1. This appeal by the appellant is directed against the order of the Employees State Insurance Court, Andhra Pradesh, Hyderabad allowing the application of the respondent under Section 75 of the Employees' State insurance Act, 1948 (hereinafter called 'the Act') restraining the appellant from collecting Employees' State Insurance contribution on Productivity Index Plan Bonus.
2. The admitted or proved facts leading to this appeal, which lie in a short compass, may briefly be stated. The respondent-company which manufactures cigarettes, has employed about 2,400 workmen who are paid wages, dearness allowance and other allowances payable to the employees by an industrial establishment. Under the Payment of Bonus Act, 1965, employees are entitled for a minimum bonus of 4% up to a maximum of 20% depending upon the profits earned by the employer. The respondent-company and the Employees-Union thereof have entered into in 1965 and 1970 two settlements evidenced by Exts, A-1 and A-2 respectively whereunder the payment of bonus as per the Productivity Index Plan has been agreed upon. According to the terms of Ex. A-2, which is now in force, the employees would be eligible to annual bonus provided the minimum target of 1.885 M per man hour is leached. The rate of payment of bonus under the Productivity Index Plan is shown as per the slabs indicated at page 35 in Ex. A-2. Unless and until the minimum productivity index is 1.885 M or above per man hour, the employees would not be entitled for any bonus for the relevant period (vide Ex. A-4). The right to payment of the annual bonus under the Productivity Index Plan would accrue in law only after 12 months, and before the completion of 20 months. The company, at the request of the employees, has agreed to pay the bonus in advance every month for the first eleven months and finally settle the account after the end of the year. The employees have no right to insist upon monthly payments as they are entitled in law for the payment of this annual bonus only after the expiry of 12 months and before 20 months. Clause (c) of the settlement Ex. A-2 empowers the respondent-company either to modify or cancel any part or the whole of the comprehensive annual bonus if during the subsistence of the settlement period, any legislation, rule, order, direction, decree or award is passed or made applicable to the company enforcing any scheme for bonus or payment under any incentive or production scheme or plan. The terms of the settlement have been made by mutual agreements of the parties. In view of the settlement Ex. A-2, the employees of the respondent-company are not entitled for any bonus payable under the Payment of Bonus Act, 1965.
3. The respondent is paying the contribution for its employees on the wages, dearness and other allowances due and payable to them. No contribution in respect of comprehensive annual bonus paid or payable as per the Productivity Index Plan was being made at any time by the respondent prior to the present controversy. The appellant for the first time in his letter dated 7-4-1971, demanded the respondent for the payment of contribution on the annual bonus paid or payable to its employees on the ground that it is wages within the meaning of Section 2(22) of the Act. The respondent-company took the stand that the annual bonus paid or payable by it to the employees under the Productivity Index Plan is not wages, and, therefore, no contribution need be paid thereon. The appellant had sent an Insurance Inspector to visit the respondent's factory on 23-4-1971 and verify its record and accounts. Thereafter, the District Collector, Hyderabad was requested to recover by recourse to the Revenus Recovery Act the employer's contribution payments under the Productivity Bonus Scheme. The proceeding dated 17-4-1971 have been served on the respondent-company on April 20, 1971. Aggrieved by such proceedings, the respondent preferred an application under Section 75 of the Act to restrain the appellant from collecting contributions on Productivity Index Plan on the ground that the bonus paid or payable by it to its workers as per Ex. A-2 is not wages within the meaning of Section 2(22) of the Act.
4. The appellant resisted the claim of the respondent contending that the bonus paid or payable by the company to its employees is really wages.
5. The respondent examined its manager as P.W. 1 and filed Exs. A-1 and A-2, memoranda of settlement dated 1-8-1965 and 13-8-70, Ex. A-3 the ledger showing the payment of bonus and Ex. A-4 circular dated 1-3-71 in support of its application. The appellant examined R.W. 1 and filed Exts. B-l to B-5 in support of his defence.
6. The lower Court, on a consideration of the entire material on record, was of the view that the payments in question are not wages and, therefore, allowed the application. Hence this appeal.
