India’s labour laws, while crucial for worker welfare, often impose disproportionate criminal penalties for minor infractions, creating regulatory hurdles for businesses, especially SMEs. Over-criminalization shifts focus from critical safety issues to excessive litigation and compliance burdens. The Jan Vishwas Act, 2023 initiated reforms but fell short in addressing labour laws comprehensively. With the Union Budget 2024-25 signaling further simplification, a Jan Vishwas 2.0 could rationalize penalties, fostering a compliance-driven, pro-employment ecosystem. This article examines key penal provisions and advocates for decriminalization through civil remedies, promoting voluntary compliance while ensuring worker protection and accountability.
The Jan Vishwas (Amendment of Provisions) Act, 2023 streamlined compliance by decriminalizing minor offenses across economic laws, recognizing that outdated penalties hinder business growth. However, the Labour Ministry opted out in 2022, focusing instead on the impending implementation of the Labour Codes (2019-20) for broader reforms.
The Union Budget 2025 has now proposed a high-level committee to strengthen Ease of Doing Business (EoDB), reviewing labour laws to balance compliance with worker protection. Many labour laws impose rigid penalties, including imprisonment for minor administrative lapses like delayed inspections or inadequate documentation. The Factories Act, for example, prescribes up to two years of imprisonment for technical infractions, leading to unnecessary litigation and harassment. Addressing these issues through targeted decriminalization will encourage voluntary compliance, reduce regulatory burdens, and maintain worker welfare. A reform-driven approach is essential to fostering a business-friendly yet worker-conscious legal ecosystem.
Employees' Provident Funds and Miscellaneous Provisions Act (EPF), 1952, the Employees’ State Insurance (ESI) Act, 1948, and the Contract Labour (Regulation & Abolition) Act, 1970 (CLRA), impose disproportionate penalties on employers for minor infractions. These range from imprisonment for delayed documentation to hefty fines for non-display of notices. Under the CLRA and Shops and Establishments Acts, even missed wage entries or delayed inspection responses can lead to prosecution. Similarly, EPF and ESI Acts penalize procedural delays with up to three years of imprisonment, deterring SMEs from formalization.
Excessive criminalization burdens compliance, discouraging business growth and pushing enterprises toward informality, leaving workers without social security. The Apprentices Act (2014), which replaced jail terms with fines and prioritized voluntary compliance, offers a reform model. Shifting minor infractions to civil penalties will incentivize formalization, reduce unnecessary litigation, and ensure a balanced, worker-protective regulatory ecosystem.
Employers operating across multiple States face an exceptionally complex regulatory framework, managing 11,500 compliance tasks covering workplace safety, labour laws, tax obligations, and environmental norms. Of these, 7,600 tasks impose severe penalties, including imprisonment, making even minor lapses legally and financially burdensome.
To mitigate risks, businesses invest heavily in compliance systems, training, and policies, but this excessive regulatory burden discourages expansion and formalization, particularly for SMEs. A balanced reform approach—shifting minor infractions to civil penalties, implementing self-declaration mechanisms, and developing a unified digital compliance framework—can streamline regulatory processes while maintaining worker protections.
A successful precedent is the 2014 amendment to the Apprentices Act, 1961, which decriminalized procedural violations, replacing imprisonment with civil penalties. Before the amendment, only 30,165 establishments participated in apprenticeship programs. After reforms, training establishments rose from 5,657 in 2015-16 to 1,20,000 by 2021, and new enrollments increased from 1.11 lakh in 2015-16 to 9.31 lakh in 2023-24.
In December 2024, Lok Sabha data reported 21.40 lakh individuals trained, with NAPS-2 targeting 46 lakh youth apprentices by 2025-26. By rationalizing penalties, promoting voluntary compliance, and leveraging digital governance, India can build a business-friendly regulatory framework while ensuring worker protections and reduced litigation, aligning with global best practices.
Factories Act, 1948
Under Chapter III, Section 11, periodic whitewashing of walls every 14 months and repainting every three to five years are mandatory to maintain hygiene. However, this requirement often becomes a tool for harassment, with Section 92 prescribing up to two years of imprisonment or fines of ₹1 lakh for general violations, including minor lapses like delayed maintenance records or insufficient safety measures. Section 94 penalizes false fitness certificates with up to two months of imprisonment or fines of ₹1,000.
Strict enforcement gives labour inspectors excessive power, leading to coercion, bribe demands, and financial burdens for small businesses. Practical, corruption-proof compliance mechanisms are urgently needed.
Contract Labour (Regulation & Abolition) Act, 1970 (CLRA)
The CLRA is a crucial law for safeguarding contract workers, but its stringent penal provisions have raised concerns about over-criminalization and disproportionate penalties. Sections 23 and 24 are key general penalty clauses imposing criminal liability of up to three months of imprisonment or a fine of ₹1,000, or both for various violations. Even minor administrative lapses, like a missed register entry or inadequate documentation, could result in legal action.
A proposed substitution to Section 24 under the 2017 Amendment Bill provides relief by offering first-time offenders an opportunity to rectify violations without prosecution—a positive step toward decriminalization.
EPF and ESI Act
Both Acts penalize delays in contribution payments or false statements with up to three years of imprisonment or fines between ₹2,000 and ₹10,000. Under Section 14 of the EPF Act and Section 85 of the ESI Act, even small delays in transferring employee deductions can lead to criminal prosecution. Recent amendments reduced penalties for delayed EPF contributions to 1% per month, but harsher punishments for persistent defaults remain.
Corporate leaders, including directors and managers, are personally liable under both Acts, facing prosecution for administrative errors like late submissions or incomplete documentation. Targeted decriminalization is needed to protect businesses from excessive penalties while ensuring strict action for serious violations.
Shops and Establishments Acts
Many State-specific versions of the SEAs include provisions where even small violations, such as failure to repaint premises or improper record-keeping, can result in imprisonment or heavy fines. For example, under the Delhi Shops and Establishments Act, 1954 (Section 52), failing to maintain cleanliness or comply with working hours can lead to imprisonment of up to three months or fines of ₹500.
To ensure a business-friendly regulatory environment, central guidance on decriminalizing minor infractions is necessary. Shifting from criminal penalties to civil fines would reduce harassment of employers and foster voluntary compliance.
Opportunities for Decriminalization: Reducing Burden on Employers
Positive Precedents: Decriminalization under the Apprenticeship Act
The 2014 amendment to the Apprenticeship Act, 1961, eliminated imprisonment for minor infractions, replacing criminal penalties with monetary fines and corrective measures. Employers now face fines of ₹500 per shortfall apprentice for first-time violations, with no jail time. The reform introduced grace periods, written notices, and voluntary compliance, enabling businesses to rectify non-compliance without legal repercussions.
The Jan Vishwas Act, 2023 marked a key step in reducing regulatory burdens and enhancing ease of doing business. As labour laws evolve, the Labour Ministry can refine policies to balance worker protection with a business-friendly approach.
Structured decriminalization, voluntary compliance, and stakeholder engagement can modernize regulations. The Apprentices Act reforms show how pragmatic policies foster economic growth while ensuring worker rights. With the 2025 Budget hinting at Jan Vishwas 2.0, this is a crucial moment to reassess penalties, streamline compliance, and build a transparent, predictable regulatory framework benefiting both businesses and workers.
About the author: Madhu Damodaran is the Regional Managing Partner at AMLEGALS.
Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.
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