Factories Act, 1948 & RERA (Real Estate Regulation and Development Act, 2016)

By Priya Sharma | Updated March 2026

What Are the Factories Act and RERA?

The Factories Act, 1948 is India's primary legislation governing the safety, health, welfare, and working conditions of workers in manufacturing establishments. It applies to any premises where 10 or more workers are employed using power, or 20 or more workers are employed without power, in a manufacturing process. For foreign companies setting up manufacturing operations in India — whether through a wholly owned subsidiary, joint venture, or branch office — compliance with this Act is mandatory from day one of operations.

The Real Estate (Regulation and Development) Act, 2016 (RERA) is a landmark legislation that regulates the real estate sector by mandating project registration, capping advance collections at 10% before the agreement for sale, and imposing a 5-year defect liability on developers. While RERA primarily protects homebuyers, it is equally relevant for foreign companies purchasing or leasing commercial property in RERA-registered projects, as it guarantees construction quality standards and delivery timelines.

These two laws intersect for foreign companies that need both manufacturing facilities (Factories Act) and commercial real estate (RERA) in India. Understanding their distinct but complementary compliance requirements is essential for a smooth India establishment.

Legal Basis

• Factories Act, 1948 (Act No. 63 of 1948) — Enacted by Parliament under the Concurrent List (Entry 24, List III, Schedule VII of the Constitution). Administered by state-level Chief Inspectors of Factories. Last major amendment in 1987; state-specific rules updated regularly (e.g., Maharashtra Factories (Second Amendment) Rules, 2025 introducing full digitalisation).
• Section 2(m) of the Factories Act — Defines "factory" as any premises where 10+ workers work with power, or 20+ workers work without power, in a manufacturing process.
• Section 6 of the Factories Act — Requires prior approval of plans and registration before commencing manufacturing. License obtained under Section 6 is valid for 1-5 years depending on the state.
• Real Estate (Regulation and Development) Act, 2016 (Act No. 16 of 2016) — Enacted by Parliament, effective May 1, 2016 (61 of 92 sections initially notified). Each state establishes its own RERA authority.
• Section 3 of RERA — Mandates registration of all real estate projects exceeding 500 sq meters or 8 apartments with the state RERA authority before advertisement or sale.
• Section 13 of RERA — Caps advance collection at 10% of the apartment/unit cost before execution of the agreement for sale.
• Section 14(3) of RERA — Imposes a 5-year defect liability period from the date of possession.

Factories Act: Applicability and Compliance Requirements

Who Must Register?

Under Section 2(m), a "factory" is defined based on worker count and power usage:

Registration and Licensing Process

Under Section 6 and Section 7, the process for factory registration involves:

1. Plan approval (Section 6): Submit factory layout plans to the state's Chief Inspector of Factories for approval before construction or conversion begins. Plans must include worker capacity, machinery placement, ventilation, and safety provisions.
2. Notice of occupation (Section 7): The occupier must send written notice to the Chief Inspector at least 15 days before commencing manufacturing operations, including factory name and address, occupier and manager details, nature of manufacturing process, rated horsepower, and expected workforce size.
3. Documentation: Submit Form No. 2 (or Form 1AA in some states), construction completion certificate, PAN card, fire department NOC, Pollution Control Board NOC, structural stability certificate, and worker safety policy.
4. Inspection and license issuance: Upon inspection and approval, a factory license is issued, valid for 1-5 years depending on state rules. License must be renewed before expiry.

Working Hours and Overtime

Women Employment Provisions

Under Section 66, women were historically prohibited from working in factories between 7 PM and 6 AM. However, several states including Maharashtra, Karnataka, Tamil Nadu, and Andhra Pradesh have amended this provision to allow women to work night shifts, subject to conditions including adequate transportation, security, separate sanitary facilities, and employer responsibility for safety. Section 48 mandates that every factory with 30 or more women workers must provide and maintain a creche for children under 6 years of age.

Safety and Welfare Requirements

Chapters III and IV of the Act prescribe extensive safety and welfare obligations:

• Safety (Chapter IV): Fencing of machinery (Section 21), work on or near machinery in motion (Section 22), prohibition of employment of young persons on dangerous machines (Section 23), hoists and lifts maintenance (Section 28), pressure plant safety (Section 31), fire safety measures (Section 38)
• Welfare (Chapter V): Washing facilities (Section 42), facilities for storing and drying clothing (Section 43), sitting arrangements (Section 44), first-aid boxes — one per 150 workers (Section 45), canteen for 250+ workers (Section 46), shelters and rest rooms for 150+ workers (Section 47), creche for 30+ women workers (Section 48)
• Health (Chapter III): Cleanliness (Section 11), ventilation and temperature control (Section 13), dust and fume control (Section 14), artificial humidification standards (Section 15), drinking water (Section 18), latrines and urinals (Section 19)

RERA: Key Provisions for Commercial Real Estate

Project Registration Requirement

Under Section 3 of RERA, every real estate project (residential or commercial) that exceeds 500 square meters of land area or comprises more than 8 apartments/units must be registered with the state RERA authority before the promoter can advertise, market, or sell any unit. Registration requires submission of project plans, timelines, approvals, and a commitment to deposit 70% of buyer advances into a designated escrow account (Section 4(2)(l)(D)).