7. Sri J.A. Naidu, the learned Counsel for the appellant, contended that the bonus payments in the instant case amount to remuneration paid or payable in cash to the employees as per the terms of the contract and, in any event, they are additional remuneration paid at intervals not exceeding two months and, therefore, such payments are nothing but wages within the meaning of Section 2(22) of the Act, on which contributions must be paid by the respondent to his client, Mr. K. Srinivasa Murthy, the learned Counsel for the respondent-company, contended contra.
8. The only question that falls for decision is whether, on the facts and inthe circumstances, the bonus paid by the respondent-company to its employees as per the terms of Ex A-2 is or is not wages within the meaning of Section 2(22) of the Act.
9. The answer to the question turns upon the provisions of Section 2(22) of the Act. which defines the term wages and their application to the facts and circumstances of the case.
10. Before examining the provisions of Section 2(22) of the Act, it is profitable to refer briefly to the intendment and material provisions of the Act pertaining to contributions. The Act has been enacted to provide benefits to employees in case of sickness, maternity and employment injury and to make provisions for certain other matters in relation thereto. The Act comprising 100 Sections, 3 schedules and an annexure is divided into 7 chapters. The chapter which deals with contributions is Chapter IV. It consists of Sections 38 to 45 to which we shall presently refer. Section 38 makes on the employer obligatory to insure all the employees in factories or establishments in respect of whom contributions are payable. Section 39(1) provides for payment of the employer's as wall as employees' contribution to the Employees.' State Insurance Corporation. As per Section 39(2) the contributions shall be paid at the rates specified in the first schedule in cases where the provisions of the Act are applicable. In other cases, the contributions arepanicle at such rates as the Corporation may fix in that behalf. Sub-section (3) to Section 39 makes it abundantly clear that the unit of period that is taken as a basis for the purpose of the payment of contributions is a week. The contributions payable in respect of each week ordinarily fall due on the last day of the week (vide Sub-section (4) to Section 39). Section 40 enjoins the principal employer to pay contributions, employer's as well as employees' in the first instance. Under Section 41, the principal employer who has paid contribution in respect of an employee employed by or through an immediate employer under Section 40 is entitled to recover the same from the immediate employer. Where the average daily wages of an employee are below Rs. 1-50, no contribution need be paid by or on behalf of such an employee, (vide Section 42(1)). The explanation to Section 42(1) says that the average daily wages of an employee shall be calculated in the manner specified in the first schedule. Contribution is payable by the principal employer in each week. Where wages are payable to an employee for a portion of a week, the employer is liable to pay both the employer's and employees' contribution for the week in full though he is entitled to recover from the employee his contribution. Section 43 provides fur the method of payment of contributions.
11. We shall now advert to the mode of calculation of the average daily wages as indicated is the relevant rules in the Schedule I Rule 1 of Schedule I which provides for the mode of calculation of the amount of weekly contribution, reads as follows:
1. The amount of weekly contribution payable in a contribution period in respect of an employee shall be calculated with reference to the average daily wages during the first wage period in respect of that employee ending in such contribution period.
12. 'Wags period' means the period in respect of which wages are ordinarily payable. The table appended to Rule 3 clearly indicates that the basis for the payment of the contributions under the Act is the average daily wages. It also indicates the employees' weekly contribution, the employer's weekly contribution, total weekly contribution and corresponding daily standard benefit rate in columns 2, 3, 4 and 5 respectively. That it is the average daily wages that form the basis for payment of the contributions under the Act is also supported by Rules 4, 5 and 6 of the Schedule I. How the average daily wages have to be arrived at is indicated in the 2nd rule of that schedule. The employees can be broadly divided in this regard into two categories : (i) employed on time rate basis and (ii) employed on any basis other than the time rate. In the case of employees employed on time rate basis, the average daily wages of an employee shall be the amount of wages which would have been payable to him for the complete wage period had he worked on all the working days in that wage period, divided by 26 if he is monthly rated, 18 if he is fortnightly rated, 6 if he is weekly rated and 1 if he is daily rated. But in the case of employees employed on any other basis the average daily wages shall be the amount of wages earned during the first complete wage period in the contribution period divided by the number of days in full or part for which he worked for wages in that wage period.
