Author: agamalaw

Labour Reforms: From recent past to wish list of future

First published in Business Manager magazine.

The Indian government has been making strides by bringing about reforms and amendments to various labour/human resource legislations and attempting to harmonize a hitherto archaic and unattended system. 2014 onwards we saw a sea of changes which can be characterised as follows:

Upliftment of vulnerable parts of society

Women and children have been largely benefitted by the amendments suggested in the past few years. The two major achievements having come from the much talked about amendment to the Maternity Benefit Act and the Child Labour Prohibition Act. Consequently, even the ESIC has been amended to be aligned with the same in 2017, where a commissioning mother and adopting mother are included in insured women.

With the increase in paid maternity leave to 26 weeks from 12 weeks as it existed prior to the amendment, India has risen to rank above most of the developed countries below only the Scandinavian countries that have the most extensive maternity (and paternity) benefits.

The Maternity Benefit Act also prescribes provision of crèche facilities by corporates (however there is no clarity on the working of this yet).

As regards protection of children, the minor population has been further divided into those who are guaranteed the right of education and adolescents. Further industry classification has been simplified. The definition of Child has been amended to include anyone under the age of 14 and who have been accorded rights under the Right to Education Act. It has been now prohibited to employ children in any firm/establishment with the only exception of a family business. However, no definition of family business has been provided nor are working hours regulated for children in family business. Adolescents can be employed provided the working conditions are fulfilled. The working hours are limited to 6 hours in a day with 1 hour rest in intervals of 3 hours of work. Adolescents cannot work beyond the prescribed 6 hours. Adolescents are prohibited from working in hazardous occupations. The list of hazardous occupations has been reduced to mines and explosive substances. The penalty for employing child labour has been enhanced to 2 years imprisonment with a higher monetary penalty of INR 50,000.

As regards workers in the unorganised sector the following key changes were made in 2017:

  • Housing Subsidy to Beedi, Cine and Non-Coal Mine Workers has been increased from Rs. 40,000/- to Rs. 1,50,000. The press reported that 15,705 Houses have been sanctioned at an expenditure of Rs. 25.5 crore.
  • Implementation of Revamped Bonded Labour rehabilitation Scheme: As on December 15, 2017 an amount of Rs.664.50 Lakhs was reported to have been released for the rehabilitation of 6413 bonded labourers. Additionally, an amount of Rs. 107.25 Lakhs was said to be released in 2017-18 for the purpose of conducting survey, awareness generation and evaluation studies.

Updates having economic impact on corporates and organized sector workers

In the last 4 years the government has taken bold measures to increase minimum wages, the eligibility for bonus, entitlement of PF and other measures thereby providing relief to a large number of low wage workers who were earlier out of the purview of the benefits. A snapshot of the key extensions and limits accorded are listed below:

Year Law Change
2014 Provident Fund Extension of exclusion of employee earning INR 15000 and above as compared to INR 6500 and above prior to amendment
Pension Wage threshold for determining pensionable salary was increased to INR 15000 as compared to INR 6500 prior to amendment.
2015 Payment of Bonus The eligibility of employees extended to employees earning upto INR 21,000 from the earlier INR 10,000
Bonus limit doubled to INR 7000 or minimum wages whichever is higher from INR 3500 previously.
2016 Employees State Insurance Exemption to employees below daily wage of INR 137
Wage limit for coverage of an employee has been enhanced from INR 15,000 to 21,000.
2017 Payment of Wages Wage Ceiling limits enhanced to INR 24000 from INR 18000.
2018 Payment of Gratuity No ceiling for central government employees as compared to the previous limit of INR 10 lakhs. Extended to the limit of 20 lakhs for private sector employees.

The above measures have definitely substantially provided relief to the organized sector workers and others in employment. However, these have operated to substantially increase the cost of employment for the businesses and particularly adversely affect the small and medium sectors. Businesses however, have been compensated through other measures that seek to smoothen the compliance process as captured below.

Revamping Welfare Legislations

Welfare legislations were revamped and directives issued to welfare organisations such as EPFO and ESIC to ensure that legislative intent/government initiates were supported. One of the path breaking measures is the creation of a UAN for each enrolled member with EPFO.

Universal Account Number (UAN) as on 12.12.2017 was allotted to organized sector workers making their EPF Accounts portable, benefiting 12,26,13,675 Workers and Aadhar Seeding completed. This also allowed workers immediate access to their PF accounts reducing disputes and delays in recovery of EPF.

Recent Changes

2018 has opened with a bang and we have witnessed two key changes being ushered in. The Payment of Gratuity Act has been amended to benefit Central Government employees and rules in relation to crèche for mine workers has been promulgated.

The Government of India has amended the schedule under the Industrial Employment (Standing Orders) Act, 1946 and various provisions towards the Industrial Employment (Standing Orders) Central Rules, 1946. Notification to this effect is published in the official gazette dated 16th March 2018.

As per the amendment “Fixed Term Employment” has now been introduced irrespective of the industry of work. The amendment also directs that no employer of an industrial establishment shall convert the posts of the permanent workmen existing in his industrial establishment on the date of commencement of the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018 as fixed term employment thereafter.

The hours of work, wages, allowances etc. shall not be less than that of permanent workman and all statutory benefits available to a permanent workman proportionately according to the period of service rendered by him even if his period of employment does not extend to the qualifying period of employment required in the statute.

