Inspection Raj in the service of employers evading compliance

Limiting the scope of inspections under labour laws — now subsumed under the Code on Social Security, 2020 — in the name of promoting “ease of doing business” has two consequences that are widely understood, though rarely acknowledged openly.

The first is that it opens the door to wilful evasion of labour laws by employers.

The second is that it chokes the flow of “other income” to pliable enforcement officers.

While a small number of inspecting officers remain true to their duty, an equally small minority go to extraordinary lengths to facilitate employer non-compliance.

I encountered one such case.

The factory was a medium-scale industrial unit run by a public limited company engaged in the manufacture of electrical steel laminations and electrical-grade stampings for rotating electrical equipment.

The Insurance Inspector had conducted a regular inspection on 16 and 17 June 1999 and verified records for the period from April 1997 to March 1999.

When I visited the factory, located in a nearby village, on 4 May 2000, I was informed that only the attendance register was maintained there and that all other records were kept at the company’s registered office in the city.

As was my practice, I walked through the factory premises and asked individual employees about their coverage under the ESI Act, 1948.

What I found was disturbing.

There were 29 coverable employees who had not been brought under ESI coverage, apart from four apprentices sponsored by the State Government.

When I insisted on the production of the record in which their names were entered, a second attendance register, kept with the security guard, surfaced.

It revealed that:

• Five employees were engaged through one contractor for the collection of materials;
• Twenty-two employees were engaged through another contractor for material handling; and
• Two employees were directly employed by the company for gardening work.

I recommended the issuance of a show-cause notice to the principal employer for this violation.

The conclusion was unavoidable:

Either the Inspector had never physically visited the factory, or he had failed to verify the actual number of employees present.

In either case, a serious violation had gone unreported.

VISIT TO THE REGISTERED OFFICE

I then visited the company’s registered and head office later the same day.

The employer initially produced:

• The general ledger for 1998–99;
• Attendance registers;
• Wage sheets; and
• Form 7 registers showing employee-wise compliance for 1997–98 and 1998–99.

Time was sought to produce the remaining records, and the employer eventually submitted the general ledger for 1997–98, along with vouchers, at our regional office on 18 May 2000.

Verification of the ledgers was an eye-opener.

They showed that eleven heads of account contained wage-related payments amounting to:

• Rs 2,89,421.74 in 1997–98; and
• Rs 2,35,797.39 in 1998–99.

Yet the Inspector had reported omitted wages of only:

• Rs 15,556 under two heads of account for 1997–98; and
• Rs 43,091 under four heads of account for 1998–99.

THE CONNIVANCE RAN DEEPER

Even while reporting the omitted wages, the Inspector had been generous to the employer.

Under the ledger head “Civil Works in Progress,” the actual wage-related amounts were:

• Rs 87,015.98 for 1997–98; and
• Rs 31,738.50 for 1998–99.

Yet the Inspector reported omitted wages as:

• Nil for 1997–98; and
• Rs 20,166 for 1998–99.

The discrepancies did not end there.

Under the head “Repairs and Maintenance,” the Inspector reported omitted wages even though no such ledger head existed.

Further, the Inspector reported omitted wages of Rs 3,322 and Rs 4,896 under “Gear Cutting Charges” for the years 1997–98 and 1998–99, respectively, without proper verification, as those payments were merely third-party payments for work carried out at their premises. They were plainly not wages as defined under the ESI Act.

WHEN INSPECTION BECOMES THE EXCEPTION

Today, inspections under labour laws have become the exception rather than the rule.

This has undoubtedly reduced inconvenience for employers who comply with the law.

But it has also widened the space for:

• Partial compliance;
• Selective compliance;
• Wilful non-compliance; and
• Convenient underreporting.

When enforcement becomes occasional and superficial, non-compliance ceases to be a risk and becomes a business model.

(Views expressed in this opinion piece are those of the author)

Read earlier parts in the series:

Part 1: The end of Inspector Raj: A reform that assumes too much

Part 2: When employers evade, enforcement looks away

Part 3: On paper, compliant: How labour laws are quietly undermined

Part 4: Between records and reality: What a special inspection revealed about labour law gaps

Part 5: The case of the missing workers: How labour law evasion persists in plain sight

Part 6: Two inspections, one pattern: Labour off the books

Part 7: Selective compliance, systemic exclusion: How workers are left out

Part 8: When centralised manufacturing, record irregularities conveniently escaped detection