DBA 5107 LEGAL ASPECTS OF BUSINESS

UNIT – 3

1. THE FACTORIES ACT, 1948

INTRODUCTION

 The Factories Act, 1948 came into force on the 1st Day of 1949.

 The object of this Act is to regulate the conditions of work in

manufacturing establishments.

 The Act extends to the whole of India including the State of

Jammu and Kashmir.

 The Act is applicable to factories belonging to the Central or any

State Government

 The Act was substantially amended in the year 1987 and 1988.

WHAT IS A FACTORY?

According to Sec.2 (m), Factory means any Premises

including the Precincts thereof –

Whereon 10 or 20 or more workers are working or were

working on any day of the preceding 12 months, and in any part of
which a manufacturing process is being carried on with the aid of
power, or ordinarily so carried on.

DEFINITIONS

1. Adult: An ‘Adult’ means a person who has completed his 18

years of age.
 2. Adolescent: An ‘Adolescent’ means a person who has
completed his 15 years of age but not completed his 18 years.

3. Child: A ‘Child’ means a person who has not completed his 15

years of age.

4. Hazardous Process: The Hazardous process refers to that

process which affects the health of the person engaged in or it
will result in pollution.

In short, Hazardous Process means the process which causes

danger to the worker. Example: Working in Chemical, Pharmaceutical
Industry.

5. Young Person: A ‘Young Person’ means a person who is either a

Child or an Adolescent.

6. Occupier: Occupier of a factory means the person who has

ultimate control over the affairs of the factory. In cases of the
factories belonging to the Central/State Government, the occupier
will be the person who will be appointed by the govt. In cases of
private factories the occupier means the owner of the factory.

APPROVAL, LICENSE & REGISTRATION OF FACTORIES

(i) APPLICATION FOR PERMISSION:

 An application of permission for starting a factory may be made

to the State Government or to the Chief Inspector (Person
appointed by State Govt) along with the certified plans.
  The State Government may make rules regarding the
registration and licensing of factories. It will prescribe the fees
payable for such registration and licensing.

No such license shall be granted or renewed unless the occupier of the

factory gives the notice to the State Govt or to the Chief Inspector.

(ii) NOTICE BY THE OCCUPIER:

The Occupier shall send the notice to the Chief

Inspector 15 days before he begins to use or occupy the factory.

The notice should be in writing and it should contain

the following details:

 Name and Location of the factory.

 Name and Address of the occupier.

 Name and Address of the owner of the premises or

building.

 The address to which communication relating to the factory to

should be sent

 The nature of the manufacturing process

 The name of the manager of the factory.

 The number of workers likely to be employed in the factory.

 HEALTH, SAFETY & WELFARE PROVISIONS

1. PROVISIONS REGARDING HEALTH

 Cleanliness: Factory to be kept free from effluents and dirt.

 Disposal of Wastages and Effluents: Effective arrangements shall

be made in every factory for the disposal of wastages, in order
to avoid various diseases.

 Ventilation and Temperature: There should be proper

arrangements for adequate ventilation and temperature should
be comfortable for working.

 Dust & Fumes: Effective measures shall be taken in the factory

for prevention of inhalation or accumulation of dust and fumes.

 Artificial Humidification: This provisions speaks about artificially

increasing the humidity of the air. The State Government has
made rules prescribing the standards of humidification.

 Overcrowding: Overcrowding which is injurious to workers

should be avoided. Proper space to work should be provided to
all workers.

 Lighting: According to this provision, each and every employer

should provide proper lighting throughout the factory.

 Drinking Water: Effective arrangements of drinking water at

suitable points convenient to workers should be made. Cooling
water should be provided in a factory where more than 250
workers are employed.
  Latrines and Urinals: Separate latrines and urinals for male and
female workers conveniently situated with adequate lighting
and ventilation should be provided.

 Spittoons: This provision speaks about providing sufficient

number of Spittoons (for Spitting) in convenient places. They
shall be maintained in a clean and hygienic condition.

These are the various provisions regarding Health of Workers.

2. PROVISIONS REGARDING SAFETY

The Occupier of every factory is bound to follow the various

provisions regarding safety:

 Fencing of Machinery: In every factory, every dangerous part of

the machines must be securely fenced. This is been done to
avoid accidents or any dangers caused to workers.