Ease of doing business

In order to promote the Start-Up ecosystem in the country and for incentivizing the entrepreneurs in setting up new start-up ventures and thus catalyze the creation of employment opportunities through them, the Ministry of Labour and Employment has vide a direction dated 12 January 2016 (“Direction”) issued an advisory to the States/UTs/Central Labour Enforcement Agencies for a compliance regime based on self – certification and regulating the inspections under various Labour Laws. It was in fact advised that if such start-ups furnish online self – declaration for compliance of 4 labour laws mentioned (viz. Building and Construction Workers Act, Inter State Migrant Workers Act, Payment of Gratuity Act and Contract Labour Act) for the first year from the date of starting the start-up, no inspection under these labour laws, wherever applicable, will take place. From the second year onwards, up to 3 years from the setting up of the units, such start-ups are required to furnish self – certified returns (as is being done under Shram Suvidha Portal under these Acts for the central sphere) and would be inspected only when credible and verifiable complaint of violation is filed in writing and approval has been obtained from at least one level senior to the inspecting officer.

The catch however is that upon completion of the three – year window period, start-ups could still be prosecuted for any non – compliance during the first three years of their operations.

Shram Suvidha Portal

The Shram Suvidha Portal links four major offices of the Labour Ministry like EPF Organisation, Employees State Insurance Corporation (ESIC), Directorate General of Mines Safety and Chief Labour Commissioner. It allows employers to file a self – certified and simplified, single online annual return for them. The employers are provided a Unique Labour Identification Number (LIN) for this, and more than 18 lakh units have already availed of this. Employers are expected to file returns under various Acts. Now, they have been allowed to file a single unified annual return for nine labour laws.

Other Digital Measures

  1. PENCIL: An online portal was launched on 26.09.2017 for better monitoring & reporting system to ensure effective implementation of the provisions of the amended Child Labour (Prohibition & Regulation) Act, 1986 and National Child Labour Project (NCLP) Scheme. As on date District Nodal Officers from 431 districts out of 710 districts of the country have registered on the portal. Further all operational project Societies of NCLP are registered on the portal for better implementation of NCLP scheme aimed at educational rehabilitation of child and adolescent labour.
  2. EPFO upgraded: Employees Enrolment Campaign(EEC) of EPFO was launched by the Government in January, 2017 to enroll left out employees and provide incentives to employers in the form of waiver of administrative charges, nominal damages @Rupee 1/- annum and waiver of employees share if not deducted. In this drive, close to 1.01 crore additional employees have been enrolled with EPFO between January, 2017 to June, 2017.
  3. Online Claim Receipt & other Services: Employers can now pay their contributions online without any hassle and amount is credited to members’ accounts within 4 days. In addition, online facility allows for change in name, DOB, gender etc.
  4. Launch of “Digital Jeevan Praman Patra” introduced for convenience of Pensioners.
  5. Online Filing of Returns of Exempted Establishments.
  6. Online Processing of cases through E-Court Management System.
  7. All 120 EPFO offices have migrated to the consolidated database at the National Data Centre for seamless interface across the country.
  8. Launch of E-Biz Portal on DIPP for common registration of common registration service on the e-biz Portal of DIPP for 5 Central Labour Laws including Employees Provident Fund & Miscellaneous Provisions Act, 1952, Employees State Insurance Act, 1948, Building & Other Construction Workers (Regulations of Employment and Conditions of Service) Act, 1996, Contract Labour (Regulation and Abolition) Act, 1970 and Inter-State Migrant Workmen (Regulations of Employment and Conditions of Service) Act, 1979.

Truth behind the Scenes

At an all-India level, 77% of households do not have even a single regular-wage/salaried family member. At the all – India level, only 47.8 % of the population above 15 years of age has employment. The unorganized sector in India contributes to over 80% of the work force and the laws outlined above only deal with 20% of the workforce. In this situation a thrust is required for ensuring the welfare and social security of the unorganized sector. While India has jumped 33 points in the “ease of doing business” parameter as published by World Bank in 2018 to come to 103rd position, it’s quite saddening to note that India was ranked 4 in the World Slavery Index in 2017. Labour laws are so intrinsically linked with human rights ecosphere of a country that good labour reform needs to be all inclusive. The long – term structural weaknesses of India’s economic reform have been the inability to expand the market for jobs in sync with its demographic growth. Many of these new – age slaves are women and children, the most vulnerable sections on the frontline of economic slowdown and poverty. According to UNDP, India will see a severe job shortage in the next 35 years, the number of the country’s modern slaves is likely to boom.

Issues

Indian labour legal ecosystem is complicated for two reasons – Labour is both a Central and State subject. Certain welfare legislation such as Shops and Establishments is state driven, whereas, health insurance, provident fund and pensions are centre driven. To add to the confusion, there are over 44 central legislations and over 100 state legislations. Before a business is commenced, employers are scrambling with compliance issues – registrations, licenses and payments. While a lot has been done to smoothen this process as stated above in the Ease of Doing Business section, it still leaves a lot to be desired. Compliance with labour laws and labour welfare is the back – bone of society. It is imperative that laws are easy to follow and compliance simple to incentivize people for ensuring adherence to these laws.

None of the measures above deal with the quintessential aspect of any legislative framework – namely enforcement of the legislations. Contraventions by employers go unnoticed and even where challenges are made, it is impossible to conclude the same efficiently. The current conciliatory process is laughable to say the least and extremely bureaucratized.

The very institutions that are required to provide service of labour welfare compliance become the red tape slowing down processes and causing corporates to lose interest in the system.

Simplification as a Solution 

In light of the existing complexities given the unfettered growth of legislative dictats coupled with (possibly) the largest work force in the world, India’s solution is in simplicity.

One identification number for each employee linked to PAN Card and the same being used across the board by all organisations to provide welfare benefits.

Further codification of the laws in the manner provided below is recommended (includes recommendations by FICCI) by consolidation of laws with commonality of intent:

Additionally, overlapping definitions of industry, workman, wage and salary should be removed and one uniform definition to be adopted across the codes.

