The Purpose Behind Penalties: Deterrence, Not Revenue
The Factories Act was never designed to treat penalties as a cost of doing business. Its enforcement framework exists to deter negligence that can endanger human life, particularly in environments involving machinery, hazardous substances, and high-risk processes.
In 2026, enforcement authorities are more willing to use the full weight of penal provisions, especially in cases involving injury, death, repeat violations, or hazardous processes. Penalties are structured not only to punish non-compliance but to force accountability at the level where decisions about safety budgets, systems, and priorities are actually made.
The Core Penalty Framework Under the Factories Act
General Penalties (Section 92)
Section 92 remains the backbone of enforcement. For most violations of the Act or the rules framed under it, the law provides for:
- Imprisonment: up to two years
- Fine: up to ₹2,00,000
- Or both
Crucially, liability does not stop at the company. Both the Occupier and the Manager of the factory can be prosecuted.
These provisions apply to a wide range of failures, inadequate safety measures, improper maintenance of machinery, missing statutory registers, insufficient welfare facilities, or violations uncovered during inspections.
Repeat Offences (Section 94)
Where a factory is convicted of an offence and subsequently commits the same offence again, the Act allows for enhanced punishment:
- Imprisonment: up to three years
- Additional fines: imposed for every day the offence continues after conviction
There is no fixed monetary ceiling for repeat offences. Courts have wide discretion, particularly where continued non-compliance suggests systemic disregard rather than oversight.
Hazardous Process Violations (Section 96A)
The most serious exposure arises under Section 96A, which deals with factories involving hazardous processes. Where non-compliance leads to death or serious bodily injury, penalties escalate sharply:
- Imprisonment: up to seven years
- Fine: as determined by the court
- Additional daily fines for continuing contraventions
These cases are treated as grave safety failures, and courts tend to scrutinise board-level oversight, not just shop-floor conduct.
Obstruction of Inspectors
The Act also penalises conduct that interferes with enforcement itself. Preventing inspectors from entering premises, refusing access to registers, or obstructing inspections can result in:
- Imprisonment: up to six months
- Fine: up to ₹10,000
- Or both
What many organisations underestimate is that obstruction charges are often easier to prove than safety violations, and frequently accompany them.
Worker-Level Penalties (Section 97)
The law does allow penalties for workers who willfully violate safety provisions:
- Fine: up to ₹500, at the court’s discretion
While rarely enforced, this provision reinforces the Act’s emphasis on collective responsibility for safety.
The Real Risk: Occupier Liability and Boardroom Exposure
At the heart of Factories Act enforcement lies the concept of the Occupier, the individual with ultimate control over the affairs of the factory.
For companies, the occupier is typically one of the directors, formally designated. Once named, the occupier carries primary responsibility for compliance. This is not symbolic. Courts look beyond titles to examine actual control, decision-making authority, and governance systems.
Importantly:
- The occupier need not be physically present at the time of a violation
- Liability flows from systemic failure, not personal involvement
- Delegation to managers does not absolve responsibility
In serious cases, directors are expected to demonstrate that they exercised reasonable diligence, established proper systems, and ensured enforcement. The absence of documented oversight often proves decisive.
Insurance: A Strategic Backstop, Not a Legal Shield
A persistent misconception in boardrooms is that insurance can “protect” directors from Factories Act penalties. This belief is dangerous.
Let’s be clear:
No insurance policy in India can cover criminal fines, statutory penalties, or imprisonment imposed under the Factories Act.
That prohibition is rooted in public policy. However, insurance still plays a role, just a narrower one than many assume.
Legal Defence Costs
Certain liability policies may cover defence costs, subject to strict conditions:
- Coverage depends on policy wording
- Costs may be reimbursed only until final adjudication
- Wilful misconduct exclusions apply
While not guaranteed, defence cost support can be critical when prosecutions stretch over years and involve multiple hearings.
Employees’ Compensation Insurance
Employees’ Compensation (formerly Workmen’s Compensation) Insurance covers statutory compensation for employee injury or death arising out of employment.
Key limitations:
- It does not respond to Factories Act prosecutions
- Common Law Liability (Table B) is optional and must be expressly endorsed
- Criminal proceedings remain outside scope
This policy protects the balance sheet, not the board.
Directors & Officers (D&O) Insurance
D&O insurance does not cover criminal liability under labour laws. However, it may respond to:
- Civil claims alleging failure of oversight
- Derivative actions following major incidents
- Certain regulatory investigations, subject to exclusions
Coverage is highly fact-specific and should never be assumed.
Crisis and Reputation Management
Some high-end policies offer limited support for crisis communication following major incidents. These are:
- Sub-limited
- Rare in the Indian market
- Not a substitute for compliance
What Compliance Actually Requires in 2026
There are no IRDAI mandates governing factory occupier disclosures, reporting timelines for inspections, or statutory registers. These myths often circulate in insurance marketing, but they are not law.
What does matter:
- Accurate disclosures during underwriting
- Truthful declarations regarding hazardous processes
- Timely notification as per policy conditions
Misrepresentation can void coverage, even for defence costs.
Strategic Mitigation: What Truly Protects Directors
Insurance is a fallback. Governance is protection.
Directors who successfully defend Factories Act prosecutions typically demonstrate:
- Clear designation and understanding of occupier responsibility
- Board-level review of safety metrics and near-miss data
- Independent safety audits and mock inspections
- Documented corrective actions
- Functional escalation channels for workers
Courts look for evidence of intent to comply, not perfection.
Conclusion: Compliance Is the Only Real Shield
In 2026, the message of the Factories Act is unchanged but louder:
When safety fails, responsibility travels upward.
For directors and officers, the smartest defence is not aggressive reliance on insurance, it is demonstrable, documented diligence. Insurance can help absorb financial shock, but it cannot erase criminal exposure.
The cost of compliance is measurable.
The cost of penalties is personal.
Leadership teams that understand this distinction protect not just their factories, but themselves.
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