Skip to content


Employees' State Insurance Corporation, Hyderabad Vs. Andhra Pradesh Paper Mills Ltd., Rajahmundry (24.02.1977 - APHC) - Court Judgment

LegalCrystal Citation
SubjectLabour and Industrial
CourtAndhra Pradesh High Court
Decided On
Case NumberA.A.O. Nos. 229 of 1974 and 94 of 1975
Judge
Reported inAIR1978AP18; [1978(36)FLR58]; (1978)ILLJ469AP
ActsEmployees' State Insurance Act, 1948 - Sections 2 (22); Industrial Disputes Act - Sections 18
AppellantEmployees' State Insurance Corporation, Hyderabad
RespondentAndhra Pradesh Paper Mills Ltd., Rajahmundry
Appellant AdvocateI.A. Naidu and ;T. Dhanurbhandu, Advs.
Respondent AdvocateK. Srinivasa Murthy and ;S.R. James, Advs.
Excerpt:
labour and industrial - wages - section 2 (22) of employees' state insurance act, 1948 and section 18 of industrial disputes act - whether incentive bonus and house rent allowance paid by employer constitutes wages under section 2 (22) - terms of scheme must be examined in order to fit into definition of wages - under scheme incentive bonus and house rent allowance formed part of contract of employment - held, incentive bonus and house rent allowance constitutes wages. - - it is agreed that if the production is affected by the inability of the management to obtain the necessary raw materials or by failure of power or machinery or failure obtain the requisite orders by any economic or technical reason or other unforeseen circumstances, the workmen shall not be entitled to the benefits.....b.j. divan, c.j.1. these two matters have been referred by a division bench of this court consisting of madhava reddy, and a. v. krishna rao, jj. under the following circumstances :the view expressed by the supreme court in braithwaite and co. v. e.s.i.c., : (1968)illj550sc , came to be considered by division bench of this court in regional director , e.s.i.c. v. vazir sultan tobacoo co. ltd. , (1972) 2 lab lj 602 : (1973 lab ic 523 (andh pra) ). in a subsequent judgment in c.m.a. no. 331 of 1974 decided by a division bench consisting of chinnappa reddy punnayya jj. on april 13, 1976 (reported in 1977 lab ic 313 (andh pra)), a different view was taken and the subsequent division bench of this court felt that the view expressed in the earlier division in regional director , e.s.i.c. v......
Judgment:

B.J. Divan, C.J.

1. These two matters have been referred by a Division Bench of this court consisting of Madhava Reddy, and A. V. Krishna Rao, JJ. under the following circumstances :

The view expressed by the Supreme Court in Braithwaite and Co. v. E.S.I.C., : (1968)ILLJ550SC , came to be considered by Division Bench of this Court in Regional Director , E.S.I.C. v. Vazir Sultan Tobacoo Co. Ltd. , (1972) 2 Lab LJ 602 : (1973 Lab IC 523 (Andh Pra) ). In a subsequent judgment in C.M.A. No. 331 of 1974 decided by a Division Bench consisting of Chinnappa Reddy Punnayya JJ. on April 13, 1976 (reported in 1977 Lab IC 313 (Andh Pra)), a different view was taken and the subsequent Division Bench of this Court felt that the view expressed in the earlier division in Regional Director , E.S.I.C. v. Vazir Sultan Tobacoo Co. (Supra) was directly opposed to what the Supreme Court laid down in Braithwaite and Co. v. E.S.I.C. (Supra). In view of this difference of opinion the Division Bench consisting of Madhava Reddy and Krishna Rao JJ., have referred A.A.O. 94 of 1975 which relates to the incentive bonus, to a larger Bench. The question arising for consideration in A.A.O.No. 229 of 1974 is regarding the house rent by the Company to its workmen. Originally directions were issued that A.A.O. 229 of 1974 should be posted along with A.A.O. No. 94 of 1975 for hearing and, hence, A.A.O. No. 229 of 1974 also came to be referred to the Full Bench.

2. The question which is referred in A.A.O. 94 of 1975 is whether incentive bonus paid by the Company i.e., employer, constitutes 'wages' within the meaning of Section 2(22) of Employees' State Insurance Act.

3. In order to appreciate the controversy and to understand the view taken by the Supreme Court in Braithwaite and Co's case. : (1968)ILLJ550SC , by the Division Bench of this court in Vazir Sultan Tobacoo Co.'s case (1973 Lab IC 523 (Andh Pra) and by Chinnappa Reddy and Punnayya JJ. in the unreported case, (since reported in 1977 Lab IC 313 (Andh Pra) ), it is necessary for us to refer to some of the sections of the Employees' State Insurance Act, 1948.

4. The long title to the Act points out that it is an Act for providing certain benefits to employees in case of sickness, and maternity and employment injury, and for certain other matters in relation thereto, and the preamble to the Act states that whereas it is expedient to provide for certain benefits to employees in the case of sickness, maternity and employment injury, and to make provision for certain other matters in relation thereto the Act was enacted.

