Offences and Penalties Under the Code on Wages

And repetition removes the indulgence. Section 54(3) itself withdraws the opportunity where a violation of the same nature is repeated within five years, and sections 54(1)(b), 54(1)(d) and 56(2) all use the same five-year window.

Two further ideas run through the Chapter. Section 53 allows certain penalties to be imposed by a departmental officer after an enquiry, without a court at all. And section 56 allows most offences to be compounded for half the maximum fine, so the ordinary case never reaches trial.

Some words this chapter uses

Cognizance is a court's act of taking notice of an offence so as to begin proceedings. Section 52 restricts who may set that in motion.

Compounding is a lawful settlement of a criminal charge: the accused pays a sum, and the prosecution ends or never begins.

Discharge is the release of an accused without a verdict. Section 56(6) uses it where composition follows the institution of a prosecution.

Due diligence is the care a person in charge must show to escape vicarious liability under the proviso to section 55(1).

Under Secretary to the Government of India is the rank fixed by section 53(1) as the floor for the officer who may impose a penalty by enquiry.

Section 52: who may complain, and which court tries

52(1): cognizance. No court shall take cognizance of any offence punishable under the Code save on a complaint made by:

• the appropriate Government or under its authority, or an officer authorised in this behalf; or
• an employee; or
• a registered Trade Union registered under the Trade Unions Act 1926; or
• an Inspector-cum-Facilitator.

52(2): the court. Notwithstanding anything in 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 the offences under the Code.

Two points.

The private complaint is preserved. A worker may complain, and so may his registered union, without waiting for the Government or the Inspector-cum-Facilitator to act. Given that section 51's inspection regime is randomised, that matters: if no one inspects the establishment, the worker is not left without a remedy.

And the trial court is a first class magistrate or above, which keeps these prosecutions out of the lowest magistracy. As elsewhere in the Code, the cross-references are dated: the Trade Unions Act 1926 was repealed by section 103 of the Industrial Relations Code 2020, and the Code of Criminal Procedure 1973 by section 531(1) of the Bharatiya Nagarik Suraksha Sanhita 2023.

Section 53: penalties imposed by an officer, without a court

53(1): notwithstanding section 52, for the purpose of imposing penalty under section 54(1)(a), section 54(1)(c), section 54(2) and section 56(7), the appropriate Government may appoint any 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.

53(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 a document he thinks useful or relevant; and if on the enquiry he is satisfied that the person has committed an offence under those provisions, he may impose such penalty as he thinks fit in accordance with those provisions.

Notice exactly which four penalties this covers, because the list is deliberate: the first underpayment offence, section 54(1)(a); the first other contravention, section 54(1)(c); the records offence, section 54(2); and the failure to comply with a compounding order, section 56(7). Every one of them is punishable with fine only.

The repeat offences under sections 54(1)(b) and 54(1)(d) are not in the list, and they are the two that carry imprisonment. So the division is clean and constitutionally sensible: an administrative officer may impose a fine after an enquiry; only a magistrate may send anyone to prison.

This is a significant shift in Indian labour enforcement and it is examinable as such. The ordinary wage offence is now dealt with by a departmental adjudication rather than a criminal trial, which is faster and does not depend on the magistrate's list, but which also places the decision with an officer of the same Government that appoints the Inspector-cum-Facilitator, subject to no appeal named in the section.

Section 54: the penalties

54(1) punishes any employer who:

• (a) pays to any employee less than the amount due to him under the Code: fine which may extend to fifty thousand rupees;
• (b) having been convicted under clause (a), is again found guilty of a similar offence within five years from the date of the commission of the first or subsequent offence: on the second and subsequent commission, imprisonment up to three months, or fine up to one lakh rupees, or both;
• (c) contravenes any other provision of the Code or any rule or order made or issued under it: fine which may extend to twenty thousand rupees;
• (d) having been convicted under clause (c), is again found guilty of a similar offence within five years: on the second and subsequent commission, imprisonment up to one month, or fine up to forty thousand rupees, or both.

54(2): notwithstanding sub-section (1), for non-maintenance or improper maintenance of records in the establishment, the employer is punishable with fine which may extend to ten thousand rupees.

Four features of the scheme.

The first offence never carries imprisonment. Clauses (a) and (c) and sub-section (2) are fine-only. Imprisonment appears only on repetition, in clauses (b) and (d).

