Impact Of Penal Provisions On Companies Under The Code On Wages

Impact Of Penal Provisions On Companies

Introduction

One of the key changes brought about by the Labour Codes are the provisions for compliance with the requirements of the Codes.  While the Codes have introduced the concept of a facilitator/labour inspector to ensure compliance by employers rather than penalising them for a first non-compliance, further non-compliance attracts criminal action with serious consequences that can be initiated by the authorities under the Codes. In a huge shift in approach, the proposed codes have given the employees in an organization, apart from the authorities, the right to initiate criminal proceedings against the company and its senior management. Such an approach is a significant change in the law.

This article will specifically analyse the consequences of non-compliance under the proposed Code on Wages, 2019 (“Wage Code”)[1] vis-à-vis the current labour regime, and the implications of the penal provisions for any offences/non-compliance on the employer. The Wage Code subsumes the provisions of the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976.

Penalties for Offences/Non-Compliance: (Under Current Regime)

For any offence / non-compliance under the Payment of Wages Act, 1936, Minimum Wages Act, 1948, Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976, the fines range between INR 500 to INR 22,500. In addition to the fines, there are possibilities of imprisonment in the first instance/occurrence for any offence/ non-compliance under the Minimum Wages Act, 1948 and the Payment of Bonus Act, 1965.

Under the Wage Code:

         Offence/Non-Compliance

                                        Penalty

  • Non-Payment of Wages
  • Full and final settlement
  • Unauthorized Deductions
  • Payment of wages to the employee less than the notified minimum rate of wages for that employee’s class of work
  • Non-Payment of Bonus
  • Not providing equal remuneration to men and women doing the same work or work of similar nature

First Instance: Offences punishable with a fine of up to INR 50,000

Second and Subsequent Instances (within 5 years of the first instance): Imprisonment for a period up to 3 months or with a fine up to INR 1,00,000 or with both

The initial risk to employers has reduced, thereby significantly easing the woes of employers while enhancing their operational flexibility[2] since there is no provision for imprisonment on commission of offence/non-compliance for the first time and the same is compoundable. However, there is a substantial increase in the quantum of fines which are to be paid on the first offence and subsequent offence within a period of five years is punishable with imprisonment under the Wage Codes as compared to the current law.

What is a criminal offence under the Wage Code?

Currently, during the course of service, if an employee earning less than Rs. 24,000/- as wages has any issue with an employer with regard to the contravention of the provisions of the Payment of Wages Act, 1936, the said employee can approach the concerned labour authority and those employees earning above the wage limit of Rs. 24,000/- may approach the civil court seeking appropriate relief.

On implementation of the Labour Codes, in case of any offence/non-compliance with regard to payment of wages, full and final settlement or any offence punishable under the Wage Code, an employee has the option to either approach the concerned labour authority or initiate criminal proceedings before a Judicial Magistrate of First Class or a Metropolitan Magistrate. This is likely to result in many employees making use of the criminal justice system to force their employer to come to terms. This may also result in a reduction in the number of cases being taken through the regular channel of the labour authorities.

Who are covered under the Wage Code

Under the current labour law regime, all provisions of the Payment of Wages Act, 1936 are applicable to employees earning less than Rs. 24,000 per month. The employees earning above Rs. 24,000 per month only have the option of filing a civil suit in respect of any dispute with regard to non-payment of wages.

On the other hand, the Wage Code is applicable to an ‘employee’. The definition of “employee” has been standardized for all purposes under Section 2(k) of the Wage Code, to mean “all employees including those under the supervisory, managerial, and administrative category”. Further, there is no wage threshold with regard to the applicability of the Wage Code. Therefore, all employees up to the level of manager will come under the ambit of the Wage Code and will be able to use the mechanisms provided under the Code, including initiating criminal prosecutions, for enforcement of their rights. This will greatly widen the number of employees who can initiate proceedings before the appropriate authority as may be notified under the Code.