5. Section 1 of the Act provides that it applies to all factories including factories belonging to the Government other than seasonal factories. Section 2(22) defines 'factory' to mean any premises including the precincts thereof whereon twenty or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on but does not include a mine subject to the operation of the Mines Act, 1952 or railway running shed. Section 2(22) defines an 'employee' to mean any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and who is directly employed by the principal employer on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment whether such work is done by the employee in the factory or establishment or elsewhere; or who is employed by or through an immediate on the premises of the factory. We are not concerned with the rest of the definition of 'employee' . Section 2(4) defines 'contribution' to mean the sum of money payable to the Corporation by the principal employer in respect of an employee in accordance with the provisions of this Act.

6. The real controversy turns, in this case, on the interpretation of the definition clause in Section 2(22), which defines 'wages'. That section is in these terms :

' 'Wages' means all remuneration paid or payable, in case to an employee, if the terms of the contract of employment express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorised leave, lock-out, strike which is not illegal or lay off and other additional remuneration if any, paid at intervals not exceeding two months, but does not include -(a) any contribution paid by the employer to any pension fund or provident fund, or under this Act; (b) any traveling allowance or the value of any traveling concession; (c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or (d) any gratuity payable on discharge. '

7. The question in A. A. O. 94 of 1975 is regarding incentive bonus and the question that arise in that connection is whether incentive bonus paid by the employer comes within the definition of 'wages' so that if incentive bonus constitutes 'wages' within the meaning of section 2(22) then the employer will have to pay contribution, not only his own contribution but also the employees' contribution to the Employees' State Insurance Corporation (hereinafter called the Corporation). If it does not constitute 'wages' within the meaning of Section 2(22) the contribution regarding that component of the remuneration which is represented by incentive bonus will not have to be paid by the employer to the Corporation . Sections 39 and 40 of the Act deal with contributions and they are occurring in Chapter IV relating to contribution. under Section 38 subject to the provisions of the Act, all employees in factories and establishments to which the Act applies shall be insured in the manner provided by the Act. Under Section 39(1) the Contribution payable under the Act in respect of an employee shall comprise contribution by the employer (hereinafter referred to as the employer's contribution) and contribution payable by the employee (hereinafter referred to as employee's contribution) and shall be paid to the Corporation. Under sub-section 2 of Section 39, the contributions have to be paid at the rates specified in the First Schedule, and in case provisions of the Act are made applicable to any employee or class of employees in any factory or establishment or class of factories or establishments in such manner that they are excluded from some of benefits under this Act, at such rates as the Corporation may fix in this behalf. A week shall be the unit in respect of which all contributions shall be payable under the Act, according to sub-section (3) of Section 39. Under sub-section (4) of Section 39, the contributions payable in respect of each week shall ordinarily fall due on the last day of the week, and where an employee is employed for part of the week, or is employed under two or more employers during the same week, the contributions shall fall on such days as may be specified in the regulations. Under Section 40 the principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer's contribution and the employee's contribution. Under sub-section (2) of Sec. 40, notwithstanding anything contained in any other enactment but subject to the provisions of this Act and the regulations, if any made there under, the principal employer shall, in the case of an employee directly employed by him (not being an exempted employee), be entitled to recover from the employee the employee's contribution by deduction from his wages and not otherwise; provided that no such deduction shall be made from any wages other than such as relate to the period or part of the period in respect of which contribution is payable, or in excess of the sum representing the employee's contribution to the period. Under sub-section (3) of Section 40, notwithstanding any contract to the contrary, neither the principal employer nor the immediate employer shall be entitled to deduct the employer's contribution from any wages payable to an employee or otherwise to recover it from him. Under sub-section (4) Section 40 any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted, and sub-section (5) of Section 40 the principal employer shall bear the expenses of remitting the contribution to the Corporation.

8. In Braithwaite and Co. v. E.S.I.C., : (1968)ILLJ550SC (supra), the question before the Supreme Court was whether the inam paid the employer under a scheme dated December 28, 1955 was covered by the definition of 'wages' as given in Section 2(22) of the Act; the High Court held that it was covered by the definition of 'wages', though the Employees' Insurance Court was held to the contrary. The Supreme Court held that on a correct interpretation of the scheme, which was promulgated by the employer on December 28, 1955, the High Court had committed an error in holding that the payment of inam under the scheme had become a term of contract of employment of the employees. The Supreme Court emphasised that the features of the scheme which indicated that the payment of the inam did not become a term of contract of employment were the following : (1) the payment of inam was not among the original terms of contract of employment, (2) the only offer under the scheme was to make an incentive payment, if certain specified conditions were fulfilled by the employees (3) payment of inam was depend upon the employee exceeding the target output appropriately applicable to him (4) if the targets were not achieved due to lack of orders, lack of materials, break-down of machinery, lack of labour, strikes, lockouts, go-slow or any other reason whatsoever, no inam was to be awarded. This was inconsistent with the payment of inam having become an implied term of the contract of employment, (5) it was also made clear in the scheme that the payment of inam was no way connected with the wages.

9. The High Court of Calcutta had in that case held that in order to arrive at the correct conclusion Explanation to Section 41 of the Act should be looked at. But the Supreme Court pointed that that Explanation lays down that for the purposes of Section 40 and 41, wages shall be deemed to include payment to an employee in respect of any period of authorised leave, lockout or legal strike. It appeared to the Supreme Court that the High Court committed an error in thus applying the legal fiction which was meant for Sections 40 and 41 of the Act only. A legal fiction is adopted in law for a limited and definite purpose only and there is no justification for extending it beyond the purpose for which the legislature adopted it. Similarly the Explanation to Section 41 is not to be utilised for interpreting the definition of 'wages' in Section 2(22). there was no express clause in the contract of employment of the employees of the appellant laying down the payment of the inam, and the scheme, when brought into force, expressly excluded it from the contract of employment. The terms on which the inam was payable were also not consistent with the scheme having become a part of the contract of employment.

