Facing a 45 Lakh Penalty for Late Salaries: How Can We Appeal This Decision?

Dear Experts, please advise. The labor inspector "Jaipur state-Rajasthan" has imposed a penalty of 45 lakhs on my organization due to the late payment of salaries. We have set up a new plant that has been operational for the past 11 months. As Diwali is approaching and government officials start seeking their share, one of the labor inspectors visited our unit. He requested documents, which my HR personnel provided. Upon inspection, it was noted that the last month's salary, and occasionally salaries from a few months back, were paid after the 7th of the month. Despite paying our employees through bank transfers, reflecting in the documents, the inspector included this in his records and issued a notice from the labor department claiming Rs. 45 lakh, ten times the salary amount.

We are unsure about the next steps. The inspector's actions seem to be a result of not receiving a bribe. While the salary payments were delayed, we did not withhold any employee's dues. Dear Experts, please advise if there is a way to appeal against this penalty or how we should address this issue.

Thank you.

Salary Payment Compliance Under Factory and Labor Acts

As per the norms of the Factory Act and Labor Act, it's compulsory to pay the salary on the 7th if the number of employees in your organization is below 1,000. If it's more than 1,000 employees, then it's the 10th of every month. Please check your employee number.

Kindly avoid mentioning "claiming bribe" in an open forum like this. If you restrict your discussion to legal issues, it will be easier to respond.

Understanding Late Payment Penalties

Late payment of wages does not entail a penalty of Rs 45 lakhs. The amount will only escalate significantly if employees file a claim under the Payment of Wages Act, resulting in an order by the authority and subsequent delays. A few days of delay will not inflate the amount significantly.

Consulting Legal Experts

Please consult a reputable labor advocate in your area to address this matter. Avoid discussing bribes. If an order has been issued for Rs 45 lakhs, then deal with it through legal means in court.

Regards

I agree with Mr. Sivasankaran. It is not good to talk about the practices as it ignites the issue further. I suggest somebody from your HR approach him personally and try to resolve the issue. You can also escalate it to his superiors like ACL, DCL, JCL, etc.

As rightly mentioned, the penalty is not proportionate. If everything goes well with the talks, okay; otherwise, challenge the decision and approach legally.

Regards,
Kamesh

Thank you for your response. I would like to clarify the actual situation so that you can advise accordingly.

Clarification on Penalty for Late Payment of Wages

As per your reply, the late payment of wages does not contemplate a penalty of Rs 45 lakhs. The amount will only escalate to such a high figure if there had been a claim by employees under the Payment of Wages Act, an order passed by the authority, and further delay. A few days of delay will not make the figure high.

There is no complaint from our labor/employees; the labor inspector did it by himself. I spoke to one labor lawyer, and he advised me to settle with the labor inspector, but the labor inspector is not listening to anything. I want to understand the legal options only.

Thank you.

I've gone through your case and found that although you paid wages, they were late for some days in a few months. If there is no application from the labor or any union, then there is not much to worry about as such a large fine can't be imposed.

Section 15 in The Payment Of Wages Act, 1936

15. Claims arising out of deductions from wages or delay in payment of wages and penalty for malicious or vexatious claims.

(1) The State Government may, by notification in the Official Gazette, appoint a presiding officer of any Labour Court or Industrial Tribunal, constituted under the Industrial Disputes Act, 1947 (14 of 1947) or under any corresponding law relating to the investigation and settlement of industrial disputes in force in the State, or any Commissioner for Workmen's Compensation or other officer with experience as a Judge of a Civil Court or as a stipendiary Magistrate to be the authority to hear and decide for any specified area all claims arising out of deductions from the wages or delay in payment of the wages of persons employed or paid in that area, including all matters incidental to such claims. Provided that where the State Government considers it necessary to do so, it may appoint more than one authority for any specified area and may, by general or special order, provide for the distribution or allocation of work to be performed by them under this Act.

