Setting Up of Business, Industrial and Labour Laws · The Code on Social Security, 2020

Offences, Penalties and Central Government Directions under the Code on Social Security, 2020

Updated 11 October 2026 · Fact-checked

Under the Code on Social Security, 2020, an employer must first get a written direction and time to comply (Section 137) before prosecution. First-time minor offences can be compounded (Section 138). The Central Government can direct State Governments, State Boards and Social Security Organisations (Section 149). Answer by stating the provision, applying the facts, then concluding.

Understand Offences, Penalties and Central Government Directions

The Code on Social Security, 2020 does not only impose duties on employers. It also sets out how non-compliance is handled. Three provisions in this topic work together: a chance to correct the default, a way to settle minor offences without trial, and a power of the Centre to give directions.

Prior opportunity (Section 137). Before starting prosecution against an employer for an offence under the Chapter on offences and penalties, the Inspector-cum-Facilitator (or another notified officer) must give the employer a written direction with a time period to comply. If the employer complies within that time, no prosecution is initiated. This chance is not given if the violation of the same nature is repeated within three years of the date the first violation was committed. Then prosecution proceeds under the Chapter.

Compounding (Section 138). Compounding means settling an offence by paying a sum instead of facing trial. It covers only offences committed for the first time that are punishable (i) with fine only, or (ii) with imprisonment of not more than one year and also with fine. An application can be made before or after prosecution starts. Offences relating to Chapter III and Chapter IV (and rules, regulations or schemes under them) are compounded by an officer authorised by the Central Government. Offences relating to other provisions are compounded by an officer authorised by the appropriate Government.

Central directions (Section 149). The Central Government may give directions to any State Government or a State Board constituted under section 12 to execute in that State any provision of this Code. It may also give directions to any Social Security Organisation on matters relating to implementation of the Code. This keeps implementation uniform across the country.

Key rules to remember

Compounding amount: offence punishable with fine only: Amount = ½ × maximum fine provided for the offence; Section 138(1)(i). Applies to a first-time offence.
Compounding amount: imprisonment up to one year and also fine: Amount = ¾ × maximum fine provided for the offence; Section 138(1)(ii). Imprisonment must be not more than one year, and the offence must also carry fine.
Bar on repeat compounding: No compounding if the offence is committed a second time or thereafter within 3 years of (i) a similar offence earlier compounded, or (ii) a similar offence for which the person was earlier convicted; Section 138(2). The three years run from the date of commission of the earlier similar offence.
Prior opportunity before prosecution: Written direction with a compliance period; if complied, no prosecution. No opportunity if same-nature violation is repeated within 3 years from the date the first violation was committed; Section 137. Given by the Inspector-cum-Facilitator or other notified officer.
Effect of compounding: Before prosecution: no prosecution can be instituted. After prosecution: court is informed in writing and the person is discharged; Section 138(5) and (6).
Penalty for not complying with compounding order: Extra sum = 20% of the maximum fine for the offence, in addition to such fine; Section 138(7).
Central Government directions: Directions to (i) State Government or State Board under section 12, to execute provisions in that State; (ii) Social Security Organisations on implementation matters; Section 149.

How to solve Offences, Penalties and Central Government Directions questions

Use this method for any question on prosecution, compounding or Central directions. It matches the provision, facts, conclusion style ICSI expects.

1Identify what is asked: prior opportunity, compounding, effect of compounding, or Central directions.
2Name the provision: Section 137 for the chance to comply, Section 138 for compounding, Section 149 for directions.
3List the facts that matter: first offence or repeat, type of punishment (fine only, or up to one year plus fine), and dates.
4For Section 137, check whether the same-nature violation was repeated within three years from the date the first violation was committed.
5For Section 138, check eligibility (first-time, and the punishment type), then compute the amount: half of maximum fine or three-fourths.
6Check the repeat bar in Section 138(2) and note who compounds: Central officer for Chapters III and IV, appropriate Government's officer for others.
7Write a clear conclusion that states the outcome and the amount or authority involved.

Quickest way: Three-question check

When to use it: Use when a short problem gives an offence, a fine and some dates, and you have little time.

Is it a first offence, with no similar one compounded or convicted within three years? If no, compounding is barred.
Is the punishment fine only (pay ½ of maximum fine) or up to one year plus fine (pay ¾ of maximum fine)?
Was a written direction with a time limit given and complied with? If yes, no prosecution. If a same-nature violation is repeated within three years, no such opportunity is given.

