Offences and Penalties Under the Code

And it creates an exit. Section 89 lets most offences be compounded: the accused pays a stated proportion of the maximum fine and the matter ends. That is quicker for everybody and it channels the money into the Social Security Fund.

Some words this chapter uses

Cognizance is a court's act of taking notice of an offence so as to begin proceedings.

Compounding is the settlement of an offence by payment, ending the prosecution without a conviction.

Gazetted Officer is a Government officer of a rank whose appointment is published in the Gazette. Section 89(1) requires the compounding officer to be one.

Continuing default, in section 86(7), is a default that goes on from day to day, and it attracts a daily addition.

Due diligence, in the proviso to section 88(1), is the standard a person in charge must meet to escape liability.

Section 86: the penalties

Twenty sub-sections. Grouping them is the only way to hold them, and the grouping tracks the Chapters they enforce.

Group one: lay-off, retrenchment and closure in a large establishment

These are the heaviest penalties in the Code and the reason is the reason Chapter X exists. Acting without the permission the Chapter requires defeats the whole protection, and the establishments concerned employ three hundred workers or more.

Group two: lay-off, retrenchment, transfer and closure elsewhere

Compare the two groups and the policy is visible. The same conduct attracts a minimum of one lakh in a Chapter X establishment and fifty thousand elsewhere; the maximum is ten lakh against two.

Group three: unfair labour practices

Note that section 86(5) says "any person", which matches section 84's application to employers, workers and Trade Unions whether registered or not.

Group four: Trade Union defaults

86(7): default by a registered Trade Union in giving a notice or sending a statement or document required by the Code: every office-bearer or other person bound by the rules to send it, or, if there is none, every member of the executive, is punishable with a fine not less than one thousand and up to ten thousand rupees, with an additional penalty of fifty rupees per day so long as the default continues.

86(8): wilfully making, or causing to be made, a false entry in or omission from the general statement required by section 26, or from any copy of rules or alterations sent to the Registrar: fine not less than two thousand, up to twenty thousand rupees.

86(9): giving, with intent to deceive, a member or intending member of a registered Trade Union a document purporting to be a copy of the rules or alterations which the giver knows or has reason to believe is not correct.

These three enforce Chapter III, and section 86(7) in particular enforces the annual return obligation in section 26 that [Disputes, Change of Name, Amalgamation and Dissolution] sets out. The fifty rupees a day is what makes a continuing default expensive.

Group five: illegal strikes and lock-outs

This is the group examiners ask about, because the two figures are so far apart.

The asymmetry between (13) and (14) is deliberate and defensible. The minimum for an employer is fifty times the worker's, and the maximum ten times. A worker joining an illegal strike is one of many acting on a collective decision; an employer declaring an illegal lock-out is one person making a decision that affects the whole workforce, and he has the means to pay.

Note also that section 86(15) reaches the organiser, who may be neither the worker nor the employer, and section 86(16) is the penal counterpart of section 64's prohibition on funding.

Group six: settlements, awards and confidentiality

86(17): breach of any term of a settlement or award binding on the person: fine not less than twenty thousand, up to two lakh rupees, or imprisonment up to three months, or both.

86(18): where the breach is continuing, an additional fine up to one thousand rupees for every day during which it continues after the first conviction; and the court may direct that the whole or any part of the fine realised be paid, by way of compensation, to any person who in its opinion has been affected by the breach.

Section 86(18)'s compensation power is unusual and worth flagging. Most fines go to the State. Here the court may direct the fine, or part of it, to the person actually harmed, which turns the penal provision into a partial remedy.

86(19): wilfully disclosing information in contravention of section 61, the confidentiality provision worked in [Awards and Settlements: Powers, Form, Operation and Recovery]: fine up to twenty thousand rupees, or imprisonment up to one month, or both, on a complaint made by or on behalf of the Trade Union or individual business affected.

Group seven: the residuary provision

86(20): any person who contravenes any other provision of this Code not covered by sub-sections (1) to (19), or the rules or regulations, is punishable with fine up to one lakh rupees.

A residuary penal provision is worth a comment. It means there is no obligation in the Code without a sanction, which is tidy; it also means the penal reach of the Chapter extends to provisions Parliament never separately considered when fixing punishments.

Section 85: penalties without a prosecution

This is one of the two structural novelties in the Chapter.