(2) Where contrary to the provisions of this Act any deduction has been made from the wages of an employed person, or any payment of wages has been delayed, such person himself, or any legal practitioner or any official of a registered trade union authorized in writing to act on his behalf, or any Inspector under this Act, or any other person acting with the permission of the authority appointed under subsection (1), may apply to such authority for a direction under subsection (3):

Subs. by Act 38 of 1982, s. 9 (w. e. f. 15-10-1982). Ins. by Act 53 of 1964, s. 12 (w. e. f. 1-2-1965). Ins. by s. 13, ibid. (w. e. f. 1-2-1965). Subs. by s. 13, ibid., for "of persons employed or paid in that area" (w. e. f. 1-2-1965).

Provided that every such application shall be presented within twelve months from the date on which the deduction from the wages was made or from the date on which the payment of the wages was due to be made, as the case may be. Provided further that any application may be admitted after the said period of twelve months when the applicant satisfies the authority that he had sufficient cause for not making the application within such period.

When any application under subsection (2) is entertained, the authority shall hear the applicant and the employer or other person responsible for the payment of wages under section 3, or give them an opportunity of being heard, and, after such further inquiry (if any) as may be necessary, may, without prejudice to any other penalty to which such employer or other person is liable under this Act, direct the refund to the employed person of the amount deducted, or the payment of the delayed wages, together with the payment of such compensation as the authority may think fit, not exceeding ten times the amount deducted in the former case and not exceeding twenty-five rupees in the latter, and even if the amount deducted or the delayed wages are paid before the disposal of the application, direct the payment of such compensation as the authority may think fit, not exceeding twenty-five rupees. Provided that no direction for the payment of compensation shall be made in the case of delayed wages if the authority is satisfied that the delay was due to:

(a) a bona fide error or bona fide dispute as to the amount payable to the employed person, or

(b) the occurrence of an emergency, or the existence of exceptional circumstances, such that the person responsible for the payment of the wages was unable, though exercising reasonable diligence, to make prompt payment, or

(c) the failure of the employed person to apply for or accept payment.

If the authority hearing an application under this section is satisfied:

(a) that the application was either malicious or vexatious, the authority may direct that a penalty not exceeding fifty rupees be paid to the employer or other person responsible for the payment of wages by the person presenting the application; or

(b) that in any case in which compensation is directed to be paid under subsection (3), the applicant ought not to have been compelled to seek redress under this section, the authority may direct that a penalty not exceeding fifty rupees be paid to the State Government by the employer or other person responsible for the payment of wages.

Where there is any dispute as to the person or persons being the legal representative or representatives of the employer or of the employed person, the decision of the authority on such dispute shall be final.

Any inquiry under this section shall be deemed to be a judicial proceeding within the meaning of sections 193, 219, and 228 of the Indian Penal Code (45 of 1860).

Any amount directed to be paid under this section may be recovered:

(a) if the authority is a Magistrate, by the authority as if it were a fine imposed by him as Magistrate, and

(b) if the authority is not a Magistrate, by any Magistrate to whom the authority makes application in this behalf, as if it were a fine imposed by such Magistrate.

Regards, Shyamal

Applicability of the Payment of Wages Act

The Payment of Wages Act is not applicable to wages exceeding Rs. 18,000/- per month. Hence, if you have made a late payment to employees with wages above Rs. 18,000/-, the inspector cannot take any action. Even in the case of others, only the authority under Section 15 can act after the due process provided by Mr. Shyamlal.

Regards,
Varghese Mathew

Dear MIL, I have seen your narration. You have not mentioned under which Act the Labour Inspector has issued you a notice of late payment. It appears that the Minimum Wage Inspector has given you a notice. So, perhaps the Payment of Wages Act may not have anything to do with your case for the simple reason that normally Factory Inspectors have powers under the P W Act. Even so, I have considered the provisions of both these acts.

Section 15 of the Payment of Wages Act

Section 15 of the P W Act is for illegal deductions or delay in payment. However, if you look at the provisions, the penalty for a delay in payment is only Rs. 25 and not Rs. 45 lakhs as mentioned in the notice.

