Rule 38 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 38 is the procedure for compounding an offence under the Code. The compounding officer sends a Form XV notice through the designated portal; the accused has fifteen days to file Part III and pay electronically. What follows depends on whether prosecution has begun.
The compounding officer notified by the Central Government sends the accused a notice in Form XV through the designated portal of the Ministry of Labour and Employment. Within fifteen days of receipt, the accused may send Part III of Form XV electronically and deposit the compounding amount electronically. If prosecution has already begun, the accused applies to the court, which may allow composition. On compounding: before prosecution, none may be filed; pending a section 85 proceeding, it is closed; after prosecution with the court's permission, the case is closed and the court discharges the accused. Central-sphere only.
The rule behind the rule: section 89
Section 89(1) of the Industrial Relations Code, 2020 lets a Gazetted Officer, specified by notification, compound any offence, other than one punishable with imprisonment only or with imprisonment and also with fine, on the accused's application, before or after prosecution begins. The sum is fifty per cent of the maximum fine for an offence punishable with fine only, and seventy-five per cent for an offence punishable with imprisonment of not more than one year or with fine, and it is credited to the Social Security Fund under section 141 of the Social Security Code, 2020. A second offence within three years of a compounded or convicted similar offence cannot be compounded (s.89(2)); a failure to comply with the officer's order adds twenty per cent of the maximum fine (s.89(7)). The Code cites the Code of Criminal Procedure, 1973; from 1 July 2024 it was replaced by the Bharatiya Nagarik Suraksha Sanhita, 2023. Our article on section 89 covers the amounts and bars.
If you have received a compounding notice, the fifteen days are short. Our legal dispute resolution team can check whether compounding is open, compute the amount and prepare Part III.
Rule 38, sub-rule by sub-rule
| Sub-rule | Requirement |
|---|---|
| 38(1) | The officer notified by the Central Government for compounding under s.89(1) (the "compounding officer") sends a notice to the accused in Form XV through the designated portal of the Ministry of Labour and Employment |
| 38(2) | The accused may send the duly filled Part III of Form XV to the compounding officer electronically and deposit the compounding amount electronically, within fifteen days of receiving the notice |
| 38(3) | If prosecution has already been instituted in a court of competent jurisdiction, the accused may apply to the court to allow composition; the court may, after considering the application, allow composition by the compounding officer under s.89 and the rule's procedure |
| 38(4) | If the accused is willing and applies under sub-rule (2), the compounding officer compounds the offence, with the consequences below |
Consequences under 38(4)
| When compounded | Effect |
|---|---|
| (a) Before prosecution is instituted | No complaint for prosecution shall be instituted against the accused |
| (b) Pending a proceeding under section 85 | The compounding officer informs the officer under s.85, who closes the proceeding for that offence |
| (c) After prosecution, with the court's permission | The compounding officer treats the case as closed and informs the court, which discharges the accused |
What Form XV says
Form XV is headed "Notice to the Employer/Person who Committed an Offence for the First Time". It has three parts.
- Part I: the compounding officer tells the accused of the allegation of violation of provisions of the Code and gives: name and address of the offender; address of the establishment; particulars of the offence; the section of the Code; and the compounding amount to be paid.
- Part II: the accused is advised to deposit the amount within fifteen days from receipt of the notice, along with an application duly filled in Part III. The form states that if the amount is not deposited in time, no further opportunity is given and steps will be taken to file prosecution under section 87 of the Code.
- Part III: the application by the accused, giving name and address, particulars of the offence, the section, details of the compounding amount deposited (an electronically generated receipt to be attached), details of any prosecution already filed, whether it is a first offence or there were earlier offences (with full details), and any other information.
The form's title refers to an offence committed "for the first time", which fits section 89(2)'s bar on repeat offences within three years. The rule text does not say what the officer does for a repeat offender; that is left to section 89(2).
Practical steps on receiving Form XV
- Note the date of receipt on the portal. Fifteen days run from receipt.
- Check the section and particulars in Part I against your records.
- Check the compounding amount against the maximum fine and the 50 or 75 per cent band in section 89(1); section 86 lists the penalties.
- Deposit electronically and keep the receipt.
- File Part III with the receipt attached, disclosing any earlier offences fully.
- Watch for the officer's closure communication.
Example. A Central-sphere employer receives a Form XV notice on the portal for a contravention for which the Code prescribes a fine only. Part I shows the compounding amount. The employer checks that it is fifty per cent of the maximum fine for that offence, deposits it electronically on day nine, and files Part III with the receipt. No prosecution had begun, so under rule 38(4)(a) no complaint is instituted. Had a complaint been pending in court, the employer would have applied to the court under rule 38(3), and, once compounded with permission, the court would discharge the accused.
Points to note
- The compounding officer is whichever officer the Central Government notifies; the rule does not name the post.
- Rule 38 gives the accused fifteen days, but section 89 itself sets no period. The Rules' fifteen days govern the Central procedure.
- The money goes to the Social Security Fund.
- Compounding is for offences that the Code allows to be compounded; see sections 87 and 88 for how prosecution is started.
Need help with compounding?
The fifteen-day window and the need to disclose earlier offences make this a step to handle with care. Our legal dispute resolution team can assess eligibility, prepare Part III and coordinate with the compounding officer or the court.
Key takeaways
- Form XV is the compounding notice, sent through the designated portal.
- The accused has fifteen days from receipt to file Part III and pay electronically.
- Before prosecution, compounding bars any complaint; after it, the court discharges the accused.
- A pending section 85 proceeding is closed on compounding.
- Failure to pay in time means steps for prosecution under section 87 (as the form states).
Read next
- Section 89: composition of offences
- Section 86: penalties for strikes, notices and other contraventions
- Sections 84 and 85: unfair labour practices and power to impose penalty
- Forms XIV, XV and XVI
Disclaimer: Based on the Industrial Relations Code, 2020 (as enacted) and, where noted, the Industrial Relations (Central) Rules, 2026 (G.S.R. 342(E), 8 May 2026), as on 30 September 2026. The Code is in force from 21 November 2025; some provisions may be notified later, and State Governments make their own rules for establishments where the State is the appropriate Government. Verify the current position before acting.