Conclusion

India is headed in the right direction but more zeal to bring about fundamental changes is required. The Labour Code which seeks to unify the various wage related laws and industrial relations has been moved in Parliament but is yet to be passed.  The important thing is to avoid passing of piecemeal legislations that make the legal environment complex for businesses and to adopt a holistic approach. The approach should be inclusive and bring into mainstream the various unorganized sectors and improve working conditions for the vulnerable sections so that we rise in the human rights index. On another note, ease of doing business in India has come with a cost to the businesses and is therefore not welcome. Changes have to be truly sustainable for businesses with enough time being given for implementation. A case in point being the Maternity Benefit Act, which imposes unreasonable levels of costs in employing women in so far as businesses are concerned. This amendment almost operates as a disincentive for employing women. The government needs to take on welfare measures on its own shoulders instead of requiring business to bear all the burden. After all a low profit economy will only have adverse effect in the long term.

All in all, a simple law will be an efficient law. While simplifying the following questions need to be answered:

  1. Are all categories of workmen covered in these laws
  2. What is the cost to business of implementing the law
  3. What is the effect of profit

Of course, each of these considerations needs to be weighed against one another.


Archana Balasubramanian | Partner


Previous Publications of ALA in Business Manager:

(1) Employees’ State Insurance Scheme – Simplified
(2) Contract Labour – Dealing with a necessary evil
(3) Employee’s Compensation Act – An Overview

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PROBATION –  A RISK OR AN OPPORTUNITY A Study in the Indian Context

There are no provisions in the Indian labour and employment laws which defines the term probation. As the word ‘probation’ suggests, it is the initial period of employment during which an employer can carefully consider whether a new member is able to meet the standards and expectations of the job and if they should be offered a permanent position. The basic idea behind keeping an employee on probation is to give the employer an opportunity to evaluate the employee’s performance before confirming the appointment. Probation is governed by usage and it is a common practice.

Probation in India

The only law where Probation is dealt with in India is the Industrial Employment (Standing Orders) Central Rules, 1946 (which is applicable to every industrial establishment wherein 100 (One Hundred) or more workmen are employed or were employed on any day) (the “Standing Orders Rules”).

The Standing Orders Rules defines a “Probationer” as a workman who has been engaged on a permanent basis and includes any person who has satisfactorily completed a probationary period of 3 (Three) months in the same or another occupation in the industrial establishment, including breaks due to sickness, accident, leave, lock-out, strike (not being an illegal strike) or involuntary closure of the establishment, hence provides for a probationary period of up to 3 (Three) months.

However, the above probation law applies only to persons who fall under the definition of “Workman” as defined under the Industrial Employment (Standing Orders) Act, 1946 (the “Standing Orders Act”). The person/companies to whom the Standing Orders Act and the Rules does not apply shall rely upon the Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017 (the “Maharashtra Shops & Establishment Act”) which excludes from its purview persons in ‘positions of confidential, managerial or supervisory character’. The impact of Probation on such class of people needs to be determined.

Certain states have built in their own probation concept indirectly into their local laws, which ranges from 3 (Three) to 6 (Six) months. Ideally, probation period should not exceed 240 (Two Hundred Forty) days, as several statutory social welfare laws apply to employees who have worked for such period.

Benefits of a Permanent Workman vis-à-vis a Probationer

A permanent workman is entitled to certain benefits which a Probationer is not entitled to. For example, every permanent workman is provided with a departmental ticket showing his number. A Probationer is not entitled to a permanent ticket. For terminating the employment of a permanent workman, a compulsory minimum notice in writing shall be given either by the employer or the workman as stated in the Standing Orders Rules. However, a Probationer can be immediately terminated from his employment without being entitled to any such notice. Every permanent workman is entitled to a service certificate at the time of its dismissal, discharge or retirement from service, however if the services of a Probationer is dismissed or discharged before the completion of its probation period, it will not be entitled to such service certificate.

Hence one has to be a permanent workman to avail the benefits as provided under the Standing Orders Rules.

Whether the agreement or contract override the Industrial Employment (Standing Order) Rules, 1948.

In Western India Match Company Ltd vs Workmen[1], it was held by the Hon’ble Supreme Court that, according to the Standing Order, a workman shall not be kept on probation for more than 2 (two) months, the letter of appointment (or special agreement) is inconsistent with the Standing Order to the extent of the additional 4 months’ probation. The inconsistent part of the agreement is ineffective and unenforceable.

Further the Hon’ble Supreme Court held that, where the terms of the agreement were inconsistent with the Standing Order, the terms of employment as per the Standing Order would prevail over the express terms of the contract of service. In other words, the terms and conditions of employment inconsistence with the Standing Orders would not survive.

In Srivastava (S.P.) And Anr. vs Banaras Electric Light and Power[2] Allahabad High Court held that, “The basic and general conditions contained in standing orders cannot be overridden by adopting the device of special agreements. The intention of a legislature in providing for statutory standing orders and laying down the only mode in which they can be modified and attached penal consequences to violation of standing orders, was necessary to prohibit terms of contract which contravene a standing order which would be struck by section 23 of the Contract Act, 1872, also.

Thus, from the above it is evident that the Standing Orders, which have the statutory force would prevail over the terms and conditions of the letter of appointment.

Termination during probation period

In the event the employer is not satisfied with the performance of an employee on probation, the employer is free to terminate the services of the employee before the completion of probation period subject to the notice period, if any, prescribed in the employment letter or company’s policy. The employer is not under an obligation to wait for the employee to complete its probation period, before terminating such employee from service. If the employer is dissatisfied with the performance of such employee, then such employer has the authority and right to terminate the employee. It is also well settled law that the employer is not under an obligation to establish or prove the unsatisfactory performance of a probationer through an enquiry prior to terminating its services. Indian courts have consistently held that the termination of a Probationer is to be done by a non-stigmatic order and there is no need to follow the principle of natural justice while passing such order. In Progressive Education Society v. Rajendra[3] the Hon’ble Supreme Court observed that the law with regard to termination of the services of a Probationer is well established and it has been repeatedly held that such a power lies with the appointing authority which is at liberty to terminate the services of a Probationer if it finds the performance of the Probationer to be unsatisfactory during the period of probation. Unless a stigma is attached to the termination or the Probationer is called upon to show cause for any shortcoming which may subsequently be the cause for termination of the probationer’s service, the management or the appointing authority is not required to give any explanation or reason for terminating the services.