Common mistakes in Offences, Penalties and Central Government Directions

Applying ½ of the maximum fine to every compounding case.
Students remember one fraction and ignore the two categories.
Fix: Fine only means one-half. Imprisonment up to one year plus fine means three-fourths.
Allowing compounding for offences carrying imprisonment of more than one year.
Students read Section 138 as covering all offences.
Fix: Only fine-only offences, or imprisonment of not more than one year with fine, qualify.
Saying the employer always gets a chance to comply before prosecution.
The first half of Section 137 is remembered, not the exception.
Fix: No opportunity is given if a violation of the same nature is repeated within three years from the date the first violation was committed.
Saying the Central Government compounds every offence under the Code.
Students overlook the split between Chapters III and IV and other provisions.
Fix: Central authorised officer for offences relating to Chapters III and IV; appropriate Government's authorised officer for the rest.
Thinking a verbal warning satisfies Section 137.
Students ignore the word written.
Fix: The direction must be in writing and must lay down a time period for compliance.
Stating that Section 149 lets the Centre direct any employer.
Students confuse directions with enforcement powers.
Fix: Section 149 covers State Governments, State Boards under section 12, and Social Security Organisations only.

Worked examples

Example 1

An employer commits a first-time offence under the Code punishable with fine only, the maximum fine being ₹50,000. He applies for compounding. Advise on the amount payable and the effect if the application is made before prosecution.

Show the solution

Provision: Section 138(1) permits compounding of first-time offences punishable with fine only, on an application before or after prosecution.
Category: the offence is punishable with fine only, so the amount is half of the maximum fine.
Computation: ½ × ₹50,000 = ₹25,000.
Effect: under Section 138(5), if compounded before prosecution is instituted, no prosecution can be instituted against that offender for that offence.

Answer: The employer must pay ₹25,000 to the appropriate Government. Once compounded before prosecution, no prosecution can be instituted for that offence.

Example 2

An employer was convicted of a violation. Eighteen months later he commits a similar offence, punishable with imprisonment up to six months and also fine, with a maximum fine of ₹40,000. Can it be compounded? Would your answer differ if the earlier offence was committed five years ago?

Show the solution

Provision: Section 138(2) bars compounding for an offence committed a second time or thereafter within three years of a similar offence for which the person was earlier convicted.
Facts: the earlier conviction related to a similar offence, and the new offence is within three years of its commission. Assumption: the 18 months is measured from the date of the earlier offence.
Result: compounding is not available, though the offence otherwise qualifies (imprisonment not more than one year plus fine).
If the earlier offence was five years ago, the three-year bar does not apply. The new offence is eligible, and the amount is ¾ × ₹40,000 = ₹30,000.

Answer: In the first case, it cannot be compounded because of Section 138(2). If the earlier offence was five years ago, it can be compounded on payment of ₹30,000.

Exam tips

Learn Sections 137, 138 and 149 by number. ICSI answers gain from citing the section.
Memorise the two fractions: one-half for fine only, three-fourths for imprisonment up to one year plus fine.
In problem questions, always check the three-year repeat rule first. It decides both Section 137 and Section 138 outcomes.
Remember the split of authority: Central for Chapters III and IV, appropriate Government for others.
Write the answer in order: provision, application to facts, conclusion.

Practice questions from The Code on Social Security, 2020

Offences, Penalties and Central Government Directions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Offences, Penalties and Central Government Directions: frequently asked questions

Can every offence under the Code on Social Security be compounded?

No. Section 138 covers only first-time offences punishable with fine only, or with imprisonment of not more than one year and also fine. Repeat offences within three years of a compounded or convicted similar offence are excluded.

How much must be paid to compound an offence?

For a fine-only offence, half of the maximum fine. For an offence punishable with imprisonment up to one year and also fine, three-fourths of the maximum fine. The payment is made to the appropriate Government.

Must an employer be warned before prosecution?

Yes, under Section 137 the Inspector-cum-Facilitator or other notified officer must give a written direction with a compliance period. If the employer complies in time, no proceeding is initiated. The chance is not given for a same-nature violation repeated within three years.

What can the Central Government direct under Section 149?

It can direct any State Government or a State Board constituted under section 12 to execute provisions of the Code in that State. It can also direct Social Security Organisations on matters relating to implementation of the Code.