Importance of Statutory & Regulatory Compliance for Mid-Size Companies

Mid-size companies often fail to comply with the basic laws and regulations, and, in turn, end up harming their existence and business. It is essential for such companies to understand that some essential legal compliances cannot be forgone and efforts must be made to readily comply with them to ensure a smooth existence and functioning.

Wed Apr 06 2022 | Business Law | Comments (0)

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The economic boom in India in the midnineties 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  resources Furtherance  of business was seen as being 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 other 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  follows:

  1. The Payment of Gratuity Act, 1972
  1. The Payment of Bonus Act, 1965
  1. The Payment of Wages Act:
  1. Employment Exchange Act:
  1. The Contract Labour (R & A) Act, ESI Act, 1948 
  1. Employee State Insurance Corporation Act, 1948
  1. Employees Provident Funds Act, 1952 along with 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 and 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 mandatorily 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 business in the international market.

For running the establishment from a commercial premises, registration under the Shop & Establishment Act of the particular State is  mandatory.

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 depending upon the nature of Industry/business. A representative list of the same are as under:

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 of the concerned Company. 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  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  followed on a day to day basi,s as any act of non-compliance may result in heavy penalties being imposed by regulatory bodies and may even lead to  closure.

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 identify 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 responsibility for 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 means such a 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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