85(1): notwithstanding section 84, for the purpose of imposing penalties under sub-sections (3), (5), (7), (8), (9), (10), (11) and (20) of section 86, and section 89(7), the appropriate Government may appoint an officer not below the rank of Under Secretary to the Government of India, or an officer of equivalent rank in the State Government, for holding enquiry in the manner prescribed by the Central Government.

85(2): while holding the enquiry the officer has power to summon and enforce the attendance of any person acquainted with the facts, to give evidence or produce any document he considers useful or relevant; and if satisfied on the enquiry that the person has committed an offence under the listed provisions, he may impose such penalty as he thinks fit in accordance with those provisions.

85(3): where a person fails to pay the penalty within ninety days of receiving a copy of the order, he shall be punishable with a fine not less than fifty thousand and up to two lakh rupees.

Three things to notice.

The list of sub-sections is selective. Section 85 covers, among others, section 86(3), the Chapter IX contraventions, and 86(5), unfair labour practices. It does not cover section 86(1) and (2), the Chapter X contraventions, or 86(13) and (14), illegal strikes and lock-outs. The heaviest and the most contentious offences stay with the courts.

The officer is senior. Not below Under Secretary to the Government of India or equivalent, and he holds an enquiry with power to compel attendance and documents.

And non-payment is itself an offence, punishable by a fine larger than many of the penalties the officer can impose, which is what makes the administrative order effective.

Section 87: who may prosecute, and where

87(1): no court shall take cognizance of any offence punishable under this Code, save on a complaint made by or under the authority of the appropriate Government.

87(2): notwithstanding the Code of Criminal Procedure 1973, no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence under the Code.

Sub-section (1) is a significant limitation and it should be stated as such. A worker who is the victim of an unfair labour practice cannot himself set the criminal law in motion; a union cannot prosecute an employer; an employer cannot prosecute a union. Everything goes through the appropriate Government, which decides whether to complain.

There is one express exception in the Chapter. Section 86(19), the confidentiality offence, operates on a complaint made by or on behalf of the Trade Union or individual business affected, which is the one place the Code lets the aggrieved party move.

Section 88: offences by companies

88(1): where an offence under the Code is committed by 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 its business, as well as the company, is deemed guilty and liable to be proceeded against and punished.

Proviso: nothing in the sub-section renders such a person liable if he proves that the offence was committed without his knowledge and that he exercised all due diligence to prevent it.

88(2): notwithstanding sub-section (1), where an offence has been committed by a company and it is proved that it was committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer, that person is also deemed guilty.

Explanation: "company" means any body corporate and includes a firm, a limited liability partnership registered under the Limited Liability Partnership Act 2008, or other association of individuals; and "director" in relation to a firm means a partner.

The structure is the standard one and the two limbs do different work. Sub-section (1) catches the person in charge automatically, subject to the due diligence defence he must prove. Sub-section (2) catches any officer where consent, connivance or neglect is proved against him, and has no due diligence defence because those states of mind exclude it.

And the Explanation is wide. Partnerships and limited liability partnerships are within it, and a partner is a "director", so the liability is not confined to incorporated companies.

Section 89: compounding

The second structural novelty.

89(1): notwithstanding the Code of Criminal Procedure 1973, any offence punishable under this Code, not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may, on an application of the accused person, either before or after the institution of any prosecution, be compounded by a Gazetted Officer specified by the appropriate Government by notification, for:

• fifty per cent. of the maximum fine provided, where the offence is punishable with fine only; and
• seventy-five per cent. of it, where the offence is punishable with imprisonment for a term not more than one year, or with fine,

in the prescribed manner.

Proviso: the amount of composition shall be credited to the Social Security Fund established under section 141 of the Social Security Code 2020.

89(2): compounding is not available to a person for an offence committed for the second time or thereafter within three years from the date of the commission of a similar offence which was earlier compounded, or of a similar offence for which he was earlier convicted.

89(3): the compounding officer exercises the power subject to the direction, control and supervision of the appropriate Government.

Work the eligibility rule carefully, because it is the examinable part. An offence punishable with imprisonment only, or with imprisonment and also with fine, cannot be compounded. Almost every penalty in section 86 is expressed as a fine, or imprisonment, or both, which is not the same as "imprisonment and also with fine", so most are compoundable. And the three-year repeat bar in sub-section (2) prevents compounding from becoming a licence.