Other issues arising during probation

As per Section 18 of the Maharashtra Shops & Establishments Act every worker who has been employed for not less than 3 (Three) months in a year, shall for every 60 (Sixty) days on which he has worked during the year be allowed leave, consecutive or otherwise, for a period of not more than 5 (Five) days. However, every worker who has worked for 240 (Two Hundred and Forty) days or more, shall be allowed leave with wages for a number of days calculated at the rate of 1 (One) day for every 21 (Twenty One) days.

A Probationer is hence entitled to leave irrespective of the probation period as mentioned in the employment letter or company’s policy.

There is no specific law on whether an employee is supposed to serve notice during the probation period. However, notice period during probation shall be as prescribed in the employment letter or company’s policy. Ideally, notice period of a probationer is shorter as compared to the notice period of a confirmed employee.

Concept of deemed confirmation

The judgement of the Hon’ble Supreme Court maybe relied on in the case of Lawrence School, Lovedale Vs. Jayanthi Raghu and Anr.[4], for the interpretation of “deemed confirmation”. It was held by the Hon’ble Supreme Court that, confirmation arises only where the confirmation was served by the employer to the employee. There is no concept of automatic or deemed confirmation. Merely because an employee is working beyond the probation period he cannot be deemed to be confirmed. Therefore, an employee may only be confirmed after receiving the confirmation mail or offer letter from the higher authority of the company.

The issue of whether a Probationer acquires the status of a permanent employee merely by expiry of time, had been debated in various prior judgments of the Hon’ble Supreme Court, and the following principles have emerged:

  1. Where in the letter of appointment, a period of probation is specified and power to extend the same is also conferred upon the authority, without prescribing any maximum period of probation, and if the employee continues beyond the prescribed or extended period, he or she cannot be deemed to be confirmed; and
  2. Where there is a provision in the employment rules for initial probation and extension thereof, and a maximum period for such extension is also provided, beyond which it is not permissible to extend probation, the employee is deemed to have been confirmed upon expiry of the maximum period of probation in case he or she has not been terminated prior thereto.

Where under the rules, however, a maximum period of probation is prescribed, but the rules require a specific act on the part of the employer, by issuing an order of confirmation or passing of a test for the purposes of confirmation, the employee cannot be deemed to have been confirmed merely by expiry of the maximum probationary period prescribed in the rules.

In Sum

Generally, the probation period of an employee is governed by the employment letter or company’s policy for the employee. As per the industrial practice and labour laws in India, maximum period of probation for a Probationer or a trainee should not exceed 240 (Two Hundred Forty) working days. There are various states that have established their own laws to govern the probation for instance Tamil Nadu has the Tamil Nadu Conferment of Permanent Status Act, 1981, which states that an employee should be made permanent or deemed as a permanent employee once he or she had worked for 240 (Two Hundred Forty) days a year. But the customary practice is that the probationary period is governed by employment letter or company’s policy.

Further, automatic confirmation after expiry of period of probation cannot be claimed as a right because as per customary practice the employment could not be treated as confirmed unless a specific order is passed by the management authority. Thus, for instance an employee can be terminated from employment during the probation period by giving 1 (One) month notice pay or 1 (One) month notice period.

Therefore, the Probationer remains a Probationer until the company decides and communicate the decision to the employee within the reasonable time period regarding the extension of the probation period. If the work is not satisfactory then the Probationer is allowed to continue after probation period or else terminated by the employee.

However, to avoid disputes, one must provide for a specific action without which the employee shall not be deemed to be confirmed. Care needs to be taken while drafting employment letters and company policies.

Bindi Parekh
Associate

 

[1] 1973 Supreme Court Cases ( L & S) 531.

[2] (1970) ILLJ 394 All

[3] (2008) 3 SCC 310

[4] (2012) 4 SCC 793

THE MAHARASHTRA SHOPS AND ESTABLISHMENT (REGULATION OF EMPLOYMENT AND CONDITIONS) ACT AND RULES: A STEP FORWARD OR A STEP BACKWARD? – PART II

Further to our Part I, this Part seeks to outline the key provisions with regards to enforcement under the Current Act and Rules and seeks to compare the legal positions of both the Previous and Current Acts and Rules.

Enforcement

Compounding of Offences

Compounding of Offences is a new provision added in the Current Act and Rules. This was not present in the Previous Act or Rules. Only those offences can be compounded which are not punishable with only imprisonment or with imprisonment and fine. The application for compounding must be made by the accused persons.[1]

It is pertinent to note that no compounding shall be allowed for persons who have committed any offence for the second time within a period of 5 years from the date of commissioning a similar offence either which was earlier compounded or where such person was earlier convicted.[2]

The State Government must direct, control and supervise the officer who is exercising his powers under this section.[3]

Further, any person who does not comply with the orders passed by the officer under this section would be liable to pay a penalty which is 20% of the maximum fine for such offence, in addition to the fine already levied.[4]

Moreover, the Current Rules prescribes that the order passed by the Compounding Officer is forwarded to the Facilitator who has to serve it to the defaulting employer within a period of 7 days. The maximum fees for the compounding of offences has been laid down to be not less than 50% of the fine specified.[5]

This is one of the most important changes that has been made in the Acts and the Rules. It is observed that the provision for compounding of offences is not existing in any of the labour and employment Acts such as the Industrial Dispute Act, 1947, the CLRA Act, 1970 or the Factories Act, 1948.