10. It must be pointed out that the Supreme Court in Braithwaite and Co.'s case, : (1968)ILLJ550SC , concentrated its attention on the first part of the definition of 'wages' in Section 2(22) where the definition states ' 'wages' means all remuneration paid or payable in cash to an employee, if the terms of contract of employment, express or implied were fulfilled. ' The Supreme Court, in that case, did not consider whether the inam was 'other additional remuneration, if any, paid at intervals not exceeding two months' . At page 552 (of Lab LJ): (at p. 415 of AIR), of the report, Bhargava J., speaking for the Supreme Court, has pointed out that reliance was not placed on the second clause of the definition which includes other additional remuneration, if any, paid at intervals not exceeding two months and he observed : 'Counsel appearing for the respondent before us also did not rely on this second part of the definition and sought to support the decision of the High Court only on the basis that it is covered by the first part. Counsel appearing for the appellant also did not rely on the last part of the definition which excludes from the definition of 'wages' items mentioned in clauses (a) (b) (c) and (d). In this case, therefore, we have to confine our decision to the interpretation of the first part of the definition of 'wages' '. Thus it is clear that in Braithwate's case, : (1968)ILLJ550SC , the Supreme Court dealt only with the first part of the definition of 'wages' , and, secondly in the light of provisions of the scheme propounded by the employer on December 28, 1955, the Supreme Court came to the conclusion that the inam was not covered by the definition of 'wages' and it is emphasized that special features of that particular scheme to which we have referred above.

11. In Regional Director, E.S.I.C. v. M/s. Vazir Sultan, (1973 Lab IC 523) (Andh Pra) (supra) the question before this High Court was whether the bonus paid by the company to its employee under the terms of a settlement being gratuity bonus and what was something referred to as the incentive bonus, could be held to be 'wages' within the meaning of Section 2(22) of the Act.

12. According to the terms of the settlement before the Division Bench of this court in Vazir Sultan Tobacoo Co.'s case, (1973 Lab IC 523) (Andh Pra), the employees would be eligible to annual bonus provided the maximum target of 1.885 M per man hour was reached. The Company had agreed to pay bonus in advance every month for the first eleven months and finally settle the accounts after the end of the year. The terms of the settlement had been made by mutual agreement between the parties .The question that fell for decision in Vazir Sultan Tobacco Co.'s case was whether on the facts and in the circumstances of the case , the bonus paid by the company to its employees as per terms of the agreement was or as not wages within the meaning of Section 2(22) of the Act . the Division Bench held in Vazir Sultan Tobacco Co.'s case that the bonus paid or payable was comprehensive annual bonus .The productivity Index Plan indicated that the very basis for payment of the bonus under the settlement was the minimum production of 1.885 M per man hour as evidenced by the terms of the settlement . The advance payments made at the request of the employees or in mutual agreement admittedly related to the annual bonus . The Division Bench there held that in order to bring the annual bonus within the first or third part of the definition of 'wages' it must be established that it was remuneration within the meaning of the definition .In order that the first part of the definition might be applied the appellant had to establish that payments in question were remuneration ,and secondly such remuneration was paid or payable in fulfillment of the terms of the contract of employment express or implied . The Division Bench pointed out that the annual bonus paid or payable under the terms of the settlement was not 'wages' within the meaning of the Section 2(22) as the same was not paid or payable as per the terms of the contract of employment and it was also liable to be varied or cancelled at the discretion of the employer . It was pointed out that under Section 2(22) of the income- tax act , any bonus whether incentive, production or attendance bonus has been specifically excluded from the definition of salary or wages and that the definition of 'wages' in the Payment of wages Act is very wide . The Division Bench also held that the mere omission to specifically exclude bonus in the definition of wages under Section 2 (22)of the Act , could not be considered to the decisive or in any way a pointer in support of the plea advanced by the corporation and it was pointed out that the comprehensive annual bonus was being paid to the employees in lieu of the profit sharing bonus under Section 22(7) of the Payment of Bonus Act . Referring to the decision of the Supreme Court in Braithwaite & Co.'s case , : (1968)ILLJ550SC , the Division Bench observed in Vazir Sultan Tobacco Co.'s case (at p. 528 of Lab 1 C ) :-

'The aforesaid decision of the Supreme Court supports the claim of the company. The annual bonus paid or payable under Ex. A-2 in the present case is not 'wages' within the meaning of S. 2 (22) of the Act as the same is not paid or payable as per the terms of contract of employment and it is also liable to be varied or cancelled at the discretion of the employer.'