Clauses (b) and (d) require a prior conviction. The words are "having been convicted of an offence under clause (a)". An employer who was found in breach but not convicted, or who compounded the earlier offence, is not within them. Compare section 56(2), which is drafted differently and bars compounding where a similar offence was earlier compounded or earlier convicted.

The five years run from the commission of the offence, not from the conviction. Read the words: "within five years from the date of the commission of the first or subsequent offence".

And underpayment is treated as much graver than everything else: fifty thousand against twenty thousand, and a lakh with three months against forty thousand with one month. The Code's hierarchy of wrongs is explicit, and paperwork sits at the bottom at ten thousand rupees.

54(3): the written direction. Notwithstanding clause (c) of sub-section (1) or sub-section (2), the Inspector-cum-Facilitator shall, before initiation of prosecution proceedings for those offences, give an opportunity to the employer to comply with the provisions of this Code by way of a written direction, which shall lay down a time period for such compliance; and if the employer complies within that period, the Inspector-cum-Facilitator shall not initiate such prosecution proceeding. No such opportunity shall be accorded if a violation of the same nature is repeated within a period of five years from the date on which the first violation was committed, and in that case prosecution shall be initiated in accordance with the Code.

Take the sub-section apart, because it is the most examinable provision in the Chapter.

Which offences. Only section 54(1)(c), other contraventions, and section 54(2), records. Not section 54(1)(a): underpaying a worker attracts no warning.

What must be given. Not oral advice: a written direction, and it shall lay down a time period for compliance.

What follows compliance. The Inspector-cum-Facilitator shall not initiate the prosecution. It is a bar, not a discretion.

When the opportunity is lost. Where a violation of the same nature is repeated within five years of the first. Note that this test differs from clauses (b) and (d): it does not require a prior conviction, only a prior violation. So the employer who was warned, complied, and offended again in the same way within five years gets no second warning, even though he was never convicted and so cannot be sentenced under clause (d) either.

The rationale is the Code's compliance philosophy stated in one sub-section: the object is that the register be maintained and the notice displayed, not that the employer be convicted, and the fastest route to the object is a direction with a deadline.

The criticism is equally plain. A worker gains nothing from a direction; the employer who is caught simply complies and the matter ends. And because section 54(3) speaks only of the Inspector-cum-Facilitator, its bar does not in terms restrain a complaint by an employee or a registered trade union under section 52(1). Whether the sub-section was intended to leave that route open is a fair question, and the drafting does not answer it.

Section 55: offences by companies

55(1): where the person committing an offence under the 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 its business, as well as the company, shall be deemed to be guilty and liable to be proceeded against and punished accordingly. Proviso: nothing in the sub-section renders such a person liable if he proves that the offence was committed without his knowledge, or that he exercised all due diligence to prevent its commission.

55(2): notwithstanding sub-section (1), where the 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 shall also be deemed to be guilty and liable accordingly.

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 in the firm.

Distinguish the two sub-sections, because that is the standard question.

Sub-section (1) is presumptive and defeasible. It reaches whoever was in charge of and responsible for the conduct of the business, and it makes them guilty without proof of personal involvement. The burden then shifts to them to prove no knowledge or all due diligence.

Sub-section (2) is proof-based and has no defence. It reaches a director, manager, secretary or other officer only where consent, connivance or neglect is proved against them, and once proved the proviso to (1) does not save them.

The Explanation matters practically, because it extends "company" to a firm and to a limited liability partnership, and makes a partner a "director" for the section. Most establishments in India are not incorporated, and without the Explanation the section would have reached only the minority that are.

Section 56: composition of offences

56(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 notified by the appropriate Government, for a sum of fifty per cent. of the maximum fine provided for that offence, in the prescribed manner.

56(2): sub-section (1) does not apply to an offence committed by a person for the second time or thereafter within five years from the date (i) of commission of a similar offence which was earlier compounded, or (ii) of commission of a similar offence for which he was earlier convicted.

56(3): the compounding officer exercises the power subject to the direction, control and supervision of the appropriate Government.

56(4): applications are made in the prescribed manner.

56(5): where an offence is compounded before the institution of a prosecution, no prosecution shall be instituted in relation to it against that offender.

56(6): where composition is made after the institution of a prosecution, the officer shall bring it in writing to the notice of the court in which the prosecution is pending, and on that notice being given the person shall be discharged.

56(7): any person who fails to comply with an order made by the compounding officer is punishable with a sum equivalent to twenty per cent. of the maximum fine provided for the offence, in addition to such fine.