RERA Authorities by State

Buyer Protection Mechanisms

• Advance collection cap (Section 13): Promoters cannot collect more than 10% of the unit cost as advance or application fee before signing the agreement for sale
• Escrow account (Section 4(2)(l)(D)): 70% of amounts received from allottees must be deposited in a separate escrow account and used exclusively for construction costs
• Defect liability (Section 14(3)): Developers must rectify structural defects, workmanship issues, or material quality problems within 30 days of notice, for a period of 5 years from possession date
• Carpet area definition (Section 2(k)): RERA standardized the definition of carpet area (net usable floor area excluding external walls, balconies, and common areas), eliminating the practice of charging buyers on super built-up area

RERA Penalties

How This Affects Foreign Companies in India

Manufacturing Setup (Factories Act)

Foreign companies establishing manufacturing operations in India — whether through a wholly owned subsidiary under the automatic route or via a joint venture — must obtain a factory license before commencing production. The process typically takes 60-90 days and requires coordination with multiple authorities (Chief Inspector, fire department, Pollution Control Board). Companies benefiting from the PLI scheme or operating in a Special Economic Zone still need factory licenses for their manufacturing facilities.

Key compliance requirements include maintaining statutory registers (overtime register, adult worker register, accident register), appointing a factory manager responsible for compliance, filing annual returns, and ensuring working hours do not exceed 48 hours per week with overtime capped at 50 hours per quarter at 2x wages.

Commercial Real Estate (RERA)

Foreign companies leasing office space in RERA-registered commercial projects benefit from the Act's quality guarantees — the 5-year defect liability means structural issues with the building must be repaired by the developer at no cost. When purchasing commercial property (permitted for Indian subsidiaries), the 10% advance cap and 70% escrow requirement protect against developer insolvency.

Foreign investment in real estate development is permitted under the FDI policy through the automatic route, subject to minimum capitalization of USD 5 million for wholly owned subsidiaries and USD 10 million for JVs, with a minimum area requirement of 20,000 sq meters for serviced housing plots.

Common Mistakes

• Assuming the Factories Act does not apply because the facility is called a "workshop" or "lab." The Act applies based on worker count and manufacturing process, not the name given to the premises. Even an R&D lab performing prototype manufacturing with 10+ workers using power falls within its scope.
• Not appointing a designated factory manager before obtaining the license. Under Section 7(4), the occupier must appoint a manager for every factory. The manager is personally liable for violations — foreign companies often delay this appointment and face license rejection.
• Ignoring state-specific RERA compliance when buying commercial property. RERA is a central law but implemented by state authorities with varying rules. MahaRERA requires quarterly progress updates for commercial projects, while some state RERAs have different reporting timelines. Buying in an unregistered project exposes the buyer to delays with no legal remedy under RERA.
• Treating overtime as optional or calculating it at normal rates. Section 59 mandates overtime at exactly 2x ordinary wages — not 1.5x as in many Western countries. Additionally, quarterly overtime cannot exceed 50 hours. Companies routinely violating this face penalties of up to INR 1 lakh and imprisonment up to 2 years under Section 92.
• Not verifying the RERA registration number of a commercial project before signing a lease or purchase agreement. Every RERA-registered project has a unique registration number that can be verified on the state RERA website. Unregistered projects are operating illegally, and any disputes cannot be escalated to the RERA authority.

Practical Example

Meridian Manufacturing GmbH, a German automotive components company, establishes a wholly owned subsidiary in India to manufacture precision parts near Chennai. The company needs: (1) a 50,000 sq ft manufacturing facility, and (2) a 5,000 sq ft corporate office in a commercial tower in Chennai's OMR corridor.

Manufacturing facility (Factories Act): Meridian plans to employ 85 workers with CNC machines (power-driven). Since the workforce exceeds 10 and power is used, the Factories Act applies. The company submits factory plans to Tamil Nadu's Chief Inspector of Factories under Section 6, files the Section 7 notice 15 days before operations begin, and obtains a factory license valid for 3 years. Total timeline: 75 days. The company must provide a canteen (not required — fewer than 250 workers), first-aid boxes (1 per 150 workers, so 1 box), and a creche if 30+ women are employed. Working hours are set at 8 hours/day, 6 days/week (48 hours), with overtime at 2x wages capped at 50 hours/quarter.

Corporate office (RERA): The commercial tower is a RERA-registered project (TNRERA registration number TN/29/Building/2024/123). Meridian leases 5,000 sq ft at INR 75/sq ft/month (INR 3,75,000/month) for 5 years. Because the project is RERA-registered, the developer guarantees: structural defect rectification for 5 years from possession, no deviation from approved plans, and access to project completion timelines on the TNRERA website.

If Meridian had purchased a unit in an unregistered project, it would have no RERA protection — no defect liability, no escrow protection, and no recourse before the RERA tribunal for construction quality issues.

Key Takeaways

• The Factories Act, 1948 applies to premises with 10+ workers using power or 20+ workers without power — it covers manufacturing, not just traditional factories
• Factory license must be obtained before operations begin (Section 6), and a Section 7 notice filed at least 15 days before commencing manufacturing
• Working hours are capped at 48 hours/week (Section 51), overtime at 2x wages (Section 59), with a quarterly overtime limit of 50 hours
• Penalties for Factories Act violations include imprisonment up to 2 years and fines up to INR 1 lakh under Section 92, with enhanced penalties for safety-related deaths (minimum INR 25,000 fine)
• RERA requires registration of all projects exceeding 500 sq meters or 8 units, with non-registration penalties of up to 10% of estimated project cost
• The 5-year defect liability period (Section 14(3)) and 10% advance collection cap (Section 13) protect foreign companies purchasing or leasing in RERA-registered projects

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