Who gets prosecuted?

The provision of offences against companies under Section 55 of the Wage Code is hereunder:

“(1) If the person committing an offence under this Code is a company, every person who, at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge and that he exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Code has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.”

It is clear on reading the provision that where there is an offence by a company, all the full-time Directors of the company would be made a party to the offence. This provision is identical in terms across all four labour codes as well as under existing legislations such as the Payment of Bonus Act, 1965(Section 29), Minimum Wages Act (Section 22(c)), Employees’ State Insurance Act, 1948 (Section 86(a)), Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (Section 14(a)), Negotiable Instruments Act, 1881 (Section 141), among others.

In the case of K.K. Ahuja vs V.K. Vora and Ors[3], while discussing Section 141 of the Negotiable Instruments Act, the Honourable Supreme Court recognised the provisions under all the aforementioned legislations as being in pari materia and held that:

“…Neither Section 141 of the Negotiable Instruments Act nor the pari materia provisions in other enactments give any indication as to who the persons are responsible to the company, for the conduct of the business of the company. Therefore, we will have to fall back upon the provisions of the Companies Act, 1956 which is the law relating to and regulating companies. Section 291 of the said Act provides that subject to the provisions of that Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do. A company, though a legal entity can act only through its Board of Directors…

Now the question of whether the non-executive/Independent Directors would be involved as a party to the offence has been resolved, as recently in the case of Sunita Palita vs. Panchami Stone Quarry[4], the court held that:

“…The provisions of Section 138/141 of the NI Act create a statutory presumption of dishonesty on the part of the signatory of the cheque, and when the cheque is issued on behalf of a company, also those persons in charge of or responsible for the company or the business of the company. Every person connected with the company does not fall within the ambit of Section 141 of the NI Act…”

Further, the court has held that the non-executive/Independent Directors would not be in charge or responsible for the company or the business of the company.

Accordingly, the non-executive/Independent Directors do not need to be made a party in cases under the pari materia provisions including but not limited to the Wage Code. However, it will be for a director who is charged to prove that they fall within the exceptions in the provision.

Employer’s Way Forward: 

With ample modifications made and introduced in the Wage Code regarding penalties and penal provisions for non-compliance/offence, who can approach the court, and the impact on companies for such non-compliance/offence, the companies have to be Code ready by making sure that all the policies and processes of the company are reformed and realigned in view of the New Labour Codes and their processes are robust enough to ensure continuous compliance with the requirements of law.

The Codes provide the opportunity to an employer to correct a first instance of non-compliance but treats continued non-compliance with severity. Now with the recourse of approaching the magistrate court being widened to all the employees, the employer and employee are truly on an equal footing.

-Mohamed Faheem,
Advocate & Jr. Associate

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B. Chandrashekar Shetty - Advocate

Mr. Chandrashekar Shetty is a Senior Labour Law Compliance Auditor at BCP Associates and has audited multiple client companies across India. He is also a member of our senior legal advisory practice. Previously he has worked as Deputy Controller, Manager-Industrial Relations and Industrial Relations Officer in KPTCL, Bangalore for more than 30 years. Prior to this, he has dealt with Legal, Personnel and IR matters including Wage Settlements, Grievance Machinery, Manpower Study and Social Security Compliances for about 10 years. He is a Faculty member of Labour Law, HRD Centre, KPTCL Bangalore.

Mr. Shetty holds a B.Com. and L.L.B. degree, Post-Graduate Diploma in Business Administration, Diploma in Public Relations from Bangalore University and PG Diploma in Industrial Relations & Personnel Management from Bharatiya Vidya Bhawan. He is enrolled as Advocate in Karnataka Bar Council and is a Govt. Arbitrator of Chit Funds in Karnataka.

S Venugopal Rao

S Venugopal Rao is an experienced labour law and service matters expert and is a member of the senior advisory team at BCP Associates. Having joined the chambers of Mr. B C Prabhakar in 2012, he is knowledgeable and well versed in multiple employment and labour law topics.