56(8): no offence under the Code shall be compounded except under and in accordance with this section.

Three things to notice.

The price is fixed, not negotiated. Fifty per cent. of the maximum fine, whatever the actual breach. So a first underpayment offence, maximum fifty thousand, compounds at twenty-five thousand; a records offence at five thousand.

Compounding is a one-time indulgence. Section 56(2) closes it for five years after a similar offence that was compounded or convicted. This is the same five-year window as sections 54(1)(b), 54(1)(d) and 54(3), and it is the Code's consistent method: forgive once, never twice.

And an important interpretive point about the exclusion in 56(1). The sub-section excludes offences punishable "with imprisonment only, or with imprisonment and also with fine". Look at what section 54 actually provides. Clauses (a) and (c) and sub-section (2) are fine only. Clauses (b) and (d) are "imprisonment ... or with fine ... or with both", which is neither imprisonment only nor imprisonment together with a mandatory fine. On the language, therefore, no offence in the Code appears to fall within the exclusion, and the real limit on compounding is section 56(2)'s five-year bar rather than the words of 56(1). No decision has been verified for these notes on the point, so present it as an argument on the language and not as settled law. It is a good line in an answer that asks you to criticise the Chapter.

A worked example

The facts. A printing press in Kalyan. On inspection, the Inspector-cum-Facilitator finds three things: no register of wages is maintained; the notice under section 50(2) is not displayed; and eleven workers have been paid below the notified minimum wage for two months.

Take the three separately, because the Code does.

The missing register. That is non-maintenance of records, punishable under section 54(2) with a fine up to ten thousand rupees. But by section 54(3) the Inspector-cum-Facilitator shall first give a written direction laying down a time period to maintain it, and if the employer complies within that time, no prosecution may be initiated.

The missing notice. A contravention of section 50(2), so section 54(1)(c), fine up to twenty thousand rupees, and again section 54(3) requires the written direction first.

The underpayment. Section 54(1)(a), fine up to fifty thousand rupees, and section 54(3) does not apply to it. No warning is required and prosecution may be initiated at once. Separately, the eleven workers, or their registered union, or the Inspector-cum-Facilitator, may bring a claim under section 45, where the authority may award the arrears and compensation of up to ten times that sum.

Who prosecutes, and where? By section 52(1) the complaint may come from the appropriate Government or an authorised officer, from an employee, from a registered trade union, or from the Inspector-cum-Facilitator. By section 52(2) it is tried by a Metropolitan Magistrate or a Judicial Magistrate of the first class, and no court below.

Or it may not go to court at all. By section 53 the appropriate Government may appoint an officer not below the rank of Under Secretary to the Government of India, or equivalent in the State Government, to hold an enquiry, with power to summon and enforce attendance and require documents, and to impose the penalty for the section 54(1)(a) offence, the section 54(1)(c) offence and the section 54(2) offence.

Or the employer may compound. By section 56(1) he may apply, before or after prosecution is instituted, to the notified Gazetted Officer, and pay fifty per cent. of the maximum fine: twenty-five thousand for the underpayment offence, ten thousand for the notice, five thousand for the register. If he compounds before prosecution, section 56(5) bars any prosecution; if after, section 56(6) requires the officer to inform the court in writing, and he is discharged. If he then fails to comply with the compounding order, section 56(7) adds twenty per cent. of the maximum fine on top of the fine.

Now move the clock forward three years. The same press again pays below the minimum wage.

If the employer was convicted of the earlier offence, this is a second offence under section 54(1)(b), within five years from the date of commission of the first, and it carries imprisonment up to three months or a fine up to one lakh rupees, or both.

If he had compounded the earlier offence instead of being convicted, clause (b) does not apply, because it requires that he was "convicted of an offence under clause (a)". But section 56(2) does apply: he may not compound again, because the second offence was committed within five years of a similar offence earlier compounded. So he faces a prosecution under clause (a) with no way to buy it off.

And the register. If the register is again not maintained within five years of the first violation, section 54(3) withdraws the written-direction opportunity, because a violation of the same nature has been repeated within five years, and prosecution is initiated straight away.

Finally, who is prosecuted? The press is a partnership firm. By the Explanation to section 55, a firm is a "company" and a partner is a director. By section 55(1) the partner in charge of and responsible for the conduct of the business is deemed guilty along with the firm, unless he proves the offence was without his knowledge or that he exercised all due diligence. By section 55(2), any partner shown to have consented to, connived at, or neglected in a way to which the offence is attributable is also guilty, and the proviso to (1) does not save him.