13. A combined reading of the provisions of Sections 39, 40, 42 and 43 read with Rules 1 to 6 and the table comprised in Schedule I manifests that the basis for the levy of contributions as well as the manner and method of its calculation, is the average daily wages of an employee. The average daily wages of an employee in the wage period, ordinarily a week, forms the basis for payment of the contribution under the Act. Where the average daily wage of an employee is less than Rs. 1.50 no contribution need be paid to the Corporation under the Act. The rate of contribution varies depending upon the average daily wages of an employee and it increased as indicated by the table referred to earlier in the case of employees whose average daily wages are high.
14. As pointed out earlier, it is not possible to calculate or indicate the correct amount, of the productivity bonus payable by a company to its employees till the close of the respective accounting year. This is why Section 19 of the Payment of Bonus Act provides for payment of bonus within 8 months after the completion of the accounting year. It being a productivity bonus, can be arrived at only after the close of the relevant accounting year and on examining the accounts but not during the accounting year Therefore, the annual bonus cannot be fixed before the completion of the year in question.
15. In the light of the foregoing discussion, let us examine the problem before us. The facts referred to earlier clearly indicate that the bonus paid or payable in the instant case is comprehensive annual bonus. The terms of the settlement evidenced by Ex. A-2 leave no doubt in our mind that the employees of the respondent-company are entitled in law for the bonus only after the completion of the accounting year. The Productivity Index Plan indicates that the very basis for the payment of the bonus under Ex. A-2 is the minimum production of 1.885 M. per man hour as evidenced by Annexure B to Annexure IV (page 35 of Ex, A-2). Ex. A-4, a notice put up onMarch 1, 1971 was to the effect that no bonus under the Productivity Index Plan could be paid as the minimum target for the month of February, 1971 was not reached. The appellant challenges the genuineness and admissibility of Ex. A-4. The Insurance Inspector who inspected the premises of the respondent-company in August, 1970, could not have noticed Ex. A-4 on the notice board as the same was affixed only on 1-3-1971. P.W. 1, the manager of the respondent-company, has spoken to the fact that Ex. A-4 was put up on the notice board on 1-3-1971. There is nothing to discredit the testimony of P.W. 1. The lower Court, in our opinion, has rightly held that Ex. A-4 is a genuine document. We are also unable to agree with Mr. Naidu that Ex. A-4 is inadmissible in evidence. It may not be a document which is relevant for the wage period with which we are concerned. However, Ex. A-4 corroborates the plea of the respondent that the employees are not entitled as per the terms of Ex. A-2 for the payment of Productivity Index Plan Bonus in any month if the minimum target, i.e., 1.885 M per man hour is not reached. Where the employees under the terms of Ex. A-2 are entitled in law to receive Productivity Index Plan annual bonus only after the completion of but not during the relevant accounting year, any payments made in advance or even monthly at the request of the employees will not in any way alter the nature and character of the bonus payments. In the present case, interim and advance payments in respect of annual bonus are found to have been made by the respondent to its employees for the first 11 months and adjusted finally at the end of the year. Such advance payments made at the request of the employees or in mutual agreement admittedly relate to the annual bonus.
16. We shall now consider what is meant by wages. The expression 'wages' is defined under Clause (22) of Section 2 of the Act, which reads thus:
Wages means all remuneration paid or payable is cash 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.