Facilitators

The qualification of Facilitators has been addressed under the New Rules which in the Old Rules (i.e. qualification of an Inspector) were very elaborate. The qualification has been reduced to include a person who has a degree from a recognized university or an equivalent qualification.[6] The duties and the powers of the Facilitators have also been elaborated as maintaining a monthly diary, serve notices and orders to concerned persons issued by the Compounding Officer, carry out inspections, maintain court cases and the register of cases, among other duties.[7]

This change would mean that now more persons have an opportunity to become a Facilitator under the Act.

Penalties

The penalties for offences or contravention to any provision of the Current Act and Rules are the following:

  1. Punishable with a fine which extends to Rupees One Lac and in case of a continuing contravention, the fine extends to Rupees Two Thousand per day of the contravention, provided such fine shall not exceed Rupees Two Thousand per worker employed. Further, for repeated contravention the fine extends to Rupees Two Lacs, provided that the fine shall not exceed Rupees Two Thousand per worker employed.[8]
  2. Where the contravention has led to an accident which has caused serious bodily injury or death of the worker, in such a case the employer shall be imprisoned for a period not exceeding six months, or with a minimum fine of Rupees Two Lacs which may extend to Rupees Five Lacs, or with both.[9]
  3. Anyone willfully obstructing the Facilitator from performing any of his/her duties under the Act or Rules will be penalized with a fine which may extend to Rupees Two Lacs; or anyone who willfully refuses to produce on the demand of a Facilitator any register or any other document in pursuance with the Act or the Rules shall be punished with a fine not exceeding Rupees Two Lacs. However, it is seen that the total amount of fine must not exceed Rupees Two Thousand per worker employed.[10]

Consequences of the Repeal of the Previous Act

Though the Current Act and Rules have come into place, it is observed that any appointment, order, rule, bye-law, regulation, notification, registration, or notice made, issued or given which are consistent with the Current Act and Rules must be kept in force unless until they have been superseded. Furthermore, the trial of any offence which is punishable under the Previous Act or Rules shall be continued as if the Act or Rules are still in force.

Comparison

SR. NO.

PARTICULARS PREVIOUS LEGAL PROVISIONS

CURRENT LEGAL PROVISIONS

1.

Worker / Employee

The term employee included not only employee but also the workers Employees are no more included under these Act and Rules.
2. Compliances

All compliances were to be done manually.

The compliances are now to be done online, digitally, therefore promoting digitalization in India.

3. Maintenance of Registers and Records It was for a period of 2 years.

It has been increased to a period of 3 years.

4.

Annual Return

There was no provision for annual returns. Within 2 months from 31 December upload the annual return.
5.

Name Board

The name board must have the name written in Marathi. Additionally, the name of any shop or establishment where liquor is served must not be the name of a legend or a fort.
6. Health, Safety and Welfare Committee There was no provision for a Committee to be formed.

The Health, Safety and Welfare Committee has been formed for promoting the welfare of the workers.

7. Women Working at Night Women were not allowed to work at night after 9:30PM, irrespective of the fact that they consent to it or not.

Women can work post 9:30PM, provided they have provided their consent for the same.

8.

Facilitators

The qualification for Inspectors was that they were to be qualified from a recognized university and must be able to speak, read and write in Hindi or any other language of the local area The Facilitator is to hold a degree from any recognized University or has an equivalent qualification.
9. Compounding of Offences There was no provision for Compounding of Offences.

The concept of compounding of offences has for the first time been introduced within the purview of the Current Act and Rules. However, it is pertinent to note that offences punishable with imprisonment only or imprisonment and fine cannot be compounded.

Conclusion

Therefore, we observe that the provisions of the compounding of offences have been introduced in the Current Act for the reason of avoiding lengthy litigations. This provision would not only reduce the burden of the judiciary but would also prove beneficial to the employer as it would reduce the time and costs of a prolonged litigation.

Rhea Sethi
Associate

[1] Section 33 (1) of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Act, 2017.

[2] Section 33 (2) of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Act, 2017.

[3] Section 33 (3) of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Act, 2017.

[4] Section 33 (7) of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Act, 2017.

[5] Rule 32 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[6] Rule 29 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[7] Rule 30 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[8] Section 29 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Act, 2017.

[9] Section 30 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Act, 2017.

[10] Section 31 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Act, 2017.

THE MAHARASHTRA SHOPS AND ESTABLISHMENT (REGULATION OF EMPLOYMENT AND CONDITIONS) ACT AND RULES: A STEP FORWARD OR A STEP BACKWARD? – PART I

Introduction

The Bombay Shops and Establishment Act, 1948 (“Previous Act”) and the Bombay Shops and Establishment Rules, 1961 (“Previous Rules”) have been repealed and replaced with the new Maharashtra Shops and Establishment (Regulation of Employment and Conditions) Act, 2017 (“Current Act”) and Maharashtra Shops and Establishment (Regulation of Employment and Conditions) Rules, 2018 (“Current Rules”). They have been successfully notified by the Maharashtra Industry, Energy and Labour Department. The New Act and Rules are more illustrative on the rights and duties of a worker working in an establishment, and for the establishment itself.

Applicability and Compliance

Applicability

While the Previous Rules did not prescribe any minimum threshold to applicability, the Current Rules prescribes that an establishment with 10 or more workers have to submit the registration form in accordance with Form A[1], while an establishment with less than 10 workers have to submit Form F as an online intimation for the commencement of business.[2] A major change that can be observed is the use of the term ‘workers’ instead of ‘employee’. So does this mean that, especially taking into consideration the exclusion provided in the Current Act that the provisions thereof shall not apply for workers occupying position of confidential, managerial or supervisory character in an establishment, under the Current Act and Rules, only the manual, unskilled, skilled, technical, operational or clerical work for hire or reward are covered, and an employee is not? Further, since there is no wage cap, is it possible that that the employees would come within the purview of workers?

