The POSH Quagmire: How IC Procedural Lapses Void Entire Disciplinary Actions and Cost Employers Lakhs

Under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH Act), the Internal Committee (IC) is not a mere administrative formality it functions as a quasi-judicial authority whose findings form the foundation of any disciplinary action. Sections 11 and 13 of the POSH Act empower the IC to investigate, determine culpability, and recommend disciplinary measures.

However, when the IC process is marred by procedural lapses, that foundation collapses. Courts across India have repeatedly held that violations of the principles of natural justice such as denying a fair hearing, non-supply of evidence, or bias in the committee can nullify the entire disciplinary action. The fallout is severe: reinstatement of the accused, back wages, compensation payouts, and reputational damage to both the employer and its leadership.

In essence, the IC is not just a compliance checkpoint—it is a legal time bomb that, if mishandled, can explode into long-term financial and legal exposure.

Common Procedural Lapses

The most common IC failures stem from a disregard for the principles of natural justice. One frequent lapse is the denial of a fair hearing, where inquiries are conducted ex parte, or the respondent is not given sufficient time or opportunity to defend themselves. Such practices violate the doctrine of audi alteram partem (hear the other side) and the right to equality under Article 14 of the Constitution of India.

Another recurring flaw is the non-supply of complaint documents, evidence, or witness statements to the accused. Courts have consistently held that an inquiry cannot be fair if the respondent is denied access to the material relied upon by the IC.

A third procedural pitfall arises from bias or conflict of interest in the composition of the IC. When members are junior to the accused, personally involved, or otherwise biased, the entire report is liable to be set aside under the principle of nemo judex in causa sua (no one can be a judge in their own cause).

A recent example of such bias leading to judicial intervention is seen in the Kerala High Court’s decision rejecting a biased ICC inquiry and ordering a criminal trial, reinforcing that an improperly constituted IC can derail the entire disciplinary process. Read the full analysis on PoSH Expert Solutions Blog: https://www.poshexpertsolutions.com/blog/kerala-hc-rejects-biased-icc-inquiry-orders-criminal-trial-in-sexual-harassment-case

Finally, even when the IC functions correctly, employers often stumble by ignoring their own service or conduct rules. Where such internal rules exist, they must be read harmoniously with the POSH framework. A failure to do so—such as imposing a major penalty like dismissal without following prescribed procedures—has led to courts quashing termination orders entirely.

For Instance, In Arabi U. v. Registrar, Mangalore University & Ors., the Karnataka High Court set aside an employee’s dismissal because the university bypassed its own Service Rules while acting on the IC’s report. The judgment reaffirmed that while the IC’s findings are fact-based, any penalty must follow established disciplinary procedures to withstand judicial scrutiny.

Such rulings highlight a growing judicial trend—procedural precision is non-negotiable, and even minor lapses can unravel entire disciplinary actions.

Statutory Penalty under the POSH Act

The POSH Act itself, under Section 26, prescribes a penalty of up to INR 50,000/- for non-compliance, such as not constituting an IC or failing to act on its recommendations. However, this statutory fine is just the tip of the iceberg. Judicial precedents show that procedural failures can lead to massive compensatory awards and reinstatement orders, which cost employers far more than any nominal fine.

In Mrs. Arvinder Bagga & Ors. v. Local Complaints Committee, District Indore & Ors., the Madhya Pradesh High Court (Indore Bench) penalised Medanta Hospital, Indore, with a fine of INR 50,000/- for not constituting an Internal Complaints Committee, as mandated by law. More strikingly, the court directed the hospital to pay INR 25,00,000/- as compensation to the complainant for its failure to provide a proper redressal mechanism. This case stands as a textbook example of how procedural negligence transforms into monumental financial exposure.

Similarly, in G. v. ISG Novasoft Technologies, the Madras High Court—though adjudicating under the pre-POSH Vishaka Guidelines—awarded INR 1,68,00,000/- in damages to the aggrieved woman. The Court explicitly noted that if the employer had constituted a proper complaints committee, such costly litigation could have been avoided.

