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Your company just received a notice. Illegal retrenchment. Failure to constitute a Grievance Redressal Committee. The workers have filed a complaint.
Your first thought is about the fine. Your second thought is about the company’s reputation. Your third thought; if you are smart then it is about whether you personally could go to jail.
Under the Industrial Relations Code, 2020, which came into effect on 21 November 2025, the answer is not a simple yes or no. It depends on who you are, what you knew, and whether this is your first offence.
Let us cut through the fear and look at what the law actually says.
The Old Regime: Guilty Until You Prove Innocence
Under the Industrial Disputes Act, 1947, the law was ruthless. Section 32 stated that every director, manager, secretary, agent, or other officer concerned with the management of a company shall, unless he proves that the offence was committed without his knowledge or consent, be deemed to be guilty.
The burden of proof was on the director. You had to prove your innocence. The prosecuting authority did not have to prove your guilt.
This created a culture of fear. Directors were liable for everything, whether they knew about it or not.
The New Regime: A Shift in the Burden of Proof
Section 88 of the IR Code changes the game. It contains two subsections.
Sub-section (1) states that if an offence is committed by a company, every person who, at the time the offence was committed, was in charge of and responsible to the company for the conduct of its business, shall be deemed to be guilty of the offence and liable to be proceeded against and punished accordingly.
However, there is a proviso. Nothing in this sub-section shall render any such person liable if he proves that the offence was committed without his knowledge and that he exercised all due diligence to prevent the commission of such offence.
Sub-section (2) states that where an offence has been committed by a company and it is proved that the offence was committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such person shall also be deemed to be guilty and liable to be punished.
This is the critical shift. Under the old law, the director had to prove innocence. Under the new law, the prosecuting authority must prove consent, connivance, or neglect. The burden of proof has moved from the director to the authorities.
But do not mistake this for a free pass. The standard of “due diligence” is high. You cannot simply say you did not know. You must show that you took active steps to prevent the violation.
Who Exactly Is at Risk?
The IR Code casts a wide net.
Under Section 88, the following persons can be prosecuted along with the company:
- Every person who, at the time the offence was committed, was in charge of and responsible to the company for the conduct of its business
- Any director, manager, secretary, or other officer of the company if the offence was committed with their consent, connivance, or neglect.
The definition of “employer” under the Codes includes the occupier (in relation to a factory), the person having ultimate control over the affairs of the establishment, and where such affairs are entrusted to a manager or managing director, such manager or managing director.
Independent directors are excluded from being deemed an “occupier” under the Occupational Safety, Health and Working Conditions Code, 2020. Section 2(z) of the OSH Code explicitly provides that the independent director shall not be deemed to be the occupier. This is a significant clarification. Independent directors, by design, do not exercise operational or managerial control. Their exemption aligns liability with actual decision-making authority.
But HR heads, compliance officers, managing directors, and functional directors with operational control are squarely in the crosshairs.
When Does Imprisonment Actually Kick In?
Under the Industrial Relations Code, 2020, first-time offences under Section 86 generally attract only fines. For example, contravention of Sections 78, 79, or 80 (relating to lay-off, retrenchment, and closure) attracts a fine of ₹1 lakh to ₹10 lakh for first offences.
However, repeat offences attract enhanced penalties. An employer who, after conviction, commits the same offence again under Sections 78, 79, or 80 faces a fine of ₹5 lakh to ₹20 lakh or imprisonment up to six months, or both. Similarly, repeat offences under Sections 67, 70, 73, or 75 (strikes and lock-outs) attract a fine of ₹1 lakh to ₹5 lakh or imprisonment up to six months, or both. Repeat commission of unfair labour practices attracts a fine of ₹50,000 to ₹5 lakh or imprisonment up to three months, or both.
The government has significantly reduced imprisonment provisions under the new labour codes. According to media reports, the four codes have reduced the number of offences punishable with imprisonment from 87 to 22, of which 16 are compoundable.
The Three Violations That Put Directors at Greatest Risk
1. Illegal Retrenchment or Lay-off
The IR Code requires prior approval for retrenchment in establishments with 300 or more workers. Employers conducting illegal lay-offs, retrenchment, or closure without proper approvals face penal consequences under Section 86(1) of the IR Code. First offences attract fines of ₹1 lakh to ₹10 lakh. Repeat offences attract fines of ₹5 lakh to ₹20 lakh or imprisonment up to 6 months, or both.