13. In A.A.O. 331 of 1974 decided by Chinnappa Reddy and Punnayya JJ. on April 13, 1976 (reported in 1977 Lab IC 313) (Andh Pra), 'Regional Director, E.S.I.C. v. Hyderabad Asbestos Cement Products Ltd.' the question was of incentive bonus paid to the employees under a scheme formulated by the employer and employees under the memorandum of settlement dated July 23, 1965. The Division Bench pointed that the Management and Workmen of Hyderabad Asbestos Cement Products Limited entered into a settlement dated July 23, 1965 providing for a 'Production Bonus Scheme'. The scheme provided for payment of bonus every month if production exceeded a minimum target. The scheme contained no clause enabling the Mangement to withdraw or modify the scheme at the discretion of the Management. However it contained two further clauses viz ;

'IV. It is agreed that if the production is affected by the inability of the Management to obtain the necessary raw materials or by failure of power or machinery or failure obtain the requisite orders by any economic or technical reason or other unforeseen circumstances, the workmen shall not be entitled to the benefits of the scheme if production does not exceed the minimum target set out in CI. VII of this Annexure.

V. It shall also be a clear term of production Bonus scheme that it is hereof on the present circumstances and if any time the methods of production are installed resulting in the rising of production, then the basis of this production Bonus Scheme shall be subject to revision by mutual discussion.'

The Division Bench referred to the Supreme Court decision in Braithwaite and Co.'s case : (1968)ILLJ550SC and decision of the Division Bench of this Court in Vazir Sultan Tobacoo Co.'s case (1973 Lab IC 523 (Andh Pra) ), Chinnappa Reddy J. delivering the judgment of the Division Bench in A.A.O. 331 of 1974 (reported in 1977 Lab IC 313 (Andh Pra)) pointed out that there were several distinguishing features between the scheme of the case before the Division Bench and the scheme which was before the Supreme Court in Braithwaite and Co.'s case, : (1968)ILLJ550SC . It was pointed out that the scheme before the Court in Hyderabad Asbestos Cement Products Ltd.'s case, (1977 Lab IC 313 (Andh Pra)) was the result of a settlement arrived at between the management and workmen and it had, therefore, to be read into every contract of employment between the management and the workmen as an implied term of the contract. It was pointed out by Chinnappa Reddy J. that so long as the settlement was in force, the workmen had a right to enforce the payment of Production Bonus. Referring to Vazir Sultan Tobacoo Co.'s case, (1973 Lab IC 523 (An Pra)) Chinnappa Reddy J. , pointed out that that was case of payment of bonus pursuant to the terms of a settlement between the management and the workmen and the entire view of Kondaiah and Krishna Rao, JJ., was on the basis that payment of production bonus was not remuneration at all. According to Chinnappa Reddy J. the view of those learned Judges was directly opposed to what the Supreme Court had said in Braithwaite and Co.'s case. Chinnappa Reddy J., also pointed out that under the terms of the scheme in Vazir Sultan Tobacoo Co.'s case the company had a right to vary or cancel the scheme itself and that was the strong distinguishing feature and they, therefore, felt themselves unable to rely on the decision in Vazir Sultan Tobacoo Co's case. The Division Bench of Chinnappa Reddy and Punnayya JJ., agreed with the view expressed by Kerala High Court in Carborundum Universal Ltd. v. Employees' State Insurance Corporation (1976 1 Lab LJ 17). In that case, the Kerala High Court held :

' Where the management introduces a scheme to pay some incentive to work men ,if it is a result of a settlement binding on both parties , necessarily the terms of the settlement become terms of the contract of the employment , between the parties . If on the other hand it is introduced under a scheme under which it is open to the employer to withdraw it , alter it , vary or modify it without reference to the employees and without their consent or without any binding settlement , it is a payment for which the assent is unilateral and , therefore cannot be said to be a payment made in accordance with the terms of employment . Consequently , it would not be 'wages' within the meaning of S. 2 (22). This is the test by which we should determine whether any payment in a given case is wages or not .'

14. It is under these circumstances that the apparent conflict between the two decisions , of this Court one by Kondaiah and Krishna Rao , JJ. in Vazir Sultan Tobacco Co.'s case , (1973 Lab IC 523 (An Pra) on one hand and the other by Chinnappa Reddy and Punnayya ,JJ. in Hyderabad Asbestos Cement Products Ltd.'s case, (1977 Lab IC 313 (Andh Pra ) on the other hand is said to arise .If the judgment of Chinappa Reddy J. in Hyderabad Asbestos Cement Products Ltd.'s case is carefully examined it is obvious that he specifically pointed the strongest distinguishing feature of the case before him and Punnayya J. from the facts which were before Kondaiah and Krishna Rao , JJ . in Vazir Sultan Tobacco Co.'s case ;under the terms of the scheme the company had a right to vary or cancel the scheme of incentive bonus; whereas under the scheme before Chinnappa Reddy and Punnayya , JJ. in Hyderabad Asbestos Cement Products Ltd.'s case , it was not open to the employer to withdraw or modify the scheme at the discretion of the management .

15. In view of this distinguishing feature between the two cases which , according to Chinnappa Reddy , J., was the strong distinguishing feature , really speaking , there cannot be said to be any conflict between the two decisions. However, now that the matter is before us, we will express our own opinion about the exact scope of the applicability of S. 2 (22) i.e., the definition of 'wages' to an incentive bonus .

16. It is clear on an analysis of the definition of 'wages' under S. 2 (22) of the Act , that it consists of four parts, as the definition stands today . The first part refers to all remuneration paid or payable, in cash to an employee , if the terms of the contract of employment , express or implied ,were fulfilled . In the second part, the definition of 'wages' includes any payment to an employee in respect of any period of authorised leave , lock-out , strike which is not illegal or lay-off . In the third part , the definition of 'wages' includes other additional remuneration if any , paid at intervals not exceeding two months . In the fourth part of the definition the term 'wages' does not include any contribution paid by the employer to any pension fund or provident fund, or under the Act , the travelling allowance or the value of any travelling concession , or any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment , or any gratuity payable on discharge .