In Aureliano Fernandes v. State of Goa & Ors. (2023), the Supreme Court of India set aside the termination of a university professor after finding that the inquiry was conducted in undue haste, denying him a reasonable opportunity to defend himself. The Court ordered a fresh inquiry, effectively nullifying years of disciplinary action and sending a clear message that procedural fairness is non-negotiable.

The Delhi High Court has also clarified in another landmark ruling that the Internal Committee cannot exceed its jurisdiction or penalise consensual workplace relationships, underscoring the limits of IC authority. Read more in our detailed case note on PoSH Expert Solutions: https://www.poshexpertsolutions.com/blog/delhi-high-court-icc-cannot-penalise-consensual-relationships-at-workplace

Together, these cases demonstrate that the real financial penalty of procedural failure lies not in the POSH Act’s modest fine, but in reinstatements, back wages, and judicially awarded compensation that can reach tens of lakhs or even crores.

The Penalty on the Director

The ripple effects of POSH non-compliance extend beyond the organisation to its leadership. The Companies Act, 2013 imposes personal accountability on Key Managerial Personnel (KMPs) for ensuring statutory compliance and accurate disclosures. Under Section 134(3)(q), every company’s Board Report must include a statement confirming the constitution of an Internal Committee under the POSH Act.

A recent adjudication order against Ceeta Industries Limited by the Ministry of Corporate Affairs (MCA) illustrates this risk vividly. The MCA imposed a total fine of INR 4,50,000/-, including INR 3,00,000/- on the company and INR 50,000/- each on its Managing Director, CFO, and Company Secretary, for failing to include details of the Internal Committee in the Board Report for FY 2018–19 and 2019–20. This case confirms that non-disclosure of POSH compliance isn’t a technical lapse—it’s a statutory violation that triggers personal financial penalties on senior executives.

Directors, therefore, cannot rely solely on HR or compliance teams; they must actively ensure that POSH compliance is reported accurately. A failure in governance oversight may not only attract regulatory fines but also invite shareholder and reputational fallout.

Moreover, courts have observed that a flawed or biased IC inquiry can violate the fundamental right to equality under Article 14, making such cases subject to writ jurisdiction. Once that threshold is crossed, the employer faces not only civil penalties but also judicial censure for constitutional violations.

Solution: Compliance and Training as a De-Risking Strategy

The antidote to these risks lies in proactive compliance and continuous capacity-building.

The Employers must:

1. Train all IC members, as mandated under Rule 13 of the POSH Rules, 2013, ensuring they understand inquiry procedure, evidence management, and neutrality.

2. Appoint a truly independent external member, with no prior conflict of interest, as required by Section 4 of the Act.

3. Develop clear Standard Operating Procedures (SOPs) reflecting the principles of natural justice—ensuring notice, disclosure of evidence, opportunity for defence, and fair deliberation.

4. Maintain meticulous documentation of every inquiry stage—notice issuance, hearing minutes, cross-examination records, and final recommendations.

5. Institutionalise board-level oversight, making POSH compliance a standing agenda item to ensure proper disclosures under the Companies Act.

6. Conduct periodic third-party audits of IC procedures to identify and correct lapses before they escalate into litigation.

By embedding these practices, organisations can transform the IC from a compliance checkbox into a robust defence mechanism against both legal and reputational catastrophe.

Conclusion

The modern employer cannot afford to treat the IC as a formality. In the wake of cases like Arvinder Bagga, Novasoft, Aureliano Fernandes, and Ceeta Industries, one fact stands beyond dispute: procedural lapses under the POSH Act can destroy the legal validity of an entire disciplinary process.

While the Act’s maximum fine may seem minor, the domino effect of reinstatement, back wages, compensation awards, and regulatory penalties can cost employers lakhs—or even crores—of rupees, alongside reputational harm that takes years to rebuild.

The message to employers and KMPs is unequivocal:

Treat IC compliance as a board-level priority. Train, document, disclose, and audit—because the cost of ignorance is far greater than the cost of diligence.