ – as such, the company may be expected to see if the entity is utilising the funds towards the CSR objective of the company.


The discussion above may be illustrated as follows –

Y Ltd. has identified welfare of cancer patients as its CSR activity. Now the Company wants to engage a society, say, Cancer Relief Society for the purposes of such treatment. Now, whether the same is an implementation agency or the ultimate beneficiary, will depend upon the role played by such entity. The society might be involved in various other activities. The two cases that may follow here as follows:

Case 1: The Company has disbursed funds to the Society. The activity of treatment of cancer patients has been defined as the purposes for which such funds will have to be utilised. The activity will be undertaken by the society itself. The time schedule of such implementation is fixed. Monitoring of utilisation is done by the Board and utilisation of funds for such purpose is certified by the CFO. The society will qualify as implementation agency.

Case 2: The Company has disbursed funds to the Society. The Society uses such funds in furtherance of its activities ranging from creating awareness among the people, treatment of cancer patients, expenses in relation to medicines, donating instruments to hospitals for the cause of treating cancer etc. The role of the society in this case does not seems to be that of an agent. The activities are done by the Society, and are not as directed by the company to be done through the society. It will be regarded as beneficiary in this case.

Need of CSR through implementing agencies

If contribution to recognised entities would be sufficient to fulfil CSR obligations, then why at all companies would seek CSR fulfilment through implementing agencies.

In the view of the authors, CSR is not merely a one-time charity or philanthropy a company undertakes. CSR activities should align with long-term objectives of the company. Mere disbursement of funds, while may project the image of the company as a contributor in pecuniary terms; however, might not lead to establishing the corporate image of the company as one creating a social impact in the capacity of being a corporate citizen. Involvement in CSR projects directly or even through agencies would go beyond monetary contributions.

The Report of the High-Level Committee on CSR (2018 HLC Report), constituted by MCA in 2018, highlighted that delays in project identification and implementation, owing to lack of prior expertise in the companies, were major reasons for under-spending of CSR funds. Therefore, it is also essential for companies to identify some non-governmental organisations (NGOs) operating in their local area which can assist them in not only formulating projects, as per the local needs, but also in implementing them.

Further, where CSR is undertaken through implementing agency, the board of the Company would be able to monitor the utilisation properly, since it will have to focus on one aspect only. On the contrary, where a company is required to do all the activities starting from planning, implementing, monitoring etc, all the work may not be handled by the company effectively. On the other hand, where the company only contributes fund to the entity, it may have to involve more into monitoring the utilisation.

Hence, the companies may have to make a choice depending upon the business goals, vision and resources in hand.

Our other material on CSR can be accessed through the below link:

4 replies
  1. Hrishikesan S
    Hrishikesan S says:

    Just like engaging a builder to build, if a company engages an expert organization in the field of awareness to create an awareness program that is covered under schedule VII, will the expert organization be treated as an implementation agency?

    • Payal Agarwal
      Payal Agarwal says:

      Based on the fact that the expert organization is engaged by the company, the organization is working for the company as per the directions of the company, the same should be treated as an implementation agency.

  2. K. Narayanan
    K. Narayanan says:

    You have mentioned that, role of the implementing agency will be like an agent.

    If so:
    1. Do we need to sign any contract with the implementing agency?
    2. If yes, will that contract payments required deduction of TDS as per IT Act? &
    3. Will that payment to the agency attracts GST?

    We seek your clarification on this.

    • Payal Agarwal
      Payal Agarwal says:

      1.Signing of a contract is not necessary for undertaking CSR activities. It is to be noted that the agreement does not necessarily need to be in writing and can be verbal too. The signing of a formal agreement will be at the discretion of the parties and will depend on the conduct of the parties, severity of cases, terms of appointment and other surrounding circumstances.

      2.If the agent is being paid, by way of commission or otherwise, then TDS provisions will apply.

      3.GST Act recognises the concept of “pure agent”. Explanation to Rule 33 of the CGST Rules, 2017 defines pure agent as:
      Pure agent means a person who-
      (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;
      (b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;
      (c) does not use for his own interest such goods or services so procured; and
      (d)receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.
      If the implementation agency acts as a pure agent of the company, no requirement of payment of GST will arise. Otherwise, GST will be required to be paid on the charges of agency.


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