Section 20 of the Minimum Wages Act

However, if the matter is under the MW Act, Section 20 of the Act provides for the claims. Here also, the penalty for a delay in payment is Rs. 10 only and not Rs. 45 lakhs as mentioned in the notice.

Since you are making the payment through the bank and due to a delay in clearance, it is possible that there is a delay in crediting wages. This is a minor and unintentional delay for which there was no necessity for the Inspector to go for the notice.

Suggestion for Replying to the Notice

My suggestion is to file a proper reply to the notice along with references to the provisions of the section applicable to your case. Simply mention that there is no such provision to inflict a penalty of 10 times the wages amounting to Rs. 45 lakhs for a minor delay in wages payment. Also, state that for such a minor, technical, unintentional, and genuine reason, such a heavy penalty cannot be imposed.

Please bear in mind that this is a show cause notice only. The Inspector, if not satisfied with your answer, will have to file a case before the authority and shall have to satisfy that the case is of 10 times penalty which I think is absolutely impossible. So there is no reason to worry, and if at all he wants to proceed further, let him do so.

I hope this will help you reduce your anxiety.

Regards, Adv. K. H. Kulkarni

If they have issued a notice, reply legally. Unless I see the notice issued by the Labour Inspector, no advice can be given with confidence. Based on the facts given by you, my recommendation is to file a reply and face it legally.

I totally agree with the views and legal aspects brought forward by Adv. Kulkarni. Such notices are often issued for some biases which are expressed in this form when authorities are not taken care of properly. However, I too will suggest that using terms like bribe, illegal gratification, etc., on this public forum is not ethical and will not take you or anybody else anywhere. They will just add to your agony. It is just likely that the authority or the person about whom things are being written is also following this thread.

Rest assured that the penalty imposed will not stand before any Appellate Authority. Just give a suitable, polite reply to the notice giving the provisions of Sec. 15(3), 15(4)(a), (b) of the PW Act or go through the relevant provisions of the Act under which the notice has been issued. You and your company will not be required to pay the penalty of Rs. 45 lakhs.

Best wishes,
AK Jain
HR Personnel
NCL, CIL

Dear Respected Members,

Some members have expressed concern that the term 'bribe' should not be used in public forums. Perhaps this viewpoint is not entirely accurate, as public platforms are primarily designed to share all perspectives and solutions, including those related to illegal activities. If M.I.L has not mentioned such terminology, how can we fully understand and address these issues from all angles? I believe M.I.L's request is entirely valid, as I have also encountered similar issues with government officials in my own experience.

Mr. M.I.L, you have stated that your employees have not raised any complaints against you. Therefore, there is no need to worry. I recommend that you seek legal recourse by approaching the labor court with the assistance of a competent lawyer. It is possible that the court may rule in your favor.

Best regards,
MG Sankar
Dy. Manager-Personnel
AJ Group

Hello Seniors,

Regarding the above-mentioned query, please share any High Court judgments or related judgment copies. This will help other organizations to ensure timely salary deposits. Kindly provide any related judgment copies or case details.

Thank you,

Regards,
Ashish

If you could have attached the copy of the claim imposed by the inspector in your email, the CiteHR members would have been in a better position to advise you correctly. The seniors have already explained the provisions contained in the Payment of Wages Act, 1936. You must be aware that a person cannot be penalized without being heard. The principle of natural justice has to be followed invariably in all such cases. The principle of natural justice is based on the two legal maxims "Nemo debet esse judex in propria causa," which means no one can be a judge of his own cause, and "Audi Alteram Partem," which means the opportunity of fair hearing to the other side must be afforded.

Section 15 of the Payment of Wages Act, 1936

Section 15 clearly stipulates that an inspector may apply to an authority under the Act for a direction for a claim arising out of a deduction from wages or delay in payment. The Act further provides that when any application is entertained, the authority shall hear the applicant, and the employer or other person responsible for the payment of wages shall be given an opportunity of being heard. After such further inquiry (if any) as may be, without prejudice to any other penalty to which such employer or other person is liable under this Act, the authority may direct the refund to the employed person of the amount deducted, or the payment of the delayed wages, together with the payment of such compensation as the authority may think fit, not exceeding ten times the amount deducted. Even in cases of delayed payment, the penalty is much lesser, for which you need to refer to the rules of the State.