Along with the Forms, relevant documents are also to be submitted. It is pertinent to note that the Ministry has taken a big leap by digitalizing the processing of Forms. Not only are the Forms now submitted online but the Certificates are also signed by the Facilitator digitally.[3]

Further, the fees for the Form which earlier used to vary, has now been removed for any type of registration, i.e. regardless of it being a first-time registration or a renewal of registration. Though the employer may have to pay electronic transactions or service charges which are periodically fixed by the state government from time to time.[4]

Moreover, the concept of deemed grant or renewal of registration has now been removed.

A non-compliance with the abovementioned provisions would lead to a penalty of INR 1000 on the employer.[5]

Cancellation of Registration Certificate[6]

For the cancellation of the registration of certificate, the Facilitator must provide the employer with a period of 10 days to submit the reasons for non-cancellation of the registration. But, if there is no notice after these 10 days, the Facilitator may cancel the registration. However, if the employer provides for a reason, then after considering the reason and the documents provided along with it, the Facilitator may either keep or cancel such registration. The Current Rules have tried to bring in a fair and just procedure for the cancellation of the registration, which had been missing from the Previous Rules.

Maintenance of Registers and Records and Annual Returns

There has been no change in any of the rules save for the rule that the registers now have to be maintained for a period of 3 years instead of for a period of 2 years.[7]

Further, an employer must within a period of 2 months from 31 December upload the Annual Return and provide a copy to the Facilitator. There was no such mention of this in the Old Rules.[8]

Thus, it is seen that the provisions with regards to accounting and maintaining of registers have been made more stringent since the Old Rules.

Employee or Worker

Though the Current Act and Rules have made major changes and leap forward in ways of technology, health and women safety (as yet to be seen), but at the same time it has taken two steps back by replacing the term ‘employee’ with the term ‘worker’.

A worker as defined in the said Act means and includes “any person (except an apprentice under the Apprentice Act, 1961) employed to do any manual, unskilled, skilled technical, operational or clerical work for hire or reward, whether the terms of employment be express or implied.”

As opposed to the previous Act, which defined the term employee as “a person wholly or principally employed, whether directly or through an agency, and whether for wages or other consideration in or in connection with any establishment; and includes an apprentice but does not include a member of the employer’s family”.

Rights of “Workers”

There has been an increase in transparency in an establishment as the establishment must now provide the number of hours of work, rest interval, weekly holiday for a worker on the website of the establishment (in a conspicuous place) and on the notice board of the establishment.[9]

Moreover, any person working more than 9 hours in a day and 48 hours in a week, is entitled to wages at twice the rate of his ordinary wages. If the overtime hours exceed 125 hours in a period of 3 months, the employer shall be liable to a penalty.[10]

For workers working on shift basis, the establishment must give notice of the schedule of the shifts to the workers well in advance along with a weekly holiday. It also emphasizes on the prohibition of overlapping of shifts for workers, men and women alike. A minimum gap of 12 hours must be given to the worker for rest.[11]

Therefore, it is observed that the rights of a worker are now being regulated, so that the employer does not take their undue advantage.

Part-time Employment

Further, part-time employment, an employment option which had been unregulated in the previous Rules is now regulated. A part-time employ is not allowed to work for more than 5 hours a day. The method of computation of the wages has also been laid down by the Rules.[12]

Name Board[13]

Though the provisions for the Name Board to be in Marathi have stayed the same, but the Rules have also added that an establishment where liquor is either served or sold should not have the name of any legends or fort. This Rule requires a clarification by the Ministry so as to understand the reason for the implementation of such a Rule.

Health, Safety and Welfare of the Workers

The Current Rules have brought about many changes in respect to the health and safety of the workers. Not concentrating on these aspects of the workers, had been a major setback in the previous one.

A Health, Safety and Welfare Committee must now be set up in an establishment where there are 100 or more members. The constitution of such a Committee must be such that there are an equal number of employers and workers in the Committee. The Rules elaborate the duties of the Committee such as surveying the premises, identifying accident prone areas, getting such areas rectified, conducting health care and wellness camps, creating awareness about contagious disease, conducting recreational, cultural and sport activities conducting social and educational awareness, etc.[14]

The introduction of a Committee can be seen to be similar to many other labour and employment Acts such as the Industrial Dispute Act, 1947 where a Works Committee is formed to encourage friendly relationships between employer and employee or the Factories Act, 1987 wherein a Safety Committee is to be established in factories where hazardous process takes place for the safety of the workers.

Moreover, it is observed that the facility which has not been included in the Current Act or Rules is the Canteen facility which has been provided in the Contract Labour (Regulation and Abolition) Act, 1970 (“CLRA Act, 1970”). According to the size of the establishment the canteens are to be provided in the organization. These canteens provide foodstuff to the labour at a reasonable charge.[15]

Further, it is prescribed that the premises of an establishment are to be free and clean from infection. There should be proper lighting, illumination and ventilation in the establishment.[16] Moreover, the employer should take measures to protect the premises and workers from fire. He must adopt the safety measures mentioned, suggested and recommended in the Fire and Safety Policy which is declared by the Government.[17] These provisions have vastly changed from the Previous Rules in the sense that while the Previous Rules prescribed a proper process for cleanliness, they had not done so against fire hazards in the establishment.

Additionally, an establishment must have neat and clean latrines and urinals. Proper facilities should be present in the latrines such as exhaust fan, water supply, antibacterial soap.[18] This has been a much-needed provision as it concentrates on the basic rights and necessities of a worker. This provision too has been vastly changed from the other labour acts such as CLRA[19] and the Factories Act, 1948[20] as the Current Act not only concentrate on having latrines and urinals but also prescribe measures for them to be kept clean. However, we notice that the Factories Act, 1948 do prescribe for separate accommodation of latrines for men and women, ventilated passages and sanitary conditions in such places.