 Work On or Near Machinery in Motion: This provision speaks

about examining the machine is to be done only by trained adult
male worker.

 Employment of Young Persons on Dangerous Machines: No

young person shall be allowed to work on any machine unless
and until he is trained properly about the operating of machine.

 Self – Acting Machine: There are certain machines in the factory,

which are self-acting and self running in nature. These types of
machines shall be allowed to run only in a particular space
provided for it.
 Casing of New Machinery: Casing is nothing but, properly fixing
the new machinery in the factory with suitable arrangements.

 Prohibition of Employment of Women & Children near Cotton

Openers: No women or child shall be allowed to work near
cotton openers. Because, it will cause severe dangers to their
health.

 Hoists and Lifts: Hoists and Lifts to be properly maintained and

examined once in every 6 months for the safety of workers.

 Lifting Machines, Chains, Ropes: Cranes and lifting machines, etc,

to be of good construction and examined once in every 12
months. No overloading should be done in cranes.

 Floors, Stairs and Means of Access: In every factory, all floors,

stairs, passages shall be constructed properly and maintained
effectively. So that the workers can easily access throughout the
factory, in case of fire accident.

 Excessive Weight: No person in a factory shall be allowed to

carry, lift the excessive weight which will cause him injury.

 Protection of Eyes: In every factory, suitable safety equipments

shall be provided to protect the eyesight of workers. Example:
Providing safety glass for workers engaged in welding works.

 Precautions Against Dangerous Fumes: Prohibiting the workers

from entering into any chamber, tank, etc., where any gas or
fume is there.

 Precaution Regarding Use of Portable Electric Light: The workers

should not be allowed to use inside tank or chamber, any
 portable electric light or any other electrical device, whose
voltage exceeds 24 volts.

This precautionary action is taken because, if there is

any inflammable gas, fumes inside the tank or chamber it will
cause danger to the worker.

 Precaution in Case of Fire: This provision speaks about providing

appropriate measures in the factory to prevent the outbreak of
fire and its spread. Following Precautionary Measures to be
Done:

(i) Safe means of escape for all persons (Fire Exit)

(ii) Necessary equipments and facilities for extinguishing.

 Safety Officers: In every factory, wherein 1,000 or more workers

are employed, the occupier must appoint the safety officer as
per the rules prescribed by the State Government.

These are the various provisions with regard to safety of

workers.

3. PROVISIONS REGARDING WELFARE

 Washing Facilities: In every factory, adequate and suitable

washing facilities for both male and female workers should be
separately provided and maintained for the purpose of washing
uniforms.

 Facilities for Storing and Drying Clothes: There should be

separate facility in every factory, for storing clothes which are
 not warm during working hours and also facility for drying wet
clothes.

 Facilities for Sitting: Provision of sitting arrangements to be

made to those workers who work in standing position. This
facility is for those workers who work in machines.

 First - Aid Appliances: In every factory, one first – aid box with
prescribed medicines must be available for every 150 workers.

 Canteen: As per the rules of State Government, there should be

a canteen in a factory, where 250 workers are employed.

 Shelter, Rest Rooms and Lunch Rooms: Every occupier shall

make provisions for shelter, rest rooms and lunch rooms in
factories employing more than 150 workers.

 Creches: Provisions should be made for creches in factories

employing more than 30 women workers.

 Welfare Officers: In every factory, Where 500 or more workers

are employed, the occupier shall appoint such number of
welfare officers as prescribed by the State Government.

These are the various provisions regarding welfare of

workers.

GENERAL TOPICS IN FACTORIES ACT

1. WORKING HOURS OF ADULTS:

Rules Regarding Working Hours of Adults:

 Weekly Hours: No adult worker shall be allowed to work more

than 48 hours in a week.
 Daily Hours: No adult worker shall be required to work in a
factory more than 9 hours in any day.

 Interval for Rest: Every adult worker shall be allowed to take

rest for about half an hour for every 5 hours of work.

2. EMPLOYMENT OF YOUNG PERSON:

Provisions/Rules Regarding Employment of Young Person

An Adolescent (Young Person) is allowed to work in a

factory on 2 Conditions:

(i) A certificate of fitness for such work is in the custody of the

manager of the factory.

