CSR through ZCZP Bonds: MCA unveils new route for social finance

– Payal Agarwal and Sourish Kundu | corplaw@vinodkothari.com

Since its inception in 2019, proposals were in discussion for bringing an alignment between the new brought noble concept of Social Stock Exchanges (“SSEs”) with the existing, well-recognised statutorily-laid social obligations on companies, viz., Corporate Social Responsibility (CSR) under the Companies Act. However, the concept of SSE and NPOs listed thereunder, introduced in 2022, continued to remain severed from the very mandated provision of social spending under Section 135, until now, since the proposal required sanction of the MCA. 

The MCA, vide Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026 (“Amendment Rules”) on May 27, 2026, has introduced an enabling framework permitting  subscription to Zero Coupon Zero Principal Instruments (“ZCZPIs”), that is, the instruments issued by eligible Not-for-Profit Organisations (“NPOs”) listed on SSEs as an eligible means of fulfilling CSR spending obligations. 

Understanding Zero Coupon Zero Principal Instruments 

NPOs registered on SSEs are permitted to raise funds exclusively through issuance of ZCZPIs . These are essentially donations in the form of securities (ZCZPI is recognised as a security under SCRA). As the name suggests, ZCZPIs  will never repay back the principal, or pay any interest, either during or at the end of the tenure of the instrument. These are responsible donations in the sense that the NPO raising funds through ZCZPIs on the SSE is required  to comply with stricter norms and disclosure requirements.  [Read more here]

CSR through ZCZPIs: things to know

The Amendment Rules refer to various conditions and relaxations w.r.t. CSR through subscription to ZCZPIs: 

1. A maximum cap of 10% of an entity’s total CSR obligation during a year, has been specified for undertaking CSR through ZCZP Bonds. 
2. Exemption from undertaking impact assessment of the projects being funded through such issuance. 
3. Further, exemption has been granted to the management of a company investing in ZCZP Bonds, to satisfy itself of the appropriate utilisation of the amount disbursed, and certification by CFO in that regard, in addition to the requirement of continuous monitoring of ongoing projects. 

This may be based on the rationale that Regulation 91F of the Listing Regulations already mandates a statement of utilization of funds to be submitted to SSEs, by the NPOs on a quarterly basis within 45 days from the end of a quarter, hence the purpose of monitoring and assessment is already satisfied. 

4. Further, not all ZCZPIs are eligible CSR expenditure. A ZCZPI would be considered eligible for CSR purpose, only if the following conditions are satisfied:
   • the duration of the project undertaken through the instrument should not exceed 3 succeeding FYs from the date of issuance of the ZCZP Bonds; and
   • upon termination of listing of the ZCZP Bonds, any unspent amount is required to be transferred to a fund specified under Schedule VII to the Act, with a compliance report thereof to be submitted to SEBI. 

The conditions are, thus, similar to those applicable to ongoing projects under CSR. 

Conclusion

The regulators have been making continuous efforts towards making the SSE concept in India a success. While there are registered NPOs on the SSE, in order to boost issuance of ZCZPIs, SEBI has made it mandatory for registered NPOs to bring listed ZCZPIs within a maximum of 2 years from registration on SSEs. The Amendment Rules mark an interesting development pursuant to SEBI’s recommendation to the Ministry of Finance for recognition of ZCZPIs  within the CSR framework, thus attempting to build a demand for the ZCZPIs. 

While the move is clearly intended to create greater synergy between the CSR ecosystem and the SSE framework, its practical effectiveness remains to be seen. 

This becomes particularly relevant considering that, since 2022, the quantum of funds mobilised by NPOs via SSE is significantly lower than the CSR spending during the same period. The true impact of the amendment would therefore depend on whether the recognition of ZCZP Bonds as an eligible CSR avenue is able to meaningfully channel corporate CSR capital towards the SSE ecosystem and improve participation therein.

Read more: 

Social stock exchanges: philanthropy on the bourses

Social Stock Exchanges – Enabling funding for social enterprises the regulated way

FAQs on Social Stock Exchange