Lastly, the first-aid appliances and medicines have to be maintained in the establishment. The Current Rules prescribe a list of mandatory appliances to be present in such first-aid appliance.[21]

All these changes have been made keeping in view with the health and cleanliness of the workers, which was not paid much heed in the Previous Rules.

Safety of Women[22]

The Current Rules have taken big strides forward for women working in nights shifts. It now prohibits discrimination against women. No other Acts or Rules relating to work and labour such as the Industrial Dispute Act, 1947, the CLRA Act, 1970 have incorporated any provision relating to safety of women. Though the Factories Act, 1948 does have various provisions relating to health of women such as creches, maximum weight to be carried. However, it is seen that there has been a discrimination for women workers as they are only allowed to work between 6AM to 7PM in a day. The Government is required to provide an exemption for women to work later than the hours mentioned.

The basic concentration on the sections of the Current Act and Rules is on dealing with women safety have been for women who are working in establishments such as Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO), Legal Process Outsourcing (LPO). The Previous Rules had mandatorily prescribed that a woman was not allowed to work post 9:30PM, no matter whether she consents to it or not. However, now women are permitted to work at night (between 9:30PM to 7:00AM) provided they have given their consent for the same. It is mandatory that all reasonable safeguards for her safety have been taken and the provisions of the Sexual Harassment of Woman at Workplace (Prevention, Prohibition and Redressal) Act, 2013 have been complied with. The establishment must ensure that all women working the night shift are dropped safely from the office premises to their doorstep and vice versa.

Further, various measures are to be taken while a woman is working the night shift such as the office premises are to be illuminated in any part where a woman works or uses, separate bathroom facilities and sanitary napkins are to be provided to such women. Moreover, paid holidays during mensuration must be provided to her. It is also pertinent to note that a minimum of 3 women must be working in the night at the same point of time in the establishment for their safety.

On a general note as well, it has been made compulsory to maintain a complaint box and must display the phone numbers of local police stations, control room and women help line number in the establishment. Further, where there are more than 10 women workers, sufficient number of women security guards, whose police verification has been completed must be necessarily employed.

Conclusion

Therefore, it is observed that many vital and significant changes have been covered by the Current Act and Rules. The most important of those have been, the upliftment of women by prohibiting discrimination, digitalizing the compliances for the ease of doing business in Maharashtra.

However, one fundamental question that remains to be answered is on the rights of an employee. Though the Act and the Rules have covered the rights of a worker, they have neglected the rights an employee who is working in a shop or an establishment.

Therefore, it can be reasonably concluded that all the positive changes made by the Ministry would be nullified if a clarification on the scope and applicability of the Act and Rules is not provided by the Ministry.

Our next post shall outline the enforcement provisions of the Act and Rules and the consequences of the repeal of the Previous Act.

Rhea Sethi
Associate

[1] Rule 3 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[2] Rule 8 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[3] Rule 5 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[4] Rule 4 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[5] Section 7 (3) of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Act, 2017.

[6] Rule 36 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[7] Rule 26 (4) of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[8] Rule 27 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[9] Rule 12 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[10] Section 15 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Act, 2017.

[11] Rule 16 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[12] Rule 17 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[13] Rule 35 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[14] Rule 21 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[15] Section 16 of the Contract Labour (Regulation and Abolition) Act, 1970.

[16] Rule 22 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[17] Rule 23 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[18] Rule 25 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[19] Section 18 of the Contract Labour (Regulation and Abolition) Act, 1970.

[20] Section 19 of the Factories Act, 1948

[21] Rule 24 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

[22] Rule 13 of the Maharashtra Shops and Establishment (Regulation of Employment and Condition of Services) Rules, 2018.

CRACKING THE CODE – PART III – INTERPRETING THE TERM “DISPUTE”

Further to our Part II, in this Part we have dealt with the interpretation of the term “Dispute” under the Code.

The Code being a new legislation is going through several judicial tests and every test is leading to a new interpretation of the provisions of the Code resulting in inconsistency between them. Several judgements have been pronounced by National Company Law Tribunal (“NCLT”) which are inconsistent with each other and the point of focus and interpretation of these judgements has been on the term “Dispute” which is a core of remedy available to a debtor under the Code.

Disputes

Section5(6)

The term dispute has been defined under section 5(6) of the Code which speaks as follows:

dispute” includes a suit or arbitration proceedings relating to;

  1. the existence of the amount of debt;
  2. the quality of goods or service; or
  3. the breach of a representation or warranty.

Section 8(2)(a)

Further, dispute has been provided under Section 8(2)(a) as;

existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;

The two areas of dispute primarily are:

(1) Whether a suit or arbitration proceeding needs to be initiated to demonstrate the existence of dispute?

There have been many conflicting judgements by NCLT and National Company Law Appellate Tribunal (“NCLAT”) interpreting, whether a suit or arbitration needs to be initiated to demonstrate the existence of dispute before filing an application for Corporate Insolvency Resolution Proceeding (“CIRP”).

The Hon’ble Supreme Court on 21st September 2017 ultimately delivered a noteworthy judgement in the matter of Kirusa Software Private Limited v/s Mobilox Innovations Private Limited by giving an illustrative interpretation to the meaning of existence of dispute.

Brief History:

Kirusa Software Private Limited (“Kirusa”) as operational creditor, issued a demand notice on Mobilox Innovations Private Limited (“Mobilox”) as operational debtor, demanding payment of certain dues. Mobilox replied to the notice stating that there exist a serious and bona fide dispute between the parties as Kirusa has breached the Non-Disclosure Agreement with Mobilox and tried soliciting Mobilox clients. Kirusa approached NCLT and filed application for initiation of CIRP which was subsequently dismissed by NCLT on the grounds that, notice of existence of dispute has already been issued by Mobilox and application for initiation of CIRP cannot be entertained.

