The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 imposes a penalty of INR 50,000 on the ‘employer’ for its violation and risk of cancellation of business license by the concerned regulator (it could be the local authority or the sectoral regulator, but exact procedures to avail of this remedy are not specified).

For various reasons, ranging from an attitude of disappointment or cynicism over law enforcement, there has been a continued attitude to remain non-compliant and manage any risks that subsequently arise from such non-compliance. Here, we want to point out popular myths that are preventing us from appreciating the real risk that arises from non-compliance. Even paper-based compliance may not be sufficient, without full, effective and sincere discharge of all responsibilities.

#1 – Rs. 50,000 as penalty for violation is insignificant

INR 50,000 can be peanuts if imposed on the company. What if it is imposed on a director or the CEO? Consider the stigma it would bring. Anti-sexual harassment proceedings are confidential, but proceedings for violation of law by companies are not. Here is the reason how directors can be held at risk.

Under theSexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal)2013 Act, the employer is defined as any person responsible for management, supervision and control of the workplace. With respect to government departments and undertakings, the person who is the head of the organization. Who is responsible for management, supervision or control of a workplace? For example, in case of a partnership or LLP, any of the partners are likely to be covered under this provision (with the exception of sleeping partners who are not responsible for day-to-day management). In case of a company, it could be the branch head, the managing director, CEO are obvious guesses.

Where the entity is a company, reference to the terms ‘officer-in-default’ or ‘key managerial personnel’ may also be made while determining the employer. These concepts are used to determine responsibility for a Companies Act violation, but will most probably be used by courts and regulatory authorities for guidance in attributing responsibility to officers of the company. Typically the persons considered to be officers in default or key managerial personnel are:

• CEO,
• CFO,
• Managing Director, Manager,
• company secretary,
• a whole-time director,
• any other director who has specifically consented or charged with responsibility of compliance with a particular function
• any other person who has been authorised by the board with a responsibility (especially with respect to keeping accounts or other records)
• or a person who provides management-related advice to the board (except in professional capacity).

It is not necessary that the full ambit of the concept of officer-in-default or key managerial personnel will be incorporated into the meaning of ‘employer’ when the non-compliant entity is a company. However, as seen above, CEOs, CFOs, managing directors and whole-time directors are at maximum risk, as they are also understood to be in charge of the management, supervision and control of the workplace.

In addition, with respect to branch offices and project offices, the persons heading those offices will be responsible for compliance in their respective workplaces.

#2 – Threat of cancellation of business license is not real

Anti-sexual harassment violations are a little like Trojan horses – you will never know what hit you. Although procedures for cancellation of business license are not specified in detail, check with any company which has been inspected under Shops and Establishment Act for legal compliance. They will tell you that how real this risk is.

In fact, the risk is getting more serious over time. Recently, Maneka Gandhi wrote to industry bodies (FICCI, CII, etc.) to report compliance of their members on a monthly basis to the ministry. The first step on collection of information to ensure organized compliance (punish for non-compliance in an organized way) has already begun.

In fact, the investor community reacted quite early – venture capitalists and private equity investors are insisting that companies are compliant with the law before they make an investment, indicating that they appreciate the magnitude of the risk.

In fact, after the mishap, Delhi Government was quick to ban Uber on other grounds, that is, for not taking a radio taxi license, instead of making a case for anti-sexual harassment non-compliance. Businesses will need to take care of this. It is too dangerous if anti-sexual harassment non-compliance triggers other unrelated regulatory risks in a magnified form.

#3 – Companies Act does not directly impose responsibility on directors

As per Section 166 of Companies Act, directors must are responsible to act in such a way that they promote the objects of the company, for the benefits of the company as a whole, and in the best interests of the company, its employees, community shareholders and for protection of environment. If they do not take active steps towards compliance, are they acting in the best interests of the employees? Since they are not taking steps to handle sexual harassment, what impact it is having on the employees and their work environment? How is that impacting the best interests of the company? Are directors discharging this responsibility effectively?

Note the grave penalty here – if a director of the company contravenes the provisions of this section such director shall be punishable with fine ranging between one to five lakh rupees.

#4 – Directors can get away by taking minimal action for compliance

Uber conducted some verification for all drivers, but the checks were woefully insignificant. No one held its management responsible till everything was fine. When something did go wrong, all hell broke loose. Could it really get away? In fact, under the Companies Act, directors are supposed to furnish a “Responsibility Statement” as part of the Board’s Report (on an annual basis).  As per Section 134(5)(f), the Directors have to declare that they have devised proper systems to ensure compliance with the provisions of all the applicable laws and such systems were adequate and operating effectively.

Can directors declare this in their statement if their company is non-compliant with anti-sexual harassment?

Can directors declare that the systems are adequate and operating effectively if the compliance is just paper-based?

If only form filings and reporting is made but effective information and training to employees and complaints committees is not given, can the systems be adequate and operating effectively?

Here comes the bomb – penalty for violation of this responsibility is INR 50,000 to twenty five lakhs. Every officer in default will be punishable with imprisonment up to 3 years. Scary, isn’t it?

This is not enough. Section 164 of the Act states that a person punished for an offence exceeding 6 months’ imprisonment cannot be appointed as a director for a period of five years. This means that if by chance, a director is sentenced to imprisonment for more than 6 months for such a violation, he or she cannot be appointed as a director again for 5 years. This is not required to be kept confidential either. Imagine the impact on his or her career.

This is also a point of caution for all directors, including independent directors. Many companies have appointed lawyers on their board, who will need to note this.

Some useful references

Not sure if you are compliant? A checklist for compliance and compliance deadlines by the employer is provided here.

Want to conduct organization-wide sensitization and enable your internal team on compliance? Try an online compliance toolkit to ensure 100% sensitization of workforce and assist ICC in implementation is provided here.

Want to build a career as an independent professional or consultant in helping companies comply with sexual harassment laws and ensure a harmonious and diverse workplace? Take a look at India’s only executive certification on Sexual Harassment Prevention and Workplace Diversity, started by National University of Juridical Sciences (NUJS), one of the top 3 law universities in India which is conducted online.