Note where the money goes. Not to the consolidated fund and not to the victim, but to the Social Security Fund under the sibling Code on Social Security 2020. That is a deliberate link between the two Codes.

A worked example

The facts. A packaging group runs Plant A, 260 workers, and Plant B, 480 workers. Consider six defaults.

One: Plant B lays off its workers for a shortage of raw materials without applying for permission. Section 78 contravened. Penalty under section 86(1): fine not less than one lakh, up to ten lakh rupees. A second such offence: section 86(2), not less than five lakh, up to twenty lakh, or imprisonment up to six months, or both. Section 85 does not apply, because section 86(1) is not in its list, so this goes to court.

Two: Plant A retrenches without paying compensation at the time of retrenchment. Section 70 contravened. Penalty under section 86(3): fine not less than fifty thousand, up to two lakh rupees. Section 85 does apply, because 86(3) is in its list, so an officer not below the rank of Under Secretary may hold an enquiry and impose the penalty without a prosecution. If the employer does not pay within ninety days, section 85(3) makes that a further offence carrying a fine of not less than fifty thousand and up to two lakh.

Three: the employer dismisses the union secretary for a trivial lateness. That is an unfair labour practice under item I(5)(g) of the Second Schedule and contravenes section 84. Penalty under section 86(5): fine not less than ten thousand, up to two lakh rupees; on a repeat, 86(6), not less than fifty thousand up to five lakh, or imprisonment up to three months, or both. Section 85 applies, so an officer may impose it.

Four: the workers at Plant A strike without notice. The strike is illegal under section 63(1)(i). Each worker who commences, continues or acts in furtherance of it faces section 86(13): fine not less than one thousand, up to ten thousand rupees, or imprisonment up to one month, or both. The organiser, whoever he is, faces section 86(15): not less than ten thousand, up to fifty thousand. A federation that knowingly funds the strike faces section 86(16) on the same scale, and its conduct also contravenes section 64.

Five: the employer at Plant A answers with a lock-out, itself without notice. Under section 63(3) a lock-out declared in consequence of an illegal strike is not illegal, so section 86(14) is not engaged. Had the lock-out been illegal, the employer would have faced a fine not less than fifty thousand, up to one lakh, or imprisonment up to one month, or both, which is fifty times the worker's minimum.

Six: the employer ignores a term of a binding settlement for four months. Section 86(17): fine not less than twenty thousand, up to two lakh, or imprisonment up to three months, or both. Because the breach is continuing, section 86(18) adds up to one thousand rupees for every day after the first conviction, and the court may direct that the whole or part of the fine be paid as compensation to any person it considers affected. The same conduct is also an unfair labour practice under item I(13) of the Second Schedule.

Now the procedure. Who prosecutes? Section 87(1): no court may take cognizance save on a complaint made by or under the authority of the appropriate Government. The dismissed secretary cannot prosecute; nor can the union. And the trial is before no court inferior to a Metropolitan Magistrate or Judicial Magistrate of the first class, section 87(2).

And the exit. The employer applies to compound the section 86(3) offence in default two. It is punishable with fine only, so under section 89(1) it may be compounded for fifty per cent. of the maximum fine, that is one lakh rupees, by a Gazetted Officer specified by the appropriate Government, either before or after the prosecution is instituted, and the money is credited to the Social Security Fund. If he commits a similar offence again within three years, section 89(2) shuts the compounding route.

Finally, who is liable? The employer is a private limited company. Under section 88(1) the person in charge of and responsible for the conduct of the business is deemed guilty along with the company, unless he proves the offence was committed without his knowledge and that he exercised all due diligence. Under section 88(2), if the offence was committed with the consent or connivance of, or is attributable to the neglect of, a director, manager, secretary or other officer, that person is also deemed guilty, and there is no due diligence defence to that limb.

What this does NOT mean

It does not mean a worker and an employer face the same penalty for industrial action. Section 86(13) fines a worker between one thousand and ten thousand rupees for an illegal strike; section 86(14) fines an employer between fifty thousand and one lakh for an illegal lock-out.

It does not mean a victim can prosecute. Section 87(1) requires a complaint by or under the authority of the appropriate Government, the one exception being the confidentiality offence in section 86(19).