S Venugopal Rao holds a Bachelor’s degree in Science from Karnataka University, Dharwar and Bachelor of Law from Bangalore University. He enrolled as advocate in Karantaka State Bar Council in 1976. He joined the chamber of Sri. Kolachalam Srinivasa Rao a leading civil advocate. After practicing for 6 years at Ballari, he joined Orient Paper Mills, Orissa (of G P Birla Group). He was designated as Manager (Law) under the Factories Act in 1995. In 1999, he joined Andhra Pradesh Paper Mills Rajahmundry as Manager Legal and was subsequently elevated as Dy. General Manager (Legal). As Factory Manager & Legal Head, he oversaw compliance of Factories Act and Rules there under towards safety, health and welfare, including compliance under Pollutions and Environmental laws and Explosives Act, etc. Additionally, he is well acquainted with Environment Management System ISO 14001: 2004, Occupations, Health and Safety Series 18000:1999. As Legal head in APPM he has briefed and appeared along with Senior Advocate before Appellate Authority constituted under Water (Prevention & Control of Pollution) Act. He retired from the services of Andhra Pradesh Paper Mills in 2011.

As legal head he has handled important cases both in Labour and Civil and has experience in drafting and vetting Contracts, Agreements, Lease Agreement, Conveyance Deeds, , Affidavits and scrutiny of several legal and other documents, Preparing and settling Petitions, Appeals, Plaints, Written Statements, Rejoinders, Affidavits and Written Arguments etc. for submission/pleadings for various legal proceedings.

C K Devappa Gowda - Advocate

C.K. Devappa Gowda (CKD) is an Advocate and Labour Law expert. He holds a Bachelor’s Degree in Science from the University of Mysore and a Degree in Bachelor of Law from Bengaluru respectively. He also holds a Diploma in Social Service Administration from the National Institute of Social Science, Bengaluru. After completing his studies, he had enrolled as a Advocate and initially practiced in the Civil Code attached to the office of BCP. He then worked as Personnel Officer in Chemicals and Textile Manufacturing Industries for 5 years. Thereafter took up employment in one of the largest Public Sector Bank. He has worked in different parts of the country and has extensive experience in the cross country IR domain. The significant part of his service was at corporate level overseeing and implementing HR policies and practices and management of IR. He has been a member of personnel committee of Indian Bank Association.

After retirement from service, Mr. Gowda has been working with Mr. BC Prabhakar’s firm for the last 12 years. He has expertise in all areas of people management, drafting of documents relating to service matter including the settlements under the ID Act. He has dealt with all employment laws including appearance before the Courts, Tribunal and Authorities under the different Labour Laws. Mr. Gowda is one of the senior Labour Law experts at BCP Associates.

Srijatha Ghosh - POSH Specialist & Advocate

Srijata Ghosh serves as external member on the Internal Committee of several Companies across various sectors. She handles all kinds of POSH related matters including investigations and inquiries. She provides Training on Sexual Harassment across all verticals for Managers and Senior Management, General Awareness for all employees and Internal Committee members on the legislation (The Sexual Harassment of Women at Workplace Prevention, Prohibition and Redressal Act, 2013). She also formulates Policies for Prevention of Sexual Harassment at Workplace (“POSH”) and advises Companies on setting up of their Internal Committees. Srijata is involved in providing Legal Advisory services on POSH and other labour law matters for various clients.

In her previous experience, she has extensively dealt with End-to-End Contract Management, Due Diligence, POSH Compliances, Legal Advisory, etc. Srijata worked with Companies like Accenture India Private Limited, Quess Corp., Capgemini Business Services (India) Limited and Pramata Knowledge Solutions Private Limited. Srijata has handled varied legal issues including drafting, vetting and negotiation of contracts, drafting policies of various organizations. She has resolved issues relating to employment laws and has worked closely with the HR teams. She has provided legal advisory services to senior management. She was also associated with Kolkata High Court in counselling clients with legal matters such as Property, Due Diligence etc. Srijata has worked in an LPO Service Firm, Manthan Legal Services Private Limited for Legal Research, depositions, medical summaries, demand drafting etc.

Srijata completed her B.A.LL.B from M. S. Ramaiah College of Law, Bangalore University in 2009. Srijata is a member of the Karnataka Bar Council since 2010. She is also a member of the Gender Sensitivity Sub Committee of Karnataka Employer Association (KEA).

Caroline Lobo - POSH Specialist & Advocate

Caroline Lobo has been with BCP Associates for the past 2+ years. She has been handling matters and Inquiries related to the POSH Act including conducting inquiries and trainings/awareness programmes for Senior Management, employees as well as members of the Internal Committee on the POSH Legislation (The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (“Act”) to address Workplace Harassment of Women. She is a member of the Internal Committee for many varied companies and organisations and has reviewed and scrutinized numerous hearings and inquiries on matters relating to sexual harassment at workplace.

She has also handled matters relating to employer-employee related Enquiries, wherein she has reviewed and conducted hearings and enquired into the matters and has guided the Internal Committee and provided guidance in providing recommendations to the management. She is also a Member of the Gender Sensitivity Sub-committee of Karnataka Employer Association (KEA).

Prior to joining BCP Associates, Caroline has has a wide range of experience in corporate, commercial and contract law, mergers and acquisition and has undertaken drafting, vetting, negotiating and finalizing legal and commercial transactions. She started her career in litigation then moved onto the Corporate sector. In the span of 13 years, she has worked at Chambers of Advocate Jayashree Murali, Krishnamurthy and Co. Legal Consultants, Colt Technology Services and Oracle India Pvt. Ltd. She always had a keen interest in Women and Child related issues. She has worked with Child Welfare Committee and NGOS’s. In addition, she has worked with Swasthi Health Resource and Centre, where she was the External member to the Internal Committee (IC). She worked closely with the committee in strategizing, planning, reviewing and implementing the assigned tasks, which included building material to raise awareness against sexual harassment at workplace. Further, she has been involved in conducting inquiries into matters related to sexual harassment at workplace.

Caroline earned her Law degree from University Law College, Bangalore, from where she graduated in the year 2005.

Manoj Kumar – Senior Associate

At BCP Associates, Manoj Kumar is involved in managing and conducting labour law compliance audits of principal employer and contractors. He is also involved in client co-ordination and conducting labour law training programs for vendors. He has conducted on-ground labour law audit for factories. Manoj also provides support in advising vendor clients on labour law queries. He completed B.A., LL.B. from BMS College of Law, Bangalore in 2016

Rashmitha Venkatachalam Das - POSH Specialist & Advocate

Rashmitha Venkatachalam Das is the External Member of the Internal Committee of several reputed Organizations across various sectors. Handling complex inquiries has been her forte and she is extremely passionate about it. She is actively involved in providing Training on Sexual Harassment (Prevention, Prohibition and Redressal) Act, 2013 across all verticals for Managers and Senior Management, General Awareness for all employees and Internal Committee members. Rashmitha possesses capabilities in delivering sessions in Hindi and Kannada, in addition to English. She has formulated Policies for Prevention of Sexual Harassment at Workplace (“POSH”), advised companies on setting up of their Committee. Rashmitha is involved in providing Legal Advisory services on POSH for various clients spread across diverse sectors. She has also been handling domestic enquiries for various clients. 