What this does NOT mean

It does not mean every breach earns a warning. Section 54(3) covers only section 54(1)(c) and section 54(2). Underpaying an employee under section 54(1)(a) attracts prosecution at once.

It does not mean a first offence can lead to imprisonment. Only clauses (b) and (d) carry it, and both require a prior conviction and a repetition within five years.

It does not mean only the Government can prosecute. Section 52(1) admits a complaint by an employee, a registered trade union or the Inspector-cum-Facilitator.

It does not mean a court must be involved. Section 53 lets a departmental officer of the rank of Under Secretary or equivalent impose the penalties for sections 54(1)(a), 54(1)(c), 54(2) and 56(7) after an enquiry.

It does not mean compounding is available twice. Section 56(2) bars it for five years after a similar offence was compounded or convicted.

It does not mean compounding is negotiable. The sum is fixed at fifty per cent. of the maximum fine.

It does not mean "company" means an incorporated company. The Explanation to section 55 includes a firm, an LLP and any other association of individuals, and makes a partner a director.

And it does not mean a penal fine compensates the worker. Fines go to the State. The worker's money comes from a claim under section 45, with compensation of up to ten times.

Limits, criticism and amendments

The most substantial criticism is that Chapter VIII is more concerned with the employer's convenience than the worker's wage. Section 54(3) guarantees a warning; section 56 guarantees a fixed, discounted exit; section 53 keeps the ordinary case out of court. None of those three provisions puts a rupee in a worker's hand, and the Chapter contains nothing that requires the arrears to be paid as a condition of the direction or the composition. An employer directed under section 54(3) to maintain a register complies by maintaining the register.

The penalties remain low against the sums involved. Fifty thousand rupees is the maximum for underpaying, however many workers were underpaid and for however long; and section 54 fixes the same maximum whether one worker was short by a hundred rupees or three hundred were short by a month's wages. The Code's real deterrent is not here but in section 45(2), whose ten-times compensation is proportionate to the wrong because it is a multiple of it.

Section 53's administrative penalty is efficient and constitutionally careful, in that it is confined to fine-only offences, but the section names no appeal. A person penalised by an Under Secretary is left to the general remedies.

Section 54(3)'s bar is expressed only against the Inspector-cum-Facilitator, which leaves the relationship with a private complaint under section 52(1) unresolved on the face of the Code.

Section 56(1)'s exclusion appears to exclude nothing, for the reason given above: no offence under section 54 is punishable with imprisonment only, or with imprisonment and also with fine.

Against all that, three things are real improvements. The five-year repeat structure is applied consistently across sections 54(1)(b), 54(1)(d), 54(3) and 56(2), so leniency is genuinely once-only. Section 55's Explanation closes the gap that let unincorporated employers escape vicarious liability. And separating the paperwork breach from the wage breach is right in principle: the two are not the same wrong and should not have carried the same treatment, as they largely did under the repealed Acts.

Quick revision

• Section 52(1): cognizance only on a complaint by the appropriate Government or an authorised officer, an employee, a registered trade union, or the Inspector-cum-Facilitator. 52(2): tried by a Metropolitan Magistrate or Judicial Magistrate of the first class, and no court below.
• Section 53: an officer not below Under Secretary to the Government of India or equivalent in the State may hold an enquiry, summon and enforce attendance, and impose the penalty for sections 54(1)(a), 54(1)(c), 54(2) and 56(7), all of which are fine-only. The imprisonment offences are not in that list.
• Section 54(1): (a) paying less than due, fine up to 50,000; (b) repeat after conviction within five years, imprisonment up to 3 months or fine up to 1,00,000, or both; (c) any other contravention, fine up to 20,000; (d) repeat after conviction within five years, imprisonment up to 1 month or fine up to 40,000, or both. 54(2): non-maintenance or improper maintenance of records, fine up to 10,000.
• Section 54(3): before prosecuting for a 54(1)(c) or 54(2) offence the Inspector-cum-Facilitator shall give a written direction laying down a time period, and shall not prosecute if the employer complies; no such opportunity where a violation of the same nature is repeated within five years. It does not apply to 54(1)(a).
• Section 55(1): the person in charge of and responsible for the conduct of the business, and the company, are deemed guilty; defence of no knowledge or all due diligence. 55(2): a director, manager, secretary or other officer is guilty where consent, connivance or neglect is proved, with no such defence. Explanation: "company" includes a firm, an LLP and any other association of individuals; a partner is a director.
• Section 56: compounding on the accused's application, before or after prosecution, by a notified Gazetted Officer, for fifty per cent. of the maximum fine; not where the offence is committed a second time within five years of a similar offence compounded or convicted; before prosecution, none may be instituted; after, the court is informed in writing and the accused is discharged; failure to comply with the compounding order adds twenty per cent. of the maximum fine; and no compounding except under this section.