It does not mean every offence can be compounded. Section 89(1) excludes an offence punishable with imprisonment only, or with imprisonment and also with fine, and section 89(2) excludes a repeat within three years.

It does not mean section 85 replaces the courts. It applies only to the sub-sections it lists, which do not include the Chapter X contraventions or the illegal strike and lock-out provisions.

It does not mean a director is automatically liable. Section 88(1) catches the person in charge, subject to a due diligence defence he must prove; section 88(2) catches an officer only on proof of consent, connivance or neglect.

It does not mean the fine always goes to the State. Section 86(18) lets the court direct the whole or part of a fine for a continuing breach of a settlement or award to be paid as compensation to a person affected, and section 89's composition money goes to the Social Security Fund.

Limits, criticism and amendments

The requirement of a Government complaint in section 87(1) is the most substantial criticism of the Chapter. The Schedule of unfair labour practices is a careful catalogue of employer misconduct, and the only person who can set the criminal law in motion against it is the same Government that appoints the conciliation officers and, in a public undertaking, may be the employer. A worker who has been victimised has a remedy before the Tribunal but no power to prosecute.

Section 85 is defended as speed and attacked as adjudication by the executive. An Under Secretary holding an enquiry and imposing a fine of up to two lakh rupees is deciding a question that would otherwise go to a magistrate, and the Code provides for the penalty by way of an administrative order rather than a trial.

Compounding at fifty per cent. of the maximum is criticised as a tariff. An employer who can predict the cost of an unfair labour practice, and pay half the maximum to end it, may treat the penalty as an expense. The three-year repeat bar in section 89(2) is the answer, and it is a narrow one.

And the fines, though much larger than those in the repealed Act, are not indexed. A maximum of two lakh rupees for an unfair labour practice will erode, and the Code contains no mechanism for revising the figures.

Against that, three provisions are genuine improvements: the graduated penalties for repeat offences throughout section 86; the compensation power in section 86(18), which lets a fine reach the person actually harmed; and the residuary provision in section 86(20), which leaves no obligation in the Code without a sanction.

Quick revision

• 86(1) and (2): contravening sections 78, 79 or 80 (Chapter X, no permission): Rs 1 lakh to Rs 10 lakh; repeat Rs 5 lakh to Rs 20 lakh, or up to six months, or both.
• 86(3) and (4): contravening sections 67, 70, 73 or 75 (Chapter IX): Rs 50,000 to Rs 2 lakh; repeat Rs 1 lakh to Rs 5 lakh, or up to six months, or both.
• 86(5) and (6): unfair labour practice: Rs 10,000 to Rs 2 lakh; repeat Rs 50,000 to Rs 5 lakh, or up to three months, or both.
• 86(7): Trade Union default in notices or statements: Rs 1,000 to Rs 10,000 on each office-bearer bound to send it, plus Rs 50 per day while it continues. 86(8): false entry in the section 26 statement, Rs 2,000 to Rs 20,000.
• 86(13) worker, illegal strike: Rs 1,000 to Rs 10,000, or up to one month, or both. 86(14) employer, illegal lock-out: Rs 50,000 to Rs 1 lakh, or up to one month, or both. 86(15) instigating: Rs 10,000 to Rs 50,000. 86(16) knowingly funding: Rs 10,000 to Rs 50,000.
• 86(17): breach of a settlement or award, Rs 20,000 to Rs 2 lakh, or up to three months, or both. 86(18): continuing breach, up to Rs 1,000 a day after the first conviction, and the court may direct the fine to be paid as compensation to a person affected. 86(19): breach of section 61 confidentiality, up to Rs 20,000, on a complaint by the affected union or business. 86(20): residuary, up to Rs 1 lakh.
• Section 85: an officer not below Under Secretary may hold an enquiry and impose penalties under 86(3), (5), (7), (8), (9), (10), (11) and (20) and 89(7); non-payment within ninety days is an offence carrying Rs 50,000 to Rs 2 lakh.
• Section 87: no cognizance except on a complaint by or under the authority of the appropriate Government; trial by no court inferior to a Metropolitan Magistrate or Judicial Magistrate of the first class.
• Section 88: the person in charge and the company are deemed guilty, with a due diligence defence; an officer is also guilty on consent, connivance or neglect. "Company" includes a firm and an LLP; "director" includes a partner.
• Section 89: compounding, not for offences punishable with imprisonment only or imprisonment and also fine; fifty per cent. of the maximum for fine-only offences, seventy-five per cent. where imprisonment is up to one year or fine; money to the Social Security Fund; barred for a repeat within three years.