17. The contention of Mr. Naidu appearing for the Corporation is that the incentive bonus in A.A.O. 94 of 1975 falls under the first part of the definition of 'wages' under S. 2 (22). The settlement was arrived at on August 19, 1974 between the employer and the workmen under the Industrial Disputes Act. Annexure I to the settlement mentions that the terms relating to the production bonus scheme. Under cl. (ii) of that Annexure I the production bonus will be calculated on the basic wages earned while on duty by a payment to workman and should be paid every month as per the schedule annexed to the scheme. It is expressly understood that the bonus so paid shall not form part of the wages for computation of any other payment including provident fund, E.S.I. contribution, gratuity or any other benefit payments made with reference to the wages of the workman concerned. Under cl. (vi) the payment of production bonus as and when due has to be made in the month next to the month for which production bonus is payable.

18. It is true, as Mr. Naidu for the Corporation emphasized, that the terms of the settlement between the management and the Union representing the workmen is an agreement between the parties and if this settlement, which does not leave it open to the employer to withdraw or alter the scheme at its discretion, is an agreement then it would fall within the first part of the definition of 'wages' viz., remuneration paid or payable in cash to an employee, if the terms of contract of employment, express or implied, were fulfilled. In the instant case, however the terms of agreement specifically provide that production bonus is not to form part of wages for computation of any other payments including the contribution to the E.S.I.C. Mr. Naidu very fairly states that there is no section under the Employees' State Insurance Act, which prohibits contracting to the contrary or which provides words like 'notwithstanding any contract to the contrary' so far as the remuneration paid or payable under the terms of contract of employment is concerned. It is well settled law that the contract of employment may be varied by mutual consent of the parties after the original contract of employment was entered into. If the terms are varied by mutual consent, it is the varied terms which form part of the contract of employment, and, therefore, it is the original contract of employment as varied by mutual consent subsequently, which will be contract of employment. In the instant case, since by the very agreement between the parties which provides for payment of production bonus under the terms of a settlement arrived at between the parties the production bonus is not to form part of wages for the purpose of the E.S.I. contribution and since the Act nowhere prohibits contracting out of the liability to pay contribution in respect of sums payable under the terms of contract of employment, it is not possible for us to accept the first contention of Mr. Naidu for the Corporation that incentive bonus, in the instant case, falls within the first part of definition of 'wages'. It is well settled law that a contract has to be read as a whole in order to find out its effect and as far as possible effect is given to all the terms of the contract so that what the party intended to is, in fact, done by the Court. Since no provision of law prohibits contracting out in the manner in which the parties have done in the instant case, the production bonus paid in the instant case under the deed of settlement cannot be said to be remuneration paid or payable if the terms of contract of employment were fulfilled. If the terms of employment are to be fulfilled viz. the terms of contract of employment inclusive of the terms of the settlement dated August 19, 1974 then by the very express terms of the agreement incentive bonus is excluded from the definition of 'wages' under S. 2 (22) first part. Hence, we reject this contention of Mr. Naidu.

19. The second contention of Mr. Naidu for the Corporation is in the alternative to the first argument and he has contended that even if the incentive bonus, in the instant case, does not fall within the first part of the definition of 'wages' under S. 2 (22) it would fall under the third part of the definition inasmuch as it is other additional remuneration paid at intervals not exceeding two months. He has emphasized that, in the instant case, the amount is paid in pursuance of the settlement month by month and secondly that it is additional remuneration other than remuneration paid or payable under the terms of the contract of employment and, therefore all requirements of the third part, of S. 2 (22) are satisfied, and it is common ground between the learned Advocates appearing before us that in no event incentive bonus, as in the case before us can fall within any of cls. (a) to (d), which are excluded from the definition of 'wages' under S. 2 (22) of the Act. In our opinion this contention must be accepted. The word 'other' appearing at the commencement of the third part of definition of wages under S. 2 (22) indicates that it must be remuneration or additional remuneration other than the remuneration which is referred to in the earlier part of the definition viz., all remuneration paid or payable, in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and incentive bonus in the present scheme is certainly additional remuneration. It must be emphasized at this stage that under the third part of the definition of 'wages' it is actual factum of payment which counts because the word used is 'paid' as distinguished from 'paid' or payable. The moment you get any additional remuneration other than the remuneration payable under the contract of employment and if this additional remuneration is paid at intervals not exceeding two months, it becomes wages by virtue of the third part of the definition of 'wages' .