Test yourself

1. State the penalties under section 54. Section 54(1)(a) punishes an employer who pays an employee less than the amount due under the Code with a fine which may extend to fifty thousand rupees. Section 54(1)(b) provides that an employer convicted under clause (a) who is again found guilty of a similar offence within five years from the date of commission of the first or subsequent offence is punishable, on the second and subsequent commission, with imprisonment up to three months or a fine up to one lakh rupees, or both. Section 54(1)(c) punishes the contravention of any other provision of the Code, or of any rule or order made under it, with a fine up to twenty thousand rupees, and section 54(1)(d) punishes a similar repetition after conviction within five years with imprisonment up to one month or a fine up to forty thousand rupees, or both. Section 54(2) punishes non-maintenance or improper maintenance of records in the establishment with a fine up to ten thousand rupees.

2. What must the Inspector-cum-Facilitator do before prosecuting, and when need he not? Section 54(3) provides that, notwithstanding section 54(1)(c) or section 54(2), before initiating prosecution proceedings for offences under that clause or sub-section the Inspector-cum-Facilitator shall give the employer an opportunity to comply with the Code by way of a written direction laying down a time period for compliance, and if the employer complies within that period the Inspector-cum-Facilitator shall not initiate the prosecution. No such opportunity is to be given where a violation of the same nature is repeated within five years from the date on which the first violation was committed, in which case prosecution is initiated in accordance with the Code. The sub-section does not extend to an offence under section 54(1)(a) of paying an employee less than the amount due.

3. Who may complain, and which court may try an offence under the Code? Under section 52(1) no court shall take cognizance of an offence punishable under the Code save on a complaint made by or under the authority of the appropriate Government or an officer authorised in that behalf, or by an employee, or by a registered trade union, or by an Inspector-cum-Facilitator. Under section 52(2), notwithstanding anything in 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 the offences under the Code.

4. Explain liability for offences by companies. Section 55(1) provides that where the person committing an offence under the Code is a company, every person who at the time of the offence 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 exempts such a person if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent it. Section 55(2) provides that where the offence is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary or other officer, that person is also deemed guilty and liable accordingly. The Explanation defines "company" as any body corporate, including a firm, a limited liability partnership registered under the Limited Liability Partnership Act 2008, and any other association of individuals, and provides that "director" in relation to a firm means a partner in the firm.

5. On what terms may an offence be compounded? Under section 56(1), notwithstanding the Code of Criminal Procedure 1973, any offence under the Code not 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 notified by the appropriate Government for a sum of fifty per cent. of the maximum fine provided for that offence. Section 56(2) excludes an offence committed for the second time or thereafter within five years from the date of commission of a similar offence that was earlier compounded, or for which the person was earlier convicted. Where the composition is before prosecution, section 56(5) bars any prosecution; where it is after, section 56(6) requires the officer to notify the court in writing, whereupon the accused is discharged. Section 56(7) punishes failure to comply with the compounding officer's order with a sum equal to twenty per cent. of the maximum fine in addition to that fine, and section 56(8) provides that no offence may be compounded except under the section.

6. Can a penalty under the Code be imposed without a trial? Yes, for four provisions. Section 53(1) provides that, notwithstanding section 52, for the purpose of imposing penalty under sections 54(1)(a), 54(1)(c), 54(2) and 56(7), the appropriate Government may appoint any officer not below the rank of Under Secretary to the Government of India, or an officer of equivalent rank in the State Government, to hold an enquiry in the manner prescribed by the Central Government. Section 53(2) gives that officer power to summon and enforce the attendance of any person acquainted with the facts, to take evidence and require documents, and, if satisfied on the enquiry that the person has committed the offence, to impose such penalty as he thinks fit in accordance with those provisions. The four provisions listed are all punishable with fine only; the offences carrying imprisonment, under sections 54(1)(b) and 54(1)(d), are not within section 53 and remain for the criminal court.