Test yourself

1. Compare the penalty for an illegal strike with that for an illegal lock-out. Under section 86(13) a worker who commences, continues or otherwise acts in furtherance of a strike which is illegal under the Code is punishable with a fine of not less than one thousand rupees and up to ten thousand rupees, or imprisonment up to one month, or both. Under section 86(14) an employer who commences, continues or otherwise acts in furtherance of a lock-out which is illegal is punishable with a fine of not less than fifty thousand rupees and up to one lakh rupees, or imprisonment up to one month, or both. The employer's minimum is fifty times the worker's and his maximum ten times, the imprisonment being the same. The asymmetry reflects that a worker joining an illegal strike acts on a collective decision while an employer declaring an illegal lock-out makes a single decision affecting the whole workforce.

2. What penalties attach to contravening Chapter X? Under section 86(1), an employer who contravenes section 78, 79 or 80, that is who lays off, retrenches or closes a Chapter X establishment without the required prior permission, is punishable with a fine of not less than one lakh rupees and up to ten lakh rupees. Under section 86(2), for a second or subsequent such offence the fine is not less than five lakh rupees and up to twenty lakh rupees, or imprisonment up to six months, or both. These are the heaviest penalties in the Code.

3. Explain section 85. It allows a penalty to be imposed without a prosecution. Under section 85(1) the appropriate Government may appoint an officer not below the rank of Under Secretary to the Government of India, or of equivalent rank in a State Government, to hold an enquiry in the prescribed manner for the purpose of imposing penalties under sub-sections (3), (5), (7), (8), (9), (10), (11) and (20) of section 86 and section 89(7). Under section 85(2) that officer may summon and enforce the attendance of any person acquainted with the facts, take evidence and require documents, and if satisfied that the person has committed an offence under those provisions may impose such penalty as he thinks fit in accordance with them. Under section 85(3), failure to pay within ninety days of receiving the order is itself punishable with a fine of not less than fifty thousand rupees and up to two lakh rupees. The route is not available for the Chapter X contraventions in section 86(1) and (2) or for illegal strikes and lock-outs.

4. Who may prosecute an offence under the Code? Under section 87(1) no court shall take cognizance of any offence punishable under the Code save on a complaint made by or under the authority of the appropriate Government, so an aggrieved worker, union or employer cannot prosecute. The single exception in the Chapter is section 86(19), the offence of wilfully disclosing information in contravention of section 61, which operates on a complaint made by or on behalf of the Trade Union or individual business affected. By section 87(2), and notwithstanding the Code of Criminal Procedure 1973, no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class may try an offence under the Code.

5. Which offences may be compounded, and on what terms? Under section 89(1), any offence punishable under the Code, not being one punishable with imprisonment only or with imprisonment and also with fine, may, on the application of the accused, either before or after the institution of a prosecution, be compounded by a Gazetted Officer specified by the appropriate Government by notification, for fifty per cent. of the maximum fine where the offence is punishable with fine only, and seventy-five per cent. where it is punishable with imprisonment for a term not exceeding one year or with fine. The composition amount is credited to the Social Security Fund established under section 141 of the Code on Social Security 2020. Under section 89(2) compounding is unavailable for an offence committed for the second time or thereafter within three years from the commission of a similar offence earlier compounded or of which the person was earlier convicted.

6. When is a director of a company liable for an offence under the Code? Under section 88(1) every person who at the time the offence was committed was in charge of, and responsible to, the company for the conduct of its business, as well as the company itself, is deemed guilty and liable to be proceeded against and punished; but the proviso relieves such a person if he proves that the offence was committed without his knowledge and that he exercised all due diligence to prevent it. Under section 88(2), notwithstanding that, where it is proved that the offence was committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer, that person is also deemed guilty; there is no due diligence defence to that limb. By the Explanation, "company" means any body corporate and includes a firm, a limited liability partnership registered under the Limited Liability Partnership Act 2008, and any other association of individuals, and "director" in relation to a firm means a partner.