There is nothing wrong in putting a penal provision in the contract. But when it is linked a legal provision under any specific Act, the question will arise as to whether the principal employer has the right to demand it or not.
The principal employer is liable to ensure that the contributions in respect of workers deployed in his plant are paid in time by the contractor. If the contractor fails to pay it, the Principal employer should act proactively and pay the contributions and then recover it from the Contractor. If that has happened then the Principal employer can demand charges as he wishes. But if he had not paid the amount before the date and then demands penal charges, it will not be fair. Principal employer has no right to recover any penal charges for non compliance of a provision of PF Act but he can make the contractor liable to pay any amount as penal charge on an amount paid by the Principal employer on a cut off date. As such you can say that the contractor should pay the contributions on 15th of every month and produce the challan in proof of it failing which the Principal employer will pay it and recover the sum paid along with a penal charge of 5% of the amount so paid.
The principal employer is liable to ensure that the contributions in respect of workers deployed in his plant are paid in time by the contractor. If the contractor fails to pay it, the Principal employer should act proactively and pay the contributions and then recover it from the Contractor. If that has happened then the Principal employer can demand charges as he wishes. But if he had not paid the amount before the date and then demands penal charges, it will not be fair. Principal employer has no right to recover any penal charges for non compliance of a provision of PF Act but he can make the contractor liable to pay any amount as penal charge on an amount paid by the Principal employer on a cut off date. As such you can say that the contractor should pay the contributions on 15th of every month and produce the challan in proof of it failing which the Principal employer will pay it and recover the sum paid along with a penal charge of 5% of the amount so paid.