20. In M.G. Works P. Ltd. v. E.S.I.C., 32 Fac LR 436 : (1976 Lab IC 514) a Division Bench of the Bombay High Court consisting of Vimadalal and Naik, JJ. was concerned with an incentive bonus scheme introduced by the employer with a view to increase the production of the company and at the same time to increase the earnings of the workmen. It was, however stated in the notice that the scheme would, in the first instance, be introduced on a trial basis for a period of three months, and the management might continue the same in future, or extend or amend or rescind or withdraw the same without giving any notice to the workers. It was also stated in the said notice that the incentive bonus had nothing to do with the normal wages of the workers which were fixed for eight hours work. The question that arose was whether the amounts paid under the Incentive Bonus in question, were wages under S. 2 (22) of the Employees' State Insurance Act, 1948. It was held by the Division Bench that the expression 'additional remuneration' in this part (the part which we have referred to as the third part) has been evidently used in contradistinction with the expression 'remuneration' referred to in the first part of the definition and the words 'additional remuneration' occurring in the third part of the definition would not be governed by the terms of contract appearing in the first part of the definition. Vimadalal J. in the said case held that the incentive bonus scheme did not fall within the first part of the definition of 'wages' because, though it amounted to remuneration it could not be said to have become the term of contract of employment, express or implied, and was not payable under the terms of contract of employment as such. He further held that the incentive bonus paid by the employer fell within the expression 'wages' in so far as it was remuneration which the employer had undertaken to pay de hors the terms of the contract of employment . In order to fall within the third part of the definition of 'wages', it is, however, necessary that the payment should be one made at intervals not exceeding two months. Naik, J. came to the same conclusion as Vimadalal J. but on slightly a different ground. Naik, J., differed from the view taken by the Karnataka High Court in Regional Director of Employees' State Insurance Corporation v. Management of Mysore Kirloskar Ltd. (1974) 2 Lab LJ 396 : (1974 Lab IC 1083). Naik, J., in our opinion, rightly pointed out that on a plain grammatical construction of the section, it is clear that whereas the first part deals with a contractual aspect of the employment the (third part) does not. Therefore, no question of the third part being governed by the terms of contract of employment would arise. In our opinion the conclusion reached by Naik, J. in differing from the views of the Karnataka High Court in Mysore Kirloskar Ltd's case, was correct and we agree with his conclusion.

21. We will now refer to some of the decisions of other High Courts having a bearing on the point before us.

22. In Corborundum Universal v. E.S.I.C. ((1976 1 Lab LJ 17) (Ker) (supra)) the Kearla High Court found that on the facts the payment was being made by reasons of a settlement binding upon both parties and the payment was not one which could have been varied unilaterally to the disadvantage of the other party. The employer had no right to withdraw the scheme introduced by the settlement without the consent of the other party or without recourse to proceedings warranted by law. This justified the finding of the Insurance Court that the incentive bonus paid was really remuneration which was paid as a term of contract of employment. As pointed out earlier, in the course of his judgment in A.A.O. 331 of 1974 (reported in 1977 Lab IC 313) (Andh Pra) Chinnappa Reddy J. relied upon the observations of the learned Judges of the Kerala High Court in this case, but ultimately it is the fact pertaining to each scheme of incentive or productivity bonus which would help the Court in deciding a particular case before it and it was on the facts in Corborundum Universal's case that the Kerala High Court held that the case fell within the first part of the definition of 'wages' under S. 2 (22) of the Act.

23. In Bengal Potteries v. E.S.I.Corporation, W. B., 1973 Lab IC 1328 (Cal), Sabyasachi Mukharji, J., of the Calcutta High Court sitting singly has held that where in the original terms of employment there was no term for payment of incentive bonus and subsequently payment of such bonus was introduced as a result of an agreement but it was agreed that the bonus was not paid as a part of the term of employment and the employer reserved the right to modify the bonus scheme, the payments made under the scheme cannot be regarded as remuneration paid as part of the terms of employment. Thus the amounts so paid cannot be regarded as 'wages'. Consequently contribution thereon cannot be demanded from the employer.

24. Now it must be pointed out that in Bengal Potteries case, (1973 Lab IC 1328 (Cal) ) also, as in the case before us, it was specifically provided that incentive bonus was not paid as part of the terms of employment to any of the workmen, or supervisory personnel concerned but by virtue of a separate and independent contract, under the scheme the company undertook to pay the incentive bonus outlined in the scheme upon workers fulfilling the conditions of the scheme. The scheme specifically provided :---

'Accordingly, for the purpose of computing other benefits, like Provident fund, gratuity, Statutory leave, E.S.I.C. Benefits, Profit sharing bonus etc., the incentive bonus paid under the scheme shall not be considered as part of the wages.'

25. In view of the peculiar features of that particular scheme, we agree with the conclusion of Sabyasachi Mukharji, J., that in that particular case the payments made by the company under the scheme were not remuneration in terms of contract of employment. In paragraph (3) of his judgment, Sabyasachi Mukharji, J. dealt with the question as to whether the amount of incentive bonus could be said to be other additional remuneration paid at intervals not exceeding two months. He observed in paragraph (3) at p. 1330 :--

'It seems to me that the additional remuneration which is sought to be included by the expression 'and includes other additional remuneration' must be remuneration which though no part of the wages, could be paid as part of the terms of contract of employment. It is true that the payments under the incentive bonus scheme are remuneration but these are remunerations for doing additional work. These are not additional remunerations for doing work under the terms of employment. If one construes the expression 'and includes other additional remuneration' in the context of the proceeding expressions i.e. payment to an employee in respect of any period of authorised leave, lock out, strike which is not illegal or lay off, one is apt to lead to conclusion that this expression 'and includes' was intended to include only those remunerations which by their natural or in generic meaning can form part of wages.'

With respect to Sabyasachi Mukharji, J. we are unable to agree with this part of his reasoning and for the reason which we have set out hereinabove we disagree with this part of his judgment in paragraph (3).