NCLAT Views:

Kirusa, aggrieved with the order of NCLT, appealed to National Company Law Appellate Tribunal (“NCLAT”). The issues before NCLAT was whether a notice of dispute does really raises a dispute between the parties or it does not. The NCLAT held that, the reply to the notice of debt sent by Mobilox does not really raise a dispute within the meaning of Section 5(6) or 8(2) of the Code and Mobilox’s defence was vague and was made with a motive to evade the liability. The NCLAT therefore, set aside the order of NCLT, and remitted the case to NCLT for consideration of Kirusa’s application for admission.

Supreme Court Verdict:

The Hon’ble Supreme Court, in the present case, compared the current position of the code with the laws of United Kingdom and Australia to take out the actual intent of the legislature regarding the use of the term “Dispute”.

The Hon’ble Supreme Court laid down a checklist for the adjudicating authority to consider admission or rejection of application under Section 9 of the Code for initiation of the CIRP. The Court stated that if any one of the following conditions is lacking, the application would have to be rejected:

  • Whether there is an “operational debt” as defined exceeding Rs.1 lakh?
  • Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid?; and
  • Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute?”

The court cleared the conflict between “AND”- “OR” in Section 8(2)(a) which states that the Corporate Debtor within 10 days of receipt of demand notice by operational creditor shall bring the notice of operational creditor the existence of dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute. The court stated that the term ‘and’ occurring in Section 8(2)(a) must be read as ‘or’ keeping in mind the legislative intent and inconsistency if not read as ‘or’. A strict interpretation of the term “and” would starve off the bankruptcy process if the dispute is already pending in a suit or arbitration proceedings and not otherwise before the demand notice is received from operational creditor. This would lead to great hardship; in that a dispute may arise a few days before triggering of the insolvency process, in which case, though a dispute may exist, there is no time to approach either an arbitral tribunal or a court.

The correspondence between the parties on 30th January 2015 clearly show that the appellant had committed breach of trust and breach of NDA as they admitted having displayed Mobilox’s confidential client information and client campaign information on a public platform. The appellant further told Kirusa that all amounts that were due to them were withheld till the time the matter is resolved. On basis of this Mobilox in response to the demand notice disputed in detail in its reply dated 27th December,2016 which set out the email of 30th January 2015. Thus, going through the aforesaid test of the “existence of dispute”, it is clear that without going into the merits of the dispute, the appellant has raised a plausible contention requiring further investigation which is not patently a strong legal argument or an assertion of facts unsupported by evidence. The defense raised by Mobilox is not spurious and plainly frivolous or made with an intention to cause annoyance, frustration and agony. The dispute does totally exist between the parties and the NCLAT was wholly incorrect in characterizing the defense as vague, got-up and motivated to evade liability.

Thus, the order of NCLAT was set aside and the appeal was allowed

(2) The next doubt which comes to our mind is: Whether a dispute can be raised after receiving the notice from the operational creditor?

According to section 8, an application can be rejected on receiving a notice of pending suit/arbitration. But, the suit filed after receiving the notice is valid or not is the question.

In the case of M/s. Essar Projects India Ltd. v. M/s. MCL Global Steel Pvt. Ltd. Essar Projects India Ltd. (“Essar”) moved the tribunal to commence a proceeding against MCL Global Steel Pvt. Ltd. (“MCL”) as MCL had not honoured the invoices raised by them. MCL responded to the demand notice stating that the petitioner had no grounds for commencing a proceeding under the Code as MCL disputed the amount of the debt in question as well the enforceability of the contract between the parties. As MCL raised the disputes only after the demand notice was served, NCLT rejected the reply of MCL from serving as a ground for cancellation of application stating, a mention made in the reply notice regarding the existence of dispute in relation to the impugned debt, is not sufficient, corporate debtor has to prove that the company already raised such dispute either in court or in arbitration before receipt of notice u/s 8 of the Code. Whereas in the present case, no such proceeding has been initiated before any court of law or in arbitration before receipt of notice supra.

NCLAT Views:

Subsequently, aggrieved with the order, MCL filed an appeal against the order of NCLT. The NCLAT held that, the notice issued by Essar was disputed by MCL through a reply dated 21st November 2017, objecting quality of service and non-completion of work within time and such dispute, raised by Essar, is covered by Arbitration clause. This clearly signifies that, there is “existence of dispute”, raised through the reply filed by MCL, for which the petition u/s 9 of the Code is not maintainable.

NCLAT held that, the order passed by NCLT was primarily in violation of principles of natural justice as it was passed without issuing any notice to the corporate debtor and NCLT has drastically failed to notice the relevant facts that there was a dispute raised and relied by MCL. Thus, the impugned order was set aside along with all other orders passed in relation to moratorium, freezing of bank accounts, appointment of Interim Resolution Professional and advertisement issued notice to the persons about initiation of CIRP. Furthermore, the Board of Directors of MCL were directed to take over the possession and functions of the company with immediate effect.

Conclusion

With the Hon’ble Supreme Court intervening in the case of Kirusa Software Private Limited v/s Mobilox Innovations Private Limited, the uncertainties and ambiguity in respect to the term “dispute” has been removed and it is now copiously clear as to what constitutes the “existence of dispute” under the Code.

However, looking at the current instance, we are still to witness a lot of debates on bona fides of dispute, that whether a reply to the notice of an operational creditor by an operational debtor amounts to a dispute or not. It will be interesting to see the further interpretations made by Judiciary in respect to this Code.

[This is the third in a series of 3 posts that seeks to highlight certain essential aspects of the Insolvency and Bankruptcy Code, 2016.]