Need for Statutory and Regulatory compliances by Mid Sized Companies

The economic boom in India in the mid nineties encouraged the emergence of a number of mid sized companies mostly started by independent entrepreneurs. These companies did fairly well in the then Economic Scenario and stabilised their position with time. Though the basic and compulsory legal requirements were fulfilled by them, but most compliances which otherwise were necessary for them to follow were completely ignored as the general perception is that these compliances are irrelevant and a waste of time and money, furtherance of business was seen as more important. However, the non compliances have been unhealthy for the growth of the economy of the nation as a whole.

There are about 100 or more laws other than various regulations, which require compliance by a Company depending upon the kind of business being carried out. 

Labour enactments mandatorily require compliance. A representative list of the statutory Acts and the necessary compliances under the said acts are as under:
  • The Minimum wages Act, 1948
  • Maintenance of well bound Inspection book.
  • Display of abstract of Minimum wages Act.
  • Display of Notice containing rates of wages 
  • Maintenance of various registers under the Act.
  • Maintain records such as Salary Register, Attendance Register, pay slips in computerized form.
1. The Payment of Gratuity Act, 1972 

  • Display notice specifying the name and designation of officer authorized to receive notices.
  • Notice of opening of the rules becoming applicable to an establishment.
  • Display abstract of Gratuity Act and rules made there under at a conspicuous place at or near the main entrance of establishment.
  • Nomination forms in Form in respect of employees those who have completed one year of service.
2. The Payment of Bonus Act, 1965
  • Maintenance of Payment of Bonus Register.
  • Annual Returns under the Act.
3. The payment of wages Act:
  • Display notice of date of payment in a conspicuous place at or near the main entrance of establishment.
  • Display rates of wages payable to the employees. 
4. The Equal Remuneration Act, 1976:
5. Maintenance of register.
6. Employment Exchange Act:
7. Filing Quarterly Returns under Employment Exchange Act
8. The Contract Labour (R & A) Act, ESI Act, 1948 
  • Engaging only those contractors who have Registration certificate under CL(R& A) Act in case the number of workmen is more than 20.
  • Maintenance of register of contractor.
  • Display of notices showing the wages, hours of work, wage periods, date of payment of wages, names & addresses of the Inspectors etc.
  • Submission of copy of Notices to the Inspector.
  • Amendment in Registration certificate under the Act every year.
  • Issue of Form V to contractors to obtain license.
9. Employee State Insurance Corporation Act, 1948
  • Maintaining Register of Employees under Regulations 32.
  • Maintaining Accident Book under Regulations 66
  • Maintaining Inspection Book under Regulation 102A.
  • Filing Return of Contribution (Form 5) in r/o each of location/branch and submission to the Concern Local office of ESI Corporation.
  • Annual returns to be submitted before 31st January each year
10. Employees Provident Funds Act, 1952 alongwith Employees Pension Scheme, 1995 and Employees Deposit Linked Insurance Scheme ( from 1.3.1976)

This Act requires extensive compliance on Monthly and annual basis on the joining, resigning of employees and various forms are to be filled and submitted to the said Department apprising them of the position of PF contribution and release of the same.

Any non-compliance/violation of the rules under these acts can lead to huge penalties being imposed. Such non compliances also leave the Company with a dissatisfied employee force which in any case is detrimental to the interest of the Company.

In case there are female employees, The Maternity Benefits Act, 1961 also is to be necessarily complied with. In case there are females appointed for Night shifts, the Company would have to apply for grant of exemption from Ministry of Labour of that particular state. 

Compliances for on-site posting of employees outside India are also required to be considered by Companies who intend to spread their wings in the international market.

For running the establishment from a commercial premises Registration under Shop & Establishment Act of the particular State is a must. 

Environmental Enactments, notifications and rules have been framed with a view to provide better environment to the citizens of the country and to protect them from the hazardous effects of the ever growing production and manufacturing industry in India. The Acts are applicable upon the nature of Industry/business. A representative list of the same are as under:
  • The Water (Prevention and Control of Pollution) Act 1974, 
  • The Air (Prevention and Control of Pollution) Act 1981, 
  • The Environment Protection Act 1986, 
  • The Indian Forest Act 1927 alongwith The Forest Conservation Act 1980 and Forest Conservation Rules 2003, 
Various rules and notifications regarding the disposal of chemical waste, solid waste, hazardous waste and recycle of plastics also require compliance. Any failure to comply with the provisions of these Acts can result in penalties being imposed by the respective Departments under these Acts and can also lead to imprisonment of the Directors/Officers concerned of the Company found in default. Before the enactment of the Environment Protection Act, the Indian Penal Code 1860 had provisions for punishment for corrupting water, air etc and it also regulated and restricted the use of poisonous and explosive substances in various industries. 

Various regulatory bodies oversee the functioning of the Companies in India. Most of the regulations for operation of a Company are provided under the Companies Act itself. Sensitizing and training the employees and laying down policies and procedures about regulatory compliances is an important step towards achieving a strong corporate structure. Financial Audit and legal audit or due diligence are also important to ensure that all regulatory compliances are being done on a day to day basis as any act of non compliance may result in heavy penalties being imposed by regulatory bodies and may even lead to the closure of the Company. 

Any penal action can be detrimental to the growth and reputation of the business house.Since there are numerous enactments, compiling and complying with all of them may not be possible by an internal arrangement in the Company. All statutory compliances with regard to labour and industrial laws, laws relating to shops and establishments, Environmental Laws and Acts under the Local Laws could therefore be handled by professionals who have sufficient experience in successfully executing such compliances. The role of such professionals would be to indentify the laws applicable to the particular industry, carry out filing and documentation in the various departments, liaison with the officials of the departments and ensure that the Company is fully compliant with all Central, State and Local Laws and Regulations. In addition taking corrective steps for any kind of breach would also be one of their duties.

The benefits of being a Company which attaches importance to compliances and meets the legal statutory compliance requirements are that such Company can avoid imposition of penalties and the risk of prosecution of its Directors and Officers. It also enhances the value of the Company and from being a financial liability these compliances become a tool to cut costs incurred in paying penalties which would be much higher than actual costs of compliance.

Thus it is in the interest of not only large Companies but also medium and Small Companies to pay due attention and importance to the said compliances as this shall help in establishing the Company's credibility. 

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