26. In E.S.I.C. v. Bata Shoe Co., 1976 Lab IC 12 (Pat) the Patna High Court dealt with the question whether what was referred to as goodwill bonus paid by the employer to the employees could be said to be remuneration within the first part of the definition of 'wages' under S. 2 (22) of the Act. In that case, the Patna High Court followed the decision of the Division Bench of this Court in Vazir Sultan Tobacoo Co.'s case, (1973 Lab IC 523 (An Pra)). The Patna High Court pointed out that there cannot be any estoppel on a question of law or against a statute. As to whether a particular payment is embraced within the term 'wages' as defined by S. 2 (22) of the Employees' State Insurance Act or not is a matter of statutory interpretation. There may be cases where it is not free from ambiguity to infer the exact nature of payment. In such cases the principle of contemporanea expositio est optima et fortissima in lege may be attracted. There the admissions and conduct of the parties will be relevant for determining such ambiguous matter. But where the matters are clear from the record and the question is as to whether or not a particular statutory provision is applicable to them, no amount of admission of any party can as an estoppel so as to preclude him from asking that in law he cannot be fastened with a liability unwarranted by law. At page 15, at the end of paragraph (6), it was pointed out that the stand taken by the Corporation in that case was that the payment of bonus to the employees concerned was covered by the definition 'wages' in the first part of S. 2 (22). In other words, the contention put forward on behalf of the Corporation was that the bonus in question paid to the employees was in nature of remuneration paid in cash to the employees under the express terms of contract of employment. It was conceded on behalf of the Corporation that if the amounts of bonus in question were not to be covered by the first part of the definition of 'wages' then the case of the Corporation must fail. It is thus clear that the Patna High Court did not examine whether the particular bonus scheme fell within the third part of the definition of 'wages' under S. 2 (22).

27. As regards to the decision of the Karnataka High Court in Mysore Kirloskar Ltd.'s case, (1974 Lab IC 1083), we have already set out above our agreement with the observation of Naik, J., differing from the view taken by the Karnataka High Court and with great respect to the learned Judges of the Karnataka High Court, we cannot agree with the view taken by them, in Mysore Kirloskar Ltd's case. We notice that the Karnataka High Court accepted the view of Sabyasachi Mukharji, J. in Bengal Potteries Ltd. (1973 Lab IC 1328 (Cal) ) (in para 3) as correct and we already pointed out why we decline to take the same view as Sabyasachi Mukharji, J. in Bengal Potteries Ltd.'s case (in paragraph 3).

28. In Hans Raj Mahajan and Sons v. E. S. I. C. , (1972) 41 FJR 404, Gopal Singh, J., of the Punjab and Haryana High Court, sitting singly has held that any amount paid as production incentive by an employer to his employees in pursuance of a settlement arrived at between them should, constitute 'wages' on which contributions will have to be paid under the Act, as such payments are in pursuance of a contract even if such a contract may not be expressed in writing. The question which arose before the Punjab and Haryana High Court was slightly different from the question which arises before us. If it is held that the amounts were paid as production incentive in pursuance of a settlement arrived at between the parties then it is obvious that these terms would form part of the contract of employment and incentive bonus scheme on that account, would fall within the definition of the first part of S. 2 (22) of the Act.

29. Mr. Naidu for the Corporation has referred to several other decisions which we will notice in passing because, in our opinion none of those decisions is of direct assistance to us in deciding the question before us.

30. In Shivraj F.A. Litho Works v. Regional Director, (1974) 1 Lab LJ 453 : (1974 Lab IC 328 (Bom) ) the question was in connection with the payment of overtime wages and hence, though in that case the definition of 'wages' under S. 2 (22) was discussed and analysed, that decision is not of much assistance to us in the instance case.

31. In Luizina Cyril Viz v. Caltex (India) Ltd., (1973) 27 Fac LR 320 (Bom) the question before Vaidya J. of the Bombay High Court, sitting single, was regarding food-allowance, overseas allowance, devaluation supplement and overtime wages being wages under the Workmen's Compensation Act. It is not necessary for us to refer to the discussion of the word 'wages' occurring in the context of the Workmen's Compensation Act , for purposes of this judgment .

32. Mr. Naidu next referred to the decision of a Full Bench of the Madhya Pradesh High Court in Labour Inspector v. Authority P. W. Act, (1976) 1 Lab LJ 511:(1976 Lab IC 317). The Full Bench in that case was concerned with the question of payment of bonus and whether such bonus could be considered to be wages under the Payment of Wages Act. The facts of the case being altogether different, it is not necessary for us to refer to this judgment of the Madhya Pradesh High Court .

33. Similarly it is not necessary for us to refer to the decision of the Bombay High Court in Manager, G. M. O. Asscn. v. Mahamoodkhan, : AIR1968Bom395 (FB), and of the Supreme Court in Titagur Paper Mills Co. v. Their workmen, : (1959)IILLJ9SC .