(ii) Such Adolescent should carry a token giving reference to

certificate, while he is at work in the factory.

What is Certificate of Fitness?

It is a certificate granted to a young person by a

certifying surgeon (Doctor) after examining him and ascertaining
his fitness for working in a factory.

An application for such certificate may be made by the

young person himself or by his guardian.

3. EMPLOYMENT OF WOMEN

Rules Regarding Employment of Women:

All the provisions/rules of Factories Act, 1948 regarding

employment of adult male workers are same to female workers
also, except the following 6 provisions:
o Women not allowed to work on or near machinery in motion.

o Not allowed to work near cotton-openers.

o Creches should be provided to female workers.

o Workers hours should not exceed 48 hours in a week and 9

hours in a day. (same working hours of male workers)

o Restriction on Employment of Women: A women shall be

allowed to work in a factory between 6 am to 7 pm only.
Women should not be employed between 10 pm to 5am.

o Not allowed to work in dangerous operations.

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2. THE PAYMENT OF WAGES ACT, 1936

INTRODUCTION

 The Payment of wages Act, 1936 was passed to regulate the

payment of wages to certain classes of persons employed in
industry.

 It is essentially meant for the benefit of industrial employees not

getting very high salaries.

 It also provides rules against the irregularity in payment of

wages and unauthorized deductions by the employer.

APPLICATION OF THE ACT

The payment of wages act applies to the following persons:

• Employees of any factory

• Employees of railway

• Employees of industrial establishment

• Employees of other establishment.

DEFINITIONS

 Employed person:

According to sec.2(1), ‘Employed person’ includes the legal

representative of a deceased employed person.

 Employer:

1. Employer’ includes the legal representative of a deceased

employer.
 2. When there is a manager who is entrusted with the affairs
of a company, the directors of the company cannot be said
to be the employers.
 Factory
A factory is a place in which the Provisions of the
Factories Act, 1948 have been applied.

 Wages:

Wages means all remuneration (whether by way of salary,

allowances, etc) expressed in terms of money or in terms of
employment.

In simple words, Wages means all remuneration due to any

worker or employee if the terms of contract of employment are
fulfilled.

RULES FOR PAYMENT OF WAGES

 Responsibility for payment of wages

 Fixation of wage period

 Time of payment of wages

 Medium of payment of wages

DEDUCTION FROM WAGES:

Introduction:

Sec.7 provides that the wages of an employed person shall be paid

to him without deductions of any kind except those authorized under
the act.
KINDS OF DEDUCTIONS:

 Deductions for fines

 Deductions for absence from duty

 Deductions for damage or loss

 Deductions for services

 Deductions for recovery of advances

 Deductions for recovery of loans

 Deductions for payment to co-operative societies and insurance

schemes.

Other Deductions Applicable:

 Deductions of income tax payable by the employee

 Deductions for contributions to any insurance schemes framed

by the Central Government for the benefit of its employees.

 Deductions made with the written consent of employee for

contributing to Prime Minister’s National Relief Fund.

LIMIT ON DEDUCTIONS:

How much amount can be deducted from the salary of the employee:

 In case of deductions which were made for payment to co-

operative society, deduction should not exceed 75% of total
wages.

 In case of other deductions, it should not exceed 50% of total

wages
 3. THE PAYMENT OF BONUS ACT, 1965

INTRODUCTION

The term Bonus means, ‘Something to the good’. Bonus is

regarded as “ex gratia payment (payment as an act of grace) made by
an employer to his workers to provide stimulus for extra effort made
by them in production process. On certain occasions, Bonus also
represented the desire of the employer to share with his workers, the
surplus generated by common endeavour and enterprise.

The Act came into force on 5th September, 1965. It was amended
twice in the year 1985 and it was further amended in the years 1995
and 2007.

WHAT IS BONUS?

Bonus is regarded as an extra payment made by an employer to

his workers in order to reward them for the extra effort made by
them in the production process and bonus is also given on occasions
like festivals.

OBJECT OF THE ACT:

The Object of the Act is to provide the payment of Bonus to

persons employed in certain establishments and to regulate the
matters related to bonus.

The Scheme of the Act is based on four dimensions:

 To impose statutory liability upon an employer to pay bonus to

employees.
  To define the principles of payment of bonus according to the
formula

 To provide rules for payment of minimum and maximum bonus.

 To provide machinery for enforcement of the liability for

payment of bonus.

APPLICATION OF THE ACT :

The Act extends to whole of India. The Act is applicable to:

(i) Every factory

(ii) Every other establishment in which 20 or more persons are

employed.

ELIGIBILITY & DISQUALIFICATION FOR BONUS

ELIGIBILITY FOR BONUS:

Every employee is eligible to receive a bonus from his employer,

provided he has worked in the establishment for not less than 30
working days in that year.

DISQUALIFICATION OF BONUS:

An employee shall be disqualified from receiving bonus under

the Act, if he is dismissed from service for:

 Fraud

 Violent behaviour in the premises

 Theft, misappropriation of any property of the

establishment.
DETERMINATION OF BONUS:

This topic deals about the Calculation of Bonus and what are the
various steps and procedures need to be followed to calculate bonus.
The following is the procedure for Calculating Bonus:

 Computation of Gross Profit

 Determination of Available Surplus

 Allocable Surplus

1. COMPUTATION OF GROSS PROFIT:

The first step in determining the Bonus of an employee and to

calculate bonus formula is computation of gross profit for the
accounting year. It is calculated according to Sec.4 of the Act.

(i) Computation of Gross Profit in Case of a Banking Company

(ii) Computation of Gross Profit in other case.

(Refer Schedules in N.D Kapoor Book for Calculations)

2. DETERMINATION OF AVAILABLE SURPLUS

The next step after determining the gross profit is, the
determination of Available Surplus. The Available Surplus for an
accounting year can be calculated based on the following formula:

Formula:

Available Surplus = Gross Profit – Sums Mentioned in Sec. 6

(Refer Schedules in N.D Kapoor Book for Calculations)

3. ALLOCABLE SURPLUS:

After determining the available surplus, the employer should

now determine the Employee’s Share, which is known as Allocable
Surplus.

RULES FOR DISTRIBUTING ALLOCABLE SURPLUS:

1. Amount of Bonus: Employer has to provide maximum bonus

during profit and minimum bonus will be paid when there is a
loss in an accounting year.

2. Calculation of Bonus with respect to certain employees: In some

cases, if the salary of the employee exceeds Rs.3500 per month,
the bonus payable to such employee will be calculated only for
Rs. 3500 per month as per Sec. 10 of the Act.

3. ‘Set on’ and ‘Set off’ of Allocable Surplus:

(i) Set On: When the allocable exceeds maximum bonus ( 20%) it is
known as Set On allocable surplus

(ii) Set off: When the allocable surplus is less then minimum bonus
(8.33%) it is known as Set Off allocable surplus.

4. Proportionate Reduction in Bonus in Certain Cases:

When any employee has not worked for 30 days in a year, the
employer can reduce the bonus for such number of days on
which leave taken.

5. Adjustment of Customary or Interim Bonus: The employer can

deduct the part of bonus amount which is paid in advance to the
employee. Example: Bonus paid on festival occasions.
6. Deduction of Certain Amount from Bonus: If the employee is
found guilty of misconduct, causing financial loss to the
employer, it shall be lawful to deduct the amount of loss from
the bonus amount payable.

7. Time Limit for Payment of Bonus: If there is any dispute

regarding bonus, the bonus should be paid within 1 month form
the date of end of dispute. In other cases, within 8 months from
the close of accounting year.

8. Recovery of Bonus: Where any money is due to an employee by

way of bonus, he may make an application to State Government
for the recovery of money due to him.

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 4. THE INDUSTRIAL DISPUTE ACT, 1947

INTRODUCTION

The Industrial Dispute Act, 1947 was passed with a view of

removing certain shortcomings found in the working of the Trade
Disputes Act of 1929.

The Act came into force on the first day of April, 1947.

Object of the Act

The main objects of the Act are

 To secure industrial peace –

(a) By preventing and settling industrial disputes between the

employer and workmen.

(b) By securing and preserving good relations between the

employer and workmen.

 To improve the condition of workmen in the industry –

(a) by solving the grievances of workmen

(b) by providing job security to workmen

Extent of The Act:

The Act extends to the whole of India. It applies to all industries

whether they are carried on by private owners or by the Government.

The Act has been amended from time to time. The latest
amendment to the Act was made in August 1984.
Definition of Industry:

According to Sec. 2(j), Industry means any systematic activity

carried on by cooperation between an employer and his workmen.
The workmen may be employed directly or through agency.

The object of employment should be for production, Supply or

distribution of goods or services with a view to satisfy human wants
and wishes.

What is Industrial Dispute?

‘Industrial Dispute’ means any dispute or difference between –

(i) employers and employers

(ii) employers and workmen

(iii) workmen and workmen.

Types of Disputes:

Individual and Collective Dispute:

1. Individual Dispute:

The individual dispute may relate to any of the following

matters:

 where any employer dismisses, retrenches or otherwise

terminates the service of individual workman.

 where any dispute between the employer and workman

regarding dismissal of service
2. Collective Dispute:

A collective dispute may relate to any of the following

matters:

 Wages, bonus, profit-sharing, gratuity and other allowances.

 Hours of work, leave with wages, holidays.

 rules of discipline or closure of establishment

Definitions

1. Board:

The term, ‘Board’ may be defined as a Board of Conciliation

constituted under the act.

2. Closure:

Closure means the permanent closing down of a place of

employment or part.

3. Conciliation Officer:

The conciliation officer means an officer appointed under the

act for the purpose of solving the disputes between the employer and
workman.

4. Lay-off:

Lay-off means the failure, refusal or inability of an employer to

give employment to workman whose name is borne on the muster-
rolls of his industrial establishment and who not been retrenched.
Reasons of Lay-off:

 shortage of coal, power or raw materials

 the breakdown of machinery

 natural calamity

5. Lock-out:

It means the temporary closing of place of work or the

suspension of work or the refusal by an employer to continue to
employ any number of persons.

The lock-out is the weapon in the hands of employer to threaten

the workmen.

6. Retrenchment:

Retrenchment means the termination by the employer the

service of a workman for any reason.

Retrenchment doesn’t include:

 Voluntary retirement of the workman.

 Retirement of workman on reaching the age of superannuation.

 Termination of the service of workman as a result of non-
renewal of contract of employment between the employer and
workman.
 Termination of the service of workman on the ground of
continued ill-health.
7. Strike:

Strike means –

• a cessation of work by a body of persons employed in any

industry acting in combination.

• a concerted refusal of any number of persons to continue to

work.

Procedure for Settlement of Industrial Disputes and Authorities

Under the Act:

The Industrial disputes act provides an elaborate and effective

method for bringing industrial peace by setting up various authorities
for the investigation and settlement of industrial disputes between
the employer and workmen.

Authorities of the Act

 Works Committees

 Conciliation Officers

 Boards of Conciliation

 Court of Inquiry

 Labour Courts

 Industrial Tribunal

 National Tribunal
1. Works Committees:

In the case of any industrial establishment in which 100 or more

workmen are employed, the appropriate government may require the
employer to constitute a works committee. The committee shall
consist of representatives of employer and workmen engaged in the
establishment. The number of representatives of both employer and
workmen should be equal. The representative of the workmen shall
be chosen in the prescribed manner in consultation with the trade
union.

Powers And Duties of Works Committees:

 Promote measures for securing and preserving good relations

between the employer and workmen.

 Decide on such matters which are for the benefit of both

employer and workmen.

 Attempt to control any material difference of opinion in respect

of any such matters in which both the parties are involved.

2. Conciliation Officer:

The appropriate government may appoint such persons as it

thinks fit to be conciliation officers. The duty of conciliation officers
shall be to mediate and promote the settlement of industrial disputes.

(A) Appointment of Conciliation Officers:

A conciliation officer may be appointed for a specified area or

for specified industries or for one or more specified industries. He
may be appointed either permanently or for a limited period. He shall
be deemed to be a public servant.

(B) Duties of Conciliation Officer:

 To hold conciliation proceedings

 To investigate the dispute

 To send a report and memorandum of settlement to appropriate

government.

