Labour Codes: #9 Compounding of offences under New Codes
India’s new Labour Codes streamline decades-old laws to improve ease of doing business. The provision for compounding offences reduces litigation, encourages voluntary compliance, and fosters a more predictable regulatory environment for employers—while maintaining worker protections.
Key Provisions
1. Code on Wages, 2019 – Under this Code, all offences that are not punishable with imprisonment only, or with imprisonment and fine, are compoundable. However, repeat offences committed within five years of a previously compounded or convicted offence are non-compoundable, ensuring that compounding is not misused.
2. Code on Social Security, 2020 – Offences under this Code, which are punishable with a fine or imprisonment of less than one year, are compoundable. Notably, non-payment of employee contributions is excluded from compounding due to its serious implications on workers’ welfare. Compounding is disallowed for repeated violations within three years of a previous offence, maintaining a balance between leniency and deterrence.
3. Occupational Safety, Health and Working Conditions Code, 2020 – Several offences mentioned in the act are compoundable offences. The same three-year restriction applies for second-time offences. This provision strengthens accountability while offering first-time violators a chance to rectify their conduct without litigation.
4. Industrial Relations Code, 2020 – Similar to other Codes, only offences that are not punishable with imprisonment alone or with both imprisonment and fine are eligible for compounding.
Key Advantages of Compounding Provisions
1. Quick Resolution of Offences – Compounding facilitates faster resolution of minor violations, enabling employers to address legal breaches without waiting for prolonged judicial decisions. This helps maintain business continuity and reduces administrative burden.
2. Cost-Effective Mechanism – Litigation can be financially draining and time-intensive. Compounding offers a more affordable alternative.
3. Reduces Judicial Burden – India’s labour courts and tribunals face significant backlogs. By resolving minor cases administratively, compounding alleviates pressure on the judiciary, allowing courts to focus on more serious or complex disputes.
4. Promotes Voluntary Compliance – The provision acts as an incentive for businesses to comply with laws, knowing that minor first-time violations can be rectified without harsh consequences. This cultivates a compliance-driven culture in the labour ecosystem.
5. Encourages Industrial Peace – Swift resolution of issues through compounding contributes to a peaceful industrial climate, essential for attracting investment, retaining workers, and improving productivity.
6. Flexibility and Discretion – The law allows designated authorities to assess each case on its merits, offering flexibility and room for discretion. This ensures fair outcomes, particularly in cases where violations are unintentional or administrative in nature.