Directors, HR heads, and key decision-makers can be held personally liable, making labour disputes a board-level risk.
2. Refusal to Recognise a Trade Union
The IR Code prohibits unfair labour practices, including interference with union rights and discrimination. Penalties apply for contraventions under Section 86(5) and (6).
If a company refuses to recognise a union in violation of the Code, and the refusal is shown to be with the consent or connivance of a director, that director can be prosecuted under Section 88(2).
3. Failure to Constitute a Grievance Redressal Committee
Section 7 of the IR Code requires every industrial establishment employing twenty or more workers to constitute a Grievance Redressal Committee (GRC). The GRC must have adequate representation of women, not less than their proportion in the total workforce.
Failure to constitute a GRC is a contravention of the Code. If the company is found guilty, every person in charge of the conduct of its business is deemed guilty unless they prove due diligence under Section 88(1).
The Due Diligence Defence: Your Best Protection
The proviso to Section 88(1) is your shield. You are not liable if you prove that:
- The offence was committed without your knowledge
- You exercised all due diligence to prevent the commission of such offence
What does “due diligence” actually mean in practice?
It means you have systems in place. It means you have documented policies. It means you have conducted regular audits. It means you have trained your HR team. It means you have acted on red flags.
You cannot simply say you did not know. You must show that you took active steps to prevent the violation. This is a high bar.
The Practical Reality
The IR Code represents a move towards greater uniformity in enforcement standards and accountability across the subsumed labour laws. The government has reduced criminal liability overall, shifting to civil penalties for non-wilful breaches.
But this does not mean directors are safe. The Code explicitly ropes in HR leaders, department heads, and designated compliance officers for personal accountability in statutory violations.
The prosecuting authority must now prove consent, connivance, or neglect. This is harder than the old regime, where the director had to prove innocence. But if the authority can prove these elements, imprisonment is a real possibility.
Your Action Plan [FREE]
Step 1: Constitute a GRC
If you employ 20 or more workers, ensure you have a Grievance Redressal Committee in place under Section 7 of the IR Code. Ensure adequate representation of women. Document the constitution of the committee.
Step 2: Document all retrenchment decisions
If you are retrenching workers, ensure you have obtained all required approvals. Document the decision-making process. Ensure the 48-hour exit rule for full and final settlement is followed.
Step 3: Conduct regular compliance audits
Audit your HR processes. Check for compliance with standing orders, GRC requirements, and retrenchment procedures. Address any gaps immediately.
Step 4: Train your HR team
Ensure your HR team understands the IR Code requirements. Train them on the penalties for non-compliance. Document the training.
Step 5: Maintain records
The Code requires maintenance of records. Ensure your records are accurate and up to date. Records are your best evidence of due diligence.
The Bottom Line
Yes, directors and senior management can face criminal prosecution under the IR Code. The law provides for personal liability for offences committed by a company. Imprisonment is possible, particularly for repeat offences.
But the law also provides a defence. If you can prove that the offence was committed without your knowledge and that you exercised all due diligence, you may escape liability.
The key is not to wait for the notice. Build your compliance systems now. Document your due diligence. Train your team. The best defence is a proactive one.
Disclaimer: This content is provided for educational and informational purposes only. It is based on available Central notifications, rules, and codes as of July 2026, including the Industrial Relations Code, 2020 (notified 21 November 2025), the Industrial Relations (Removal of Difficulties) Order, 2025, and the Draft Industrial Relations (Central) Rules, 2025. The interpretation of Section 88 of the IR Code regarding personal liability of directors and senior management is a matter of legal interpretation and may vary depending on the specific facts of each case, the specific Tribunal or court, and the specific prosecuting authority. Labour being a concurrent subject under the Indian Constitution, State-specific rules and notifications may impose additional or different obligations. This material does not constitute formal legal advice, nor does it create a lawyer-client relationship. Readers are strongly advised to consult qualified legal counsel for advice tailored to their specific factual circumstances. Laws, rules, and judicial interpretations are subject to change, and the information herein should not be relied upon as a substitute for professional legal guidance.