17. Clause (22) of Section 2, which defines the term 'wages', can conveniently be divided into four parts. Each part is separable and independent of the other. The first three parts pertain to positive items of remuneration, payment or additional remuneration indicated therein. Whereas the last part relates to the exclusions, viz., contribution paid by the employer to any pension or provident fund, travelling allowance or value of travelling concession, gratuity payable on discharge and special expenses incurred in the course of employment. The first part takes in all remuneration paid or payable in cash to an employee in fulfilment of the terms of the contract of employment whether express or implied. Any payment to an employee in respect of authorised leave, lock-out, strike which is not illegal or lay-off is wages under the second part. Other additional remuneration paid at intervals not exceeding two months falls under the third part. We are not now concerned with the second part of the definition as the appellant tries to bring his case within the first part or, in any event, third part of the definition of wages. Parts 1 and 3 are distinct and they are used to embrace defferent types of categories of payments we presently indicate. Under the first part, remuneration must have been paid or payable to an employee only in cash. The payment or the liability to pay must be in fulfilment of the terms of the contract of employment. The contract of employment may be express or implied. It includes all remuneration. However, remuneration paid in kind or in any form other than cash it is outside the scope of the definition. It does not also take in any sort of remuneration paid outside the terms of the contract of employment. The third part takes in any remuneration in addition to the remuneration paid or payable as per the term of contract of employment. Such remuneration must have been paid at intervals not exceeding two months. The word 'paid' must be interpreted as paid pursuant to a right for such payment. Any ex-gratia payments to which the employees are not entitled in law cannot be termed to be additional remuneration within the meaning of this part. Theomission of the word 'payable' in this part may be noticed. Any additional remuneration paid beyond two months intervals cannot be called wages.
18. In order to bring the annual bonus within the first or third part of the definition of wages, it must be established that it is remuneration within the meaning of the definition. We shall now examine whether the bonus in question is or is not remuneration.
19. The term 'remuneration' is not defined under the Act. The dictionary meaning of the word 'remuneration' is reward or pay for services rendered. According to Stroud, remuneration is a wider term than salary. (Vide p. 253 L of Stroud's Judicial Dictionary, Vol. 3). Keeping in view the scheme and intendment of the Act indicated above, the definition of the expression 'wages' under Section 2(22) has to be construed. If soconstrued, we are of the view that remuneration takes in only all payments paid or payable every month as per the terms of the contract irrespective of the work done, such as wages, daily allowance, house rent allowance, etc. But contingent payments like bonus increase of production or profit bonus will not, in our considered judgment, come within this definition. Such interpretation is consistent with the scheme and intendment of the Act. The first part of the definition on which strong reliance has been placed by the counsel for the appellant, does not apply to the instant case. In order that the first part of the definition may be applied, the appellant has to establish that the payments in question are remuneration and secondly such remuneration is paid or payable in fulfilment of the terms of the contract of employment, express or implied. The terms of contract of employment must provide for payment of such remuneration in order to make such payments' wages, otherwise not. In Brailhwaite & Co. (India) Ltd. v. Employees' State Insurance Corporation 1968-I L.L.J. 550 at 554, the Supreme Court held that inam paid by the appellant-company to its employees under a scheme did not fall within the definition of 'wages' under Section 2(22) of the Act and no contribution thereon was payable. Therein, it was observed that:
There was no express clause in the contract of employment of the employees of the appellant laying down the payment of 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.
20. Another ground on which the Corporation's claim was rejected was that under the scheme, the company had reserved the right to withdraw the scheme altogether without assigning any reasons or revise targets and any conditions of service at its sole discretion. In the present case, the respondent-company has a right to vary or cancel the annual bonus scheme or plan (vide page 13 of Ex. A-2). Annual bonus is a contingent payment depending upon the increase in production. The employees will not be entitled for any bonus if the minimum target as referred to above has not been reached in any particular period. The source for the claim of the employees for the annual bonus in the instant case is the settlement Ex. A-2 arrived at by them with their employer. As pointed out earlier, the payment of bonus under Ex. A-2 debars the employees from claiming any bonus under the Payment of Bonus Act, 1966 (vide Sub-section (7) of Section 32). The aforesaid decision of the Supreme Court supports 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 Section 2(22) of the Act as the same is not paid or payable as per the terms of the contract of employment and it is also liable to be varied or cancelled at the discretion of the employer.
21. We shall now examine the contention of Sri Naidu that the terms remuneration and additional remuneration in Section 2(