From the position explained by you in your email, it seems that the inspector has been harassing you for some ulterior motive. I am sure the notice, which you have referred to in your email, is nothing but a SHOW CAUSE NOTICE mentioning why a ten times penalty should not be imposed on you. It is advised that you ask for all the relevant papers from the inspector connecting to the claim of Rs 45 lakhs for seeking proper and correct advice.

Regards,
BS Kalsi
Member since Aug 2011

I agree with our fellow HR professionals' views, which are valid and authenticated. I suggest that you please study the notice in detail and talk to a labor law consultant in your area to fight it out legally since the notice has already been issued. It will not serve any purpose even if you try to settle the case otherwise. Please inform us of the outcome of the case, even at a later date, for our education.

Regards,
B. Dakshina Murty

Judgment of Delhi High Court in Mittal Engineering and Contractors

I wish to upload the Judgment of the Delhi High Court in the case of Mittal Engineering and Contractors. Although the facts of the reported case and that of MIL differ in many ways, there are some relevant points to consider. In the case of Mittal Engineers, the contractor had paid less wages than the Minimum Wages (MW). This was discovered during an inspection by the Labour Inspector, who then issued a notice. Meanwhile, the contractor paid the difference and communicated this fact to the Labour Inspector. However, the Labour Inspector did not verify the payment of the difference and filed a claim. The employer provided proof and a record of payment, which was accepted by the authority. Nevertheless, on the issue of penalty, the authority imposed a fine twice the amount of the difference, amounting to Rs. 4,63,980. This order was challenged in the High Court of Delhi by the employer, and the order was set aside by the High Court, which observed that the authority had no jurisdiction to impose a penalty.

The entire discussion is worth reading.

In the case of MIL, there is no question of underpayment, but rather a slight delay in payment, for which there is no provision for imposing a penalty of 10 times the amount. At most, the Labour Inspector ought to have directed the employer to make payments on time, ensuring there is no delay.

Regards.

I require someone to elaborate on the risks of remitting contributions of PF and ESI by the employer beyond the 15th and 21st, respectively, but the payment reaches the department within the month. In the corporate sector, while we operate with multiple service providers, controlling this timeline is practically a challenge.

Implications of Delayed PF and ESI Payments

If the employer has not paid the deducted PF and ESI over a period of time, what are the implications for this abnormal delay?

The observations made by Mr. Kishore Kulkarni and B.S. Kalsi have substance. However, what I observed is that an Inspector has levied compensation to the extent of ten times the wages, the payment of which has been purported to have been delayed. Even assuming that a ten-time compensation has been levied under the Payment of Wages Act, such compensation cannot be levied without taking recourse to proceedings under Sec. 15 of the P.W. Act. If the proceedings are initiated under Sec. 15, then the authority competent to levy such compensation shall be one holding not less than a rank of an Assistant Labour Commissioner as per Sec. 15(1) but not a Labour Inspector. Even then, the compensation cannot be levied without hearing you as per the principles of natural justice wherein you could have had the opportunity to explain the reasons for the delay. However, you have not said anything about these facts in your post. The Act itself provides that no direction for payment of compensation need be given if there are bona fide reasons for delayed payment. An order levying ten times the compensation cannot be a cryptic order but shall be a reasoned order to be passed by a competent authority, i.e., ALC/RLC/Presiding Officer of a Labour Court. An order in breach of these conditions is not sustainable. As you have not referred to any of these facts, it is advisable to consult a competent advocate to ascertain the validity of the order and to take further necessary action.

Regards,
B. Saikumar
HR & Labour Law Advisor

Dear Experts,

Thank you for your inputs. I don't want to share this document as it may further deteriorate the situation. However, without reviewing this document, no one will be able to provide advice on the solution. Therefore, I have attached it for your reference.

Kindly go through the document and provide your advice on the solution.

Thanks and regards