Rashmitha possesses experience both at Law Firms and Corporates in various capacities. She started her career at Krishnamurthy and Co, Legal Consultants and then moved on to work as an In- House Legal Counsel with Companies such as Biocon Limited, Columbia Asia Hospitals Private Limited, Adecco India Private Limited. With a long stint in the Corporate side, Rashmitha decided to pursue further education in Law with a specialization in Labour and Employment Laws. She has rich experience in drafting, vetting and negotiation of various types of contracts, providing legal opinions and has driven the team in formulating process and procedures and their implementation. She has drafted several employment related policies in Corporates. Rashmitha has been a part of various key committees in Organizations and assisted committees in scrutiny of documents pertaining to human organ transplant as well as clinical trials.

Rashmitha holds an LL.M. in Labour and Employment Laws from University Law College, Bangalore, which she completed in the year 2018 with Two Gold Medals. She is also a Rank Holder at the University. She has completed BA, LL.B. from Bangalore Institute of Legal Studies, Bangalore University in the year 2009. Rashmitha is a member of the Karnataka Bar Council since 2009 and also a member of the Gender Sensitivity Sub Committee of Karnataka Employer Association (KEA).

Manisha Vidyadhar – Senior Associate

At BCP Associates, Manisha Vidyadhar is involved in managing and conducting labour law compliance audits of principal employer and contractors. She is also involved in client co-ordination and conducting labour law training programs for vendors. She has conducted on-ground labour law audit for factories. Manisha also provides support in advising vendor clients on labour law queries.  She completed B.A., LL.B. from BMS College of Law, Bangalore in 2016.

Amrutha Ananth – Senior Associate

At BCP Associates, Amrutha Ananth is involved in managing and conducting labour law compliance audits of principal employer and contractors. She is also involved in client co-ordination and conducting labour law training programs for vendors. She has conducted on-ground labour law audit for factories. She also provides support in advising vendor clients on labour law queries.

Amrutha is also part of the labour law advisory and HR Policy practice and is actively involved in drafting opinions on various aspects of labour laws and formulate and review employment policies and procedure.

Amrutha completed B.A., LL.B. from Christ University, Bangalore in 2015. She is also a semi-qualified Company Secretary.

Sunil Arya – Principle Associate

At BCP Associates, Sunil Arya is part of the labour and employment law advisory and HR Policy practice and is actively involved in drafting and reviewing of employment contracts, opinions, HR policies, employee handbook, show cause notice, etc. for various clients spread across diverse sectors. He conducts training on labour and employment laws. Sunil is also involved in labour law compliance audits of principal employer and contractors and has conducted on-ground labour law audit for factories. In addition, he is engaged in knowledge creation and management of the firm and keenly writes on developments in labour and employment laws.

Prior to joining BCP Associates, Sunil has 10 years of post-qualification experience in diversified portfolios of advisory, drafting, policy analysis and dispute in the domains of contracts, general civil matters, employment law, competition law and construction arbitration matters. Sunil started his career as a Law Researcher in Delhi High Court. He moved on to be part of regulatory analysis team of CIRC, a unit of CUTS International. In addition, Sunil has been part of legal team of Jindal India Thermal Power Limited. He has also taught competition law, tax law and investment law at VIPS, Delhi.

Sunil holds LL.M. from The Indian Law Institute, Delhi. He is First Rank Holder in his thesis. He completed B.A, L.L.B. (Hons.) from I.P. University, Delhi. He also holds First Rank in P.G. Diploma in Competition Policy and Laws from The National Law University, Delhi.

Chandrakala K A – Principle Associate

At BCP Associates, Chandrakala has 12+ years of experience in conducting and managing labour law compliance audits of principal employer and contractors. She is also involved in co-ordination with many clients. She has conducted on-ground labour law audit for factories. She also provides support in advising vendors on labour law queries. Chandrakala is actively involved in research and providing valuable inputs to the firm pertaining to updation in labour law audit function.

Chandrakala started her career in litigation in chamber of Sri. Ashok where she was involved in drafting, pleading and appearance before Karnataka High Courts and lower courts on the criminal side.

Chandrakala completed B.A in Arts from Kuvempu University, Shimoga in 2003 and LL.B. from Mangalore University in 2006.

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