34. The result of the above discussion is that in order to fit into the definition of 'wages' so far as the incentive bonus or productivity bonus scheme is concerned , the terms of the scheme must be examined and it must be ascertained whether the bonus paid under the scheme is part of the terms of the contract of employment , as was the case in Hyderabad Asbestos Cement Products Ltd.'s case (1977 Lab IC 313 (An Pra) before Chinnappa Reddy and Punnayya, JJ., and before the Kerala High Court in Carborundum Universal's case , (1976-1 Lab LJ 17) and is not the case before us or , whether it is in additional remuneration within the meaning of the third part of S.2 (22) of the Act . If it does not fall either in the category of Part 1 or Part 111, then only it can be said not to be wages and hence only then contribution will not be payable on the amount of bonus paid by the employer to the employees in such a scheme . If as happened in Braithwaite &Co.s; case, : (1968)ILLJ550SC or in Vazir Sultan Tobacco Co.'s case , (1973 Lab 523 (An Pra ) )the bonus is paid at the discretion of the employer and can be withdrawn at any time without implementing it , than it would not be wages within S. 2 (22) .

35. We, therefore, answer the question referred to us in A.A.O. 94 of 1975 as follows :---

In the instant case, the incentive bonus paid by the company constitutes 'wages' within the meaning of S. 2 (22) of the Employees' State Insurance Act.

In A. A. O. 229 of 1974 the question is whether the house rent paid by the employer to its workmen would constitute 'wages' within the meaning of S. 2 (22). It is true that the question of incentive bonus does not arise in this case, but, since the matter is before us, we will dispose of the matter shortly.

36. The house rent is certainly an additional remuneration. House rent, under the evidence which has come on the record in this case, was being paid by the company and the original scheme of the company was that the house rent should be paid only to those employees who were not furnished with residential quarters by the company. The evidence on behalf of the employer, being the deposition of the Personnel Manager of the company, goes to show that before the present management took over the production of the factory on a particular day was 10 tons and the total number of employees was 600 and most of them were local residents. The company did not provide for residential accommodation and employees had their own accommodation. At the time the Personnel Manager deposed before the Employees' Insurance Court, on November 29, 1973, the capacity of the company was 200 tons per day and the number of direct and indirect employees was about 5000, and due to shortage of housing accommodation the employees had been demanding housing accommodation. On May 31, 1970, a settlement was arrived at before the Conciliation Officer. Under cl. 2 (b) of the settlement which related to the house rent, it was agreed that the employees should be paid house rent as per the demand put forward by them . On July 28, 1972 there was a fresh demand by the Andhra Pradesh Paper Mills Ltd. Worker's Union and on September 13, 1972 there was another demand by the Andhra Pradesh Paper Mills Staff and Worker's Union . On November, 15, 1972 a settlement under S. 18 (1) was entered into wherein the house rent was agreed to be paid as shown at page 2 of the settlement. He further deposed that even to those who are occupying the new quarters near the mill premises the management was paying house rent allowance to avoid tussle but they were charging rents for the quarters at the rates higher than the house rent allowance. In his cross-examination, the Personnel Manager admitted that the house rent allowance was not linked with either production or attendance. The workmen were entitled to the house rent allowance as per the settlement as of right. Till the expiry of the period of agreement pending construction of quarters, the management had no right to withdraw the payment of house rent allowance. As per the settlement the management had no power to vary or revise the house rent allowance during the currency of agreement. Payment of house rent was not an ex gratia payment and was meant to meet workmen's additional cost of accommodation. House rent allowance was paid every month along with the wages.

37. In our opinion, in view of the deposition of the Personnel Manager, it is clear that the amount of house rent allowance was being paid by virtue of the settlement arrived at between the parties and that this payment which was made every month formed part of the contract of employment, and thus the house rent was remuneration paid or payable, in cash to the employees, if the terms of contract were fulfilled. It is not possible for us to agree with the conclusion of the Employees' Insurance Court that the amount of house rent allowance did not form part of the wages. In our opinion, the house rent falls fairly and squarely within the first part of the definition of 'wages' under Section 2(22) of the Act.

38. It is on the facts of this case that we have decided this matter and it is not necessary in this context to refer to the decisions of other High Courts in this connection, though such decisions were cited before us.

39. Under these circumstances we hold, so far as A.A.O. 229 of 1974 is concerned, that the house rent allowance paid by the employer to its workmen would constitute 'wages' within the meaning of Section 2(22) of the Act.

40. Therefore, these two matters are disposed of accordingly.

41. At the cost of reiteration, we must point out that, in fact, when the two decisions, one in Vazir Sultan Tobacoo Co.'s case, (1973 Lab IC 523 (Andh Pra)), and the other in Hyderabad Asbestos Cement Products Ltd.'s case, (1977 Lab IC 313 (Andh Pra)), are closely examined, there is no conflict between the two decisions.

42. Each of these matters will, therefore, go before the Division Bench for passing appropriate orders.

43. Costs of hearing before the Full Bench to form part of costs in each of these two appeals.

Madhava Reddy, J.

44. Both the C. M. As. were referred by us to a Full Bench for consideration of the question whether the house rent allowance and incentive bonus paid to the workmen constitute 'wages' within the meaning of Section 2(22) of the Employees' State Insurance Act. The Full Bench has answered the question in the affirmative holding that they do constitute 'wages' within the meaning of the Act. That being the only question that arises for consideration in these two C.M. As. these C.M.As. have to be allowed. The orders, of the Employees' State Insurance Court Hyderabad declaring that house rent allowance and incentive bonus do not constitute the 'wages' are set aside. Both the appeals are, accordingly allowed with costs.

45. Appeals allowed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //