Supreme Court orders a comprehensive CSR law within two years

In a directive reinforcing the need for a clear CSR legislation, the Supreme Court has ordered the government to draft and table an integrated Corporate Social Responsibility (CSR) bill in Parliament within two years of its ruling—passed on Dec. 2, 2024. 

The full text of the verdict, made public on July 7, 2025, directs that CSR funds must be used for the direct upliftment of the poor and the marginalised. The bill must ensure that the CSR spending aligns with poverty and hunger alleviation, as well as human rights protection for the most vulnerable population.

Currently, CSR spendings is guided by Section 54 of the Industrial Enterprise Act 2020, which requires industries with an annual turnover above NRs. 150 million to allocate at least one percent of their net profit to CSR.

The ruling was made in response to a writ petition seeking among others, a mandamus order for proper regulation of CSR funds, which the petitioner argued had been misdirected during the pandemic. Under the Nepal Rastra Bank (NRB) directive, Bank and Financial Institutions (BFIs) are required to allocate and spend a similar one percent under CSR in the next fiscal year. But in one instance, the NRB revised its directive instructing BFIs to deposit their unspent CSR funds into the government’s COVID-19 Prevention, Control, and Treatment Fund.

It is on this issue that NRB was argued to have overstepped its mandate.

A division bench of Justices Hari Prasad Phuyal and Nripa Dhwoj Niroula dismissed the main writ petition but issued a set of six directive orders for immediate CSR reform. The court justified NRB’s action as a response to “exceptional adverse circumstances” that served the fundamental purpose of protecting human life and health rights.

The petition for writs, including a writ of certiorari, was filed by eight advocates and led by Advocate Shashi Basnet challenging the NRB’s directive. The said directive was issued on the dates July 27 and 28 of 2020 through an amendment to the Unified Directive, 2076 by adding subclause (h) to clause 16 and subclause (b) to clause 6.14 in Directive No. 6.

The petitioners argued that the aforementioned directives are contrary to jurisprudential recognition, Nepal Rastra Bank Act, 2058, and the Company Act, 2063. They pointed out the consequential undue restrictions imposed on several fundamental rights guaranteed by the Constitution–Articles 30 (right to a clean environment), 31 (right to education), 38 (rights of women), and 39 (right of children). 

The defendant however countered with Sections 79 and 111 of the Nepal Rastra Bank Act that gives NRB the legal authority as a regulatory body to issue directives to BFIs as a mandatory provision and make necessary amendments to the issued directives.

The court held that the emergency transfer was legally sound amidst a global health crisis for the protection of human life.

Despite upholding the pandemic-era directive, the court issued instructions for long-term reform. The verdict stressed that the funds should be used to directly uplift communities living below the poverty line. 

Presently, Nepal’s poverty line is established at NRs 72,908 with 20.27% of the country’s population living below the threshold.

The directive order explicitly states that CSR funds:

• should not be used for large development projects, but instead be utilised for targeted services like education, healthcare, women’s and children’s empowerment, housing, and social welfare.
• can fund community infrastructure only when clearly and directly linked to the welfare of the extremely poor population.
• can prioritise services like private toilets, bathing areas, and safe housing that are essential to living a minimally dignified life.
• should make immediate arrangements for utilisation through social institutions that protect the rights of disadvantaged groups and help build their capacity to engage with the state.

It further instructed NRB to make necessary amendments to existing legal provisions related to corporate social responsibility of BFIs against the diversion of the CSR funds for private projects or internal interests of banks or their employees. 

The court tasked the Ministry of Law, Justice, and Parliamentary Affairs with registering the umbrella legislation, which must reflect international business and human rights standards and align with the Sustainable Development Goals for Nepal (2016-2030). Additionally, the Ministry of Industry, Commerce, and Supplies has been directed to monitor CSR spending and ensure it remains focused on poverty alleviation.