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Legal compliance checklist for establishment and running of a large scale industry

November 23, 2021

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This article is authored by Akash Krishnan, a student from ICFAI Law School, Hyderabad. It discusses in detail the mandatory requirements that an industry has to follow post-registration for effectively continuing its operations in India.

Table of Contents

Introduction

Every industry that wants to commence its operations in India has to register itself under the Companies Act, 2013 and has to follow various compliances mentioned thereunder. Also, once the industry commences its operations post its registration, it has to comply with several laws under the labour law regime. A company can be incorporated in India through the government portal by filling up the necessary forms and submitting the necessary documents. This article discusses in detail the provisions that an industry has to comply with post-registration.

The Companies Act, 2013

Registered Office of the establishment

According to Section 12 read with Rule 25 of the Companies (Incorporation) Rules, 2014, the establishment must paint or affix the name and address of its registered office, outside every office or place in which its business is carried on, in legible letters in the language or one of the languages in general use of the locality.

Further, the establishment must get its name, address of its registered office, Corporate Identity Number, telephone number, fax number (if any) e-mail and website addresses (if any), printed on all its business letters, billheads, letter papers and other official publications. The establishment must also have its name printed on promissory notes and bills of exchange, issued by the establishment.

The establishment must publish its name, the address of its registered office, the Corporate Identity Number, telephone number, fax number (if any), email address and the name of the person who may be contacted in case of any queries or grievances on the home page of its website.

Maintenance of registers

According to Sections 85 and 86 read with Rule 10 of the Companies (Registration of Charges) Rules, 2014, the establishment must maintain, at its registered office, a register of charges which shall record all charges and floating charges affecting any property or asset of the Company or any of its undertakings and must include all particulars if any property acquired subject to a charge, details of a modification of a charge and satisfaction of a charge.

Section 88 read with Rules 3, 4 and 5 of the Companies (Management and Administration) Rules, 2014, The establishment must maintain the following registers in the format and containing all such particulars as are prescribed under the Companies Act:

Register of Members.
Register of Debenture Holders.
Register of any other Security Holders.
Annual returns.

According to Sections 92 and 94 read with Rule 11 of the Companies (Management and Administration) Rules, 2014, the establishment must prepare an annual return at the end of every financial year. The annual returns must be signed by a director and the company secretary (if any) or a practising company secretary. The extract of the annual return must be filed with the RoC along with the Board’s report.

Maintenance of records

According to Section 128, the establishment must prepare and maintain at its registered office or such other place in India as decided by the Board, all books of account, financial statements and other relevant information for each financial year, providing a true and fair view of the state of affairs of the establishment, including that of its branch offices and explain the transaction effected both at the registered office and its branches.

Financial statements

According to Section 129, the financial statements maintained by the establishment must provide a true and fair view of the state of affairs of the establishment complying with the accounting standards notified by the Central Government under Section 133 of the Act. The board of directors must, at every AGM, lay before such meeting, the financial statements for the financial year.

CSR Committee

According to Section 135, In the event, the establishment has a net worth of Rs. 500,00,00,000 (Rupees Five Hundred Crore) or more, turnover of Rs. 1000,00,00,000 (Rupees One Thousand Crore) or more, or a net profit of Rs. 5,00,00,000 (Rupees Five Crore) or more during any financial year, it must constitute a corporate social responsibility committee. The Board shall approve and monitor the corporate social responsibility policy and ensure that at least 2% of the average net profits of the 3 immediately preceding financial years is spent on corporate social responsibility activities. The establishment shall disclose the contents of the Corporate Social Responsibility Policy in the Board’s report and on the company’s website.

Appointment of auditor

According to Section 138, every private establishment having a turnover of Rs. 200,00,00,000/- (Rupees Two Hundred Crores) in the preceding financial year or outstanding loans from banks or public financial institutions more than Rs. 100,00,00,000/- (One Hundred Crores) in the preceding financial year is required to appoint an internal auditor.

Directors

According to Sections 149 and 172 read with Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the establishment must have at least 2 directors on its Board at all times, subject to a maximum of 15 directors.

Vigil mechanism

According to Section 177, every establishment which accepts deposits from the public or which has borrowed money from banks and public financial institutions in excess of Rs. 50,00,00,000/- (Rupees Fifty Crores), shall establish a vigil mechanism for their directors and employees for reporting genuine concerns or grievances.

Applicable provisions under the Labour Code

Payment of Wages Act, 1936 (Wages Act)

Payment of wages

According to Section 5 of the Payment of Wages Act, the employer must ensure that every person employed by him must be paid his/her wage before the 7th day of the wage period (which may be fixed by the employer) and which period shall not exceed 1 month. The day on which wages are to be paid must be a working day.

Maintenance of Registers

According to Secti o n 13(A) of the Wages Act, the employer must maintain a combined register in relation to the following:

Register of fines
Register of deductions for damage or loss (incurred by him for any damage or loss of goods expressly entrusted with the employed person for custody, or for loss of money for which he/she is required to account, where such damage or loss is directly attributable to his/her neglect or default)
Register of wages

Employees’ State Insurance Act 1948, (ESI Act) and the Employees’ State Insurance Regulations, 1950 (ESI Regulations)

Employer Code Number

According to Regulation 10B of the ESI Regulations, every employer must register the establishment and must obtain an ‘Employer’s Code Number’ by making an application to the appropriate Regional Office.

Payment of contributions

According to Sections 39, 40 of the ESI Act and Regulation 31A of the ESI Regulations, every employer, being either a principal employer (i.e., employing employees through an immediate employer) or an immediate employer, as the case may be, must pay the contribution being the employee’s contribution (to be deducted from the employee’s wages) and the employer’s contribution, to the Employees’ State Insurance Corporation (ESIC) in respect of every employee earning up to Rs. 21,000/- at the applicable rates.

