Introduction
The Code on Wages 2019, Code on Social Security 2020, Industrial Relations Code 2020, and Occupational Safety, Health and Working Conditions Code 2020 (‘Labour Codes’) consolidate the existing Labour Laws and regulate the four main areas of the labour law regime i.e., wages, industrial relations, social security and occupational health, safety and working conditions.
(Also Read: Highlights Of The New Labour Codes)
The Labour Codes streamline and simplify complex labour law-related procedures. The amalgamation aims to promote the ease of doing business and compel employers to have better mechanisms to ensure that there are no lapses in compliance.
To create a strong deterrence, the quantum of fines for contraventions has been significantly increased under the different Codes and to rebut this introduction of a high quantum of fines, the provision of compounding has been introduced.
Compounding of an offence gives an employer one opportunity to rectify non-compliance in the first instance without having to pay hefty penalties as prescribed and the specified offences can be compounded by a notified Gazetted Officer. It is only in the second or subsequent offence the penalty and penal provisions will be applicable.
What are Compoundable and Non-compoundable Offences?
As per the Black’s Law Dictionary, to compound means “to settle a matter by a money payment, in lieu of other liability”. In this context, compounding of offences refers to the process whereby an accused person or defaulter applies to the notified Gazetted Officer, accepting the commission of an offence, and seeks condonation. The Gazetted Officer may compound the offence after the defaulter deposits the compounding money or fee. Thus, such offences that can be compounded or compromised are called Compoundable Offences.
Non-Compoundable Offences are those offences that cannot be compounded, and no compromise is allowed. Even the court does not have the authority and power to compound such offences. A full trial is held which ends with the acquittal or conviction of the defaulter. The reason being the nature of the offence is so grave that the accused cannot go unpunished.
Compoundable and Non-Compoundable Offences under the New Labour Codes
Section 56 of the Code on Wages, Section 138 of the Code on Social Security, Section 114 & 167 of the Occupational Safety and Health Code, and Section 89 of the Industrial Relations Code deal with the provisions relating to compounding of offences.
| Under the new Labour Codes | |
|---|---|
| Compoundable Offences | First Instance: Offences punishable with – Fine of INR 50,000/- to INR 10,00,000/- |
| Non-Compoundable Offences | Second or Subsequent Offence: Offences punishable with – Fine of INR 3,00,000/- to INR 20,00,000/- or imprisonment of up to 3 years. |
1. The Code on Wages, 2019 (or Wage Code):
Offences that are not an offence punishable with imprisonment only or with imprisonment and fine are compoundable offences.
However, there is no compounding for an offence committed for the second time within 5 years from the date of commission of a similar offence, which was earlier compounded, or date of commission of a similar offence for which such person was earlier convicted.
It is pertinent to note that, for the first instance, offences under the Code on Wages are punishable with a fine only. Hence, implying that all offences under the Wage Code are compoundable offences.
2. The Code on Social Security, 2020 (or SS Code):
Offences punishable with a fine only or with imprisonment less than 1 year and fine are compoundable offences.
However, there is no compounding for an offence committed for the second time within 3 years from the date of commission of a similar offence, which was earlier compounded, or date of commission of a similar offence for which such person was earlier convicted.
Further, as per Section 133 of the SS Code, failure to pay an employee’s contribution, which has been deducted by the employer from the employee’s wages, is punishable with 1 year of imprisonment or more and a fine. Hence, this is the only offence that is non-compoundable.
3. The Occupational Safety, Health and Working Conditions Code, 2020 (or OSH Code):
Any penalty under Sections 12(3), 94, 96, 97(1), 99, 106, 97(2), 100(1), 101, 103(1)(b), 105 & 113(2) of this Code may be compounded.
However, there is no compounding for an offence committed for the second time within 3 years from the date of commission of a similar offence, which was earlier compounded, or date of commission of a similar offence for which such person was earlier convicted.
It is pertinent to note that, the offences involving mens rea or serious violations relating to safety and hazardous activities, such as obstruction to Chief-Inspector/Inspector on purpose, falsification of records, omission to furnish plans, notices, reports without a reasonable excuse, contravention of provisions relating to hazardous activities and safety provisions, resulting in an accident are non-compoundable under the OSH Code.
4. The Industrial Relations Code, 2020 (or IR Code):
Offences that are not an offence punishable with imprisonment only or with imprisonment and fine are compoundable offences.
However, there is no compounding for an offence committed for the second time within 3 years from the date of commission of a similar offence, which was earlier compounded, or date of commission of a similar offence for which such person was earlier convicted.
| Wage Code | SS Code | OSH Code | IR Code | |
|---|---|---|---|---|
| Compounding Fee | A sum of 50% of the maximum fine provided for such offence, in the prescribed manner. | A sum of 50% of the maximum fine in case offence punishable only with fine and 75% of the maximum fine in case offence punishable with fine and imprisonment less than 1 year. | A sum of 50% of the maximum fine in case offence punishable only with fine and 75% of the maximum fine in case offence punishable with fine and imprisonment less than 1 year. | A sum of 50% of the maximum fine in case offence punishable only with fine and 75% of the maximum fine in case offence punishable with fine and imprisonment less than 1 year. |
Further, for failure to comply with an order made by the Officer under any of the Codes, a sum equivalent to 20% of the maximum fine for such offence must be paid in addition to the fine for the offence.
Conclusion
While under the Wage Code, compounding is allowed for a sum of 50% of the maximum fine provided for the offence, under the SS code, OSH Code and IR Code, compounding is allowed for a sum of 50% of the maximum fine in case offence punishable only with fine and a sum of 75% of the maximum fine in case offence punishable with fine and imprisonment less than 1 year.
Additionally, under the OSH Code and IR Code, the amount of composition received is to be credited to the Social Security Fund under Section 115 of the OSH Code for unorganised workers and the Social Security Fund created under Section 141 of the SS Code, respectively.
Where an offence is compounded before the institution of any prosecution, no proceeding is initiated against the defaulter. However, if an offence is compounded after the institution of any prosecution, then a notice is sent to the court, where the proceeding is pending, to discharge the accused/defaulter.
It is clear from above that, though there is an increase in the quantum of fines levied, this concept of compounding of offences helps employers, giving them a chance to remedy non-compliance. The option of compounding, however, is available to only certain offences with certain conditions as specified under each Code. This brings in the important role of the Inspector-cum-Facilitator to advise employers and to facilitate compliance with the provisions of the Codes accordingly.
Overall, the new labour reforms not only provide ease but also transform the overall process of doing business in India.
