Compounding of Offences Under Labour Codes

What is compounding?

Compounding refers to a process whereby the defaulting person or entity may file an application to the notified compounding authority, accepting the commission of an offence, and pleading for its condonation. The compounding authority may compound the offence after the defaulter deposits a compounding fee.

If the offence is compounded before the institution of prosecution proceedings, then no proceedings are initiated against the defaulter. If an offence is compounded after the institution of proceedings, then a notice is sent to the court, where proceedings are pending, to discharge the accused. Therefore, a criminal record against the defaulting person/employer is avoided.

Non-compliance with the provisions of the Labour Codes will entail the specified penalties or/and imprisonment under them. There were concerns that the proposed penalty amounts were excessive and therefore should be reduced. However, the provision of compounding has been introduced to negate the introduction of high fines. Certain specified offences can be compounded by a gazetted/notified officer before or after the institution of prosecution proceedings.

Which offences may be compounded under the Labour Codes?

	Code on Wages	COSS	OSH	Industrial Relations Code
Compoundable Offences	Every offence that is not an offence punishable with imprisonment only or with imprisonment and fine.	Offences punishable with fine only or with imprisonment less than 1 year and fine	Penalty under Sections 12(3), 94, 96, 97(1), 99, 106, 97(2), 100(1), 101, 103(1)(b), 105, 113(2).	Every offence that is not an offence punishable with imprisonment only or with imprisonment and fine

Under the Code on Wages, all first-time offences are punishable with fine only [Section 54]. Hence, this implies that all offences under the Code of Wages are compoundable since no offence is punishable with imprisonment only or with imprisonment and fine. Similarly, all offences under the Industrial Relations Code are compoundable since they are punishable with either only fine or with imprisonment or both [Section 86]. None of the offences are punishable with only imprisonment or with imprisonment and fine.

Under the Code on Social Security, 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 fine [Section 133(i)(a)]. Hence, this is the only offence, which is not compoundable. This is because the employer violates a fiduciary duty by failing to pay the contribution that has already been deducted. This is a grave contravention and it is only fair that it cannot be compounded. All other offences prescribe imprisonment for less than 1 year or prescribe punishment through imprisonment or fine and are hence compoundable.

Under the Occupational Safety Code, the compoundable offences are – failure of qualified medical practitioner to send notice of certain diseases to the prescribed authorities [Section 12(3)]; any contravention for which a specific penalty is not expressly provided under the Code [Section 94]; non-maintenance of registers and records and non-filing of returns [Section 96], and other such offences, which are unintentional or non-serious violations.

It must be noted that the Occupational Safety Code does not provide the option of compounding for offences involving mens rea or serious violations relating to safety and hazardous activities, such as willful obstruction to Chief-Inspector/Inspector, 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.

Comparative analysis of compounding provisions under the Labour Codes

S. 56 of the Code on Wages, S. 138 of the Code on Social Security, S. 114 of the Occupational Safety and Health Code, and S. 89 of the Industrial Relations Code provide for compounding of offences. The table below provides a brief comparative overview of compounding provisions under the 4 Labour Codes.

	Code on Wages	COSS	OSH	Industrial Relations Code
Applicability	Not applicable to 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.	Not applicable to 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.	Not applicable to 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.	Not applicable to 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.
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.
Usage of amount of composition	N/A	N/A	Amount of composition received to be credited to Social Security Fund under S.115 for unorganised workers.	Amount of composition received to be credited to Social Security Fund under S.141 of COSS.

Implications of compounding

Compounding has multiple positive implications. First, it may lead to greater enforcement under the Labour Codes since it allows defaulters to come forward and avoid prosecution by paying the specified compounding fee. Second, the harassment of directors and managers is avoided through the provision of compounding. Prosecution proceedings act as a hindrance for them since they are required to appear before the court. Third, prosecution proceedings adversely affect the public image and perception of an employer. When details of violations/contraventions are disclosed to the public, it gives the impression of multiple litigation against the company. Compounding here avoids this.

Trade unions suggested that compounding of offences should not be allowed since it would protect the employer engaging in unfair labour practices. However, compounding is allowed only where there is no provision for imprisonment under the Labour Codes. The Standing Committee on Industrial Relations Code had suggested the addition of adequate safeguards to ensure that compounding of offences with payment of fifty percent of fine amount does not reduce the deterrent value of the penalties prescribed under the Code.

Therefore, even though the Codes provide for compounding, there are certain safeguards applicable, such as exclusion of compounding for repeat offences [please refer to ‘Applicability’ in the table above]. If an offence is repeated within a specified duration, then the benefit of compounding is not available to the violator. Only the Code on Wages has a duration of 5 years as opposed to 3 years in the other Codes. It is unclear why the Code on Wages has an extended duration and perhaps an amendment may be forthcoming in the future, especially since none of the offences under it are punishable with imprisonment only or with imprisonment and fine. 

Further, for non-compliance of an order of the compounding authority, a sum equivalent to 20% of the maximum fine for the offence must be paid in addition to the fine for the offence. This ensures that employers are not let off the hook easily for their violations.

We see that compounding of offences is a beneficial provision that helps employers in avoiding a criminal record and increases compliance under the Labour Codes. However, it must be noted that compounding is not available for every offence and there are other safeguards prescribed, which restrict its application.

What are your thoughts on compounding offences under the Labor Codes. Drop your queries on compounding in the comments below.

Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney. Simpliance makes no representations or warranties in relation to the information on this article.