Setting up a manufacturing unit in India is a well-thought-out and profitable idea. But that also comes with the need to follow legal and regulatory frameworks. One of the most significant among them is the acquisition of a factory license. Be it a small-scale manufacturing unit or an industrial setup, following the Factories Act, 1948 is non-negotiable.
What Is a Factory License?
Factory license is a technical permission granted by the department of factory under the Factories Act, 1948, which focuses on labor welfare, work environment, and industrial safety. It stipulates requirements to ensure that a manufacturing unit has minimum legal standards for the safety, health, and well-being of the workers.
Every manufacturing unit utilizing power and having more than 10 people (or 20 people without power utilization) must register with the concerned department of factory first and then apply for a valid factory license before opening shop.
Why Factory License is Mandatory?
Factory license is not just an administrative procedure; it has a significant role in:
1. Ensuring Legal Compliance
Without a valid factory license, operating a manufacturing unit is against the law and invites huge fines or even orders to shut down by the factory department.
2. Worker Safety & Welfare
Factory license guarantees that the employer has provided arrangements for safety, health, ventilation, cleanliness, lighting, drinking water, toilets, and emergency doors as the rules of the Factories Act provide.
3. Risk Management
Registered factories are under regular supervision by the department of factory to ensure conformity, reducing instances of industrial accidents, legal cases, and business interruptions.
4. Business Credibility
Factory licensing helps in creating credibility for your manufacturing firm and is often asked for during interaction with customers, export houses, government tenders, or raising funds.
Legal Framework for Factory License
The legal basis of a factory license in India is the Factories Act, 1948, which is controlled by the Labour Department and regulated by the department of factory (or Factory Inspectorate).
Every state has its own Factory Rules under this central Act, and hence it is required to refer to local rules that are applicable to the site of your proposed manufacturing unit.
Below are important provisions of the Act:
- Chapter I: Definitions and Approval
- Chapter III: Health
- Chapter IV: Safety
- Chapter V: Welfare of Workers
- Chapter VI: Working Hours
- Chapter X: Penalties and Procedures
The department of factory is empowered to inspect the factory premises, enforce compliance, and prosecute for contravention.
Applicability of Factory License
Factory license shall be applicable to the following categories of units:
- Power-using manufacturing units with 10 or more workers.
- Non-power using units with 20 or more workers.
- Units with hazardous processes (even having fewer workers).
The moment your unit qualifies under the above requirements, it becomes mandatory to register with the department of factory and obtain a factory license.
Step-by-Step Factory License Process
The factory license process involves a series of steps in coordination with the department of factory and other regional authorities. Here's the breakdown:
1. Site Plan Approval
Before construction, an overall site and building plan must be filed with the department of factory for its approval. The plan must contain:
- Factory layout
- Electrical installations
- Machining position
- Safety features
- Fire exit and ventilation
It needs to be approved before construction.
2. Factory Registration
Once the building is constructed and machinery is installed, the unit must be registered with the department of factory. Documents needed are:
- Proof of occupier's identity and address
- Lease/rent agreement or land ownership proof
- Sanctioned building plan
- Flowchart of the manufacturing process
- Inventory of machinery
- Clearance from Pollution Control Board
3. Factory License Application
The factory license application may be completed on an online or offline platform, depending on the state. The following is required:
- Number of employees
- Installed capacity for power
- Information pertaining to hazardous processes, if any
- Date of commencement of commercial operations
- Once the documents are checked and verified, the department of factory will issue the license.
Documents Required for Factory License
Here is a comprehensive list of documents that are usually required for submitting an application for a factory license:
- Identity proof and photo of occupier
- Blueprint of factory layout
- List of machinery with HP details
- NOC of Fire Department
- Pollution Control Board Clearance
- Health & Safety Policy
- Workers' compensation insurance
- Certificate of auditor (optional in certain states)
- Receipt of payment of fee
Note: These may vary depending upon the state department of factory rules.
Validity and Renewal of Factory License
As per the Factories Act, 1948, there should be a license for each factory prior to starting production. However, the validity of a factory license varies depending upon the concerned State's Factory Rules and hence varies from state to state.
A factory license in most states is typically:
- 1 year valid as a rule by default.
- Renewable for 5 or even 10 years in some states.
- Aligned with the calendar year (on the 31st of December) in most cases.
Common Challenges faced in Factory License Application
While it is a mandatory compliance, factory license application procedure generally faces difficulties such as:
- Plan approval delays by the factory department
- Objections raised during inspection
- Unclear rules about factory layout compliance
- Missing NOCs or other departments' clearance
- Misclassification of workers or process
Due to such complexities, it is advisable to seek the services of compliance specialists or regulatory liaison specialists.
Role of Department of Factory
The factory department plays the enforcement role for:
- Factories Act compliance for ensuring
- Approval of factory building plan
- Granting of license and renewal
- Periodic inspections
- Inquiry into accidents and complaints
- Issuance of improvement or closure notices for default
The State Labour Commissioner or the Chief Inspector of Factories is in charge of the factory department, depending on the jurisdiction.
Cooperative relation with the factory department must be maintained to prevent any hassle.
Penalties for Non-Compliance
Non-obtention or non-renewal of factory license may lead to:
- Fine of ₹1,00,000
- 2 years' imprisonment for occupier
- Factory department closure of the factory
- Disconnection of utility supplies (electricity, water)
- Cancellation of other statutory registrations
Therefore, it is important to take the factory license as a priority compliance for your manufacturing company.
How SKMC Global Can Help
We, at SKMC Global, have vast experience in the compliance, licensing, and liaison for setting up factories all over India. We, with well-versed experts in the regulatory regime, provide complete end-to-end assistance to ensure that your factory license is acquired within due time. From preliminary feasibility studies and ascertaining applicability of licensing rules to granting advice on the strategic size, location, and operations of your manufacturing unit, we do it all.
We assist obtain factory department approvals, and coordinate all documentation, application filing, and fee payment. Our experts organize site inspections and settle departmental queries to ensure smooth approvals. We also monitor license validity by a compliance calendar and provide timely renewal to avoid penalties. With pan-India support and state-specific expertise, SKMC Global provides a smooth, compliant, and legally valid platform for your manufacturing firm.
Conclusion
Factory license is not just a regulatory checklist—it is a legal requirement that makes your manufacturing unit safe, compliant, and credible in the eyes of law and business stakeholders. The factory department exercises crucial responsibility in evaluating and monitoring your operations, and their approvals are vital to having your unit up and running.
Delays or errors in license application can prove costly in finances and operations. With business partners like SKMC Global, you can streamline the entire process and focus on what matters—running your business successfully.