Duties of the employer

According to Section 44 of the ESI Act, every principal and immediate employer must submit returns to the Corporation containing particulars of the persons employed by him at the establishment and must maintain a register in respect of his/ her establishment.
According to Regulation 11 of the ESI Regulations, the employer must for the purpose of a declaration form in relation to the employees, acquire the signature /thumb impression and all other particulars/information of the employee including a temporary identification certificate as required.
According to Regulation 26 of the ESI Regulations, the employer must file a return of the contributions with copies of the challans for amounts deposited in the bank to the appropriate office by registered post or messenger, in respect of all employees for whom contributions are paid.
According to Regulation 66 of the ESI Regulations, the employer of every establishment must maintain a book for accidents caused/occurred and should record the particulars of any accident that is causing personal injury to an insured person.

The Payment of Bonus Act, 1965 (Bonus Act) and The Payment of Bonus Rules, 1975 (Bonus Rules)

Duties of the employer

According to Sections 10 and 19 of the Bonus Act, every employer must pay every employee a minimum bonus at the applicable rates in terms of their salary/ wages earned by the employee during an accounting year.

According to Section 26 of the Bonus Act read with Rule 4 of the Bonus Rules, the employer must maintain a register showing the computation of allocable surplus, the set on and set off of the allocable surplus, the amount of bonus due to each of the employee’s, the deductions made and the amount actually disbursed.

Maternity Benefit Act, 1961 (Maternity Benefit Act)

Payment of maternity benefit

According to Section 5 of the Maternity Benefit Act, the maximum period for which any woman shall be entitled to maternity benefit shall be twenty-six weeks of which not more than eight weeks shall precede the date of her expected delivery. The maximum period for maternity benefit that can be availed by a woman having two or more than two surviving children shall be twelve weeks of which not more than six weeks shall precede the date of her expected delivery. Where the nature of work assigned to a woman is of such nature that she may work from home, the employer may allow her to do so after availing of the maternity benefit for such period and on such conditions as the employer and the woman may mutually agree.

Creche facility

According to Section 11A of the Maternity Benefit Act, the employer of every industry having fifty or more employees should ensure that they have the facility of crèche. The employer shall allow four visits a day to the creche by the woman, which shall also include the interval for rest allowed to her.

Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act), Employees’ Provident Fund Scheme, 1952 (EPF Scheme), Employees’ Deposit Linked Insurance Scheme, 1976 (DLI Scheme)

Payment of contribution

According to Section 6 of the EPF Act read with Paragraphs 30 and 31 of the EPF Scheme, the contribution must be paid by the employer to the Employee’s Provident Fund (‘EP Fund’) at the applicable rates. The principal employer must pay both the contribution payable by himself and on behalf of the employee, employed by him directly or by or through a contractor, the contribution payable by such employee.

According to Section 6C of the EPF Act read with Paragraph 7, 8 and 9 of the DLI Scheme, The contribution by the employer must be remitted by him to the Deposit-Linked Insurance Fund (DLI Fund) at the applicable rates together with administrative charges at such rate as the Central Government may fix from time to time in a separate bank draft or cheque or by remittance in cash in such manner as may be specified by the Commissioner. The employer must not deduct the employees’ contribution payable by him from the wages of the employees or recover it from them in any other manner. The cost of remittance must be borne by the employer. It must be the responsibility of the employer to pay the contribution payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor.

Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013 (POSH Act)

Complaints committee

According to Section 4 of the POSH Act, Every employer of a workplace must, by an order in writing, constitute a Committee to be known as the “Internal Complaints Committee” at each of its administrative units/ offices. The Internal Complaints Committee must consist of the following members to be nominated by the employer, namely:

One presiding officer who must be a woman employed at a senior level at the workplace from amongst the employees;
Two members from amongst the employees preferably committed to the cause of women or who have had experience in social work or have legal knowledge; and
One member from amongst non-governmental organizations or associations committed to the cause of women or a person familiar with the issues relating to sexual harassment.

According to Section 21 of the POSH Act, The Internal Complaints Committee must submit an annual report to the employer and the District Officer in relation to the following:

The number of complaints of sexual harassment received in the year.
The number of complaints disposed of during the year.
The number of cases pending for more than ninety days.
The number of workshops or awareness programmes against sexual harassment carried out.
The nature of action taken by the employer or District Officer.

Contract Labour (Regulation and Abolition) Act 1970 (Contract Labour Act)

Employment of contract labourers

According to Section 7 of the Contract Labour Act, every principal employer, in whose establishment, contract labourers are appointed, must apply for registration of the establishment to the Registering Officer.

Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959 (Employment Exchanges Act) and the Employment Exchanges (Compulsory Notification of Vacancies) Rules, 1960 (Employment Exchanges Rules)

Reporting of vacancies

According to Section 4 of the Employment Exchanges Act read with Rule 2 of the Employment Exchanges Rules, every establishment must, before filling up any vacancy in an establishment, notify the vacancy to the concerned Employment Exchange.

According to Section 5 of the Employment Exchanges Act and Rule 2 of the Employment Exchanges Rules, the employer must furnish information about the total number of persons employed in the establishment, the vacancies created and filled and such other related information, by filing regular returns to the concerned Employment Exchange.

Conclusion

Thus, by following these provisions, a large-scale industry can ensure smooth functioning in India and continue its operations for a long time. However, it is to be noted that this is only an indicative list and there are several other provisions that an industry has to comply with in order to continue its operations in India.

References

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