 To send a full report to the appropriate government.

C) Powers of Conciliation Officers

 Power to enter premises

 Power to call for and inspect the documents.

3. Board of Conciliation:

(A) Appointment And Constitution of Board of Conciliation:

The appropriate government may appoint a board of conciliation

for promoting the settlement of an industrial dispute.

The Board shall consist of a chairman and 2 or 4 other members.

The chairman shall be an independent person. The other members
shall be persons appointed in equal number to represent the parties
to the dispute.

(B) Duties of Board of Conciliation

o To bring about a settlement of the dispute.

 o To send a report and memorandum of settlement to the
appropriate government.

o To communicate reasons to parties, if no reference made.

o To submit report within 2 months

(c) Powers of Board of Conciliation

• Power to enter premises.

• Power to enforce the attendance of any person

• Compelling the production of documents and material objects

4. Courts of Inquiry:

(A). Appointment and Constitution of Courts of Inquiry:

The appropriate government may constitute a Court of Inquiry

for inquiring into any matter connected with or relevant to industrial
dispute

A Court of Inquiry consists of 2 or more members, one of them

shall be appointed as chairman.

All members of the Court of Inquiry shall be deemed to be a

public servant.

(B) Duties of Court of Inquiry:

A Court shall inquire into the matters referred to it and report to

the appropriate government within a period of 6 months from the
date of commencement of its inquiry. The report of the court shall be
in writing and signed by all the members. The duty of the court is to
abide by the principle of fairplay and justice.
(C). Powers of Court of Inquiry:

• Power to enter premises.

• Power to enforce the attendance of any person

• Compelling the production of documents and material objects.

5. Labour Courts:

(A) Appointment and Constitution:

The appropriate government may constitute one or more Labour

Courts for adjudication of industrial disputes relating to any matters
specified in the second Schedule. These courts shall also perform such
other functions as may be assigned to them.

(B) Qualifications of Members of Labour Court:

(i) He is or has been a Judge of High Court.

(ii) He has, for a period of not less than 3 years, been a District

Judge or an Additional District Judge.

(iii) He has held any judicial office in India for not less than 7 years.

(C) Duties of Labour Court:

 To adjudicate upon industrial disputes relating to the matters

specified in the second schedule.

 To give award within the specified period.

(D) Powers of Labour Courts:

• Power to enter premises.

• Power to enforce the attendance of any person

• Compelling the production of documents and material objects.

6. Industrial Tribunal:

(A) Appointment And Constitution:

The appropriate government may constitute one or more

Industrial Tribunal for adjudication of industrial disputes relating to
any matter whether specified in the Second Schedule or the Third
Schedule and for performing such other functions as may be assigned
to them.

(B) Qualifications of Members of Industrial Tribunal:

(i) He is or has been a Judge of High Court.

(ii) He has, for a period of not less than 3 years, been a District

Judge or an Additional District Judge.

The presiding officer of a Tribunal shall be deemed to be a public

servant. The appropriate government appoints 2 persons as assessors
to advise the Tribunal in the proceedings.

(C) Duties and Powers of Industrial Tribunal:

Refer Labour Court topics (Same – without any changes)

7. National Tribunal:

(A) Appointment And Constitution:

The Central Government may constitute one or more National

Tribunals for the adjudication of industrial disputes.

(B) Qualifications, Powers and Duties of National Tribunal:

Refer Labour Court topics (No changes)

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Transfer and Closing Down of Undertakings:

Compensation To Workmen in case of Transfer of Undertaking:

Sometimes the ownership or management of an undertaking is

transferred, whether by agreement or by law, from the employer in
relation to that undertaking to a new employer.

In such a case, every workman who has been in continuous

service for not less than 1 year in that undertaking immediately
before such transfer shall be entitled to notice and compensation in
accordance with the provisions of Sec. 25-F.

A workman shall not be entitled to notice and compensation

with regard to transfer of undertaking. If-

(a) the service of the workman has not been interrupted by such
transfer.
Closing Down Of an Undertaking:

Conditions Regarding Closing Down of An Undertaking:

 60 days notice to be given of intention to close down any

undertaking.

 Compensation to workman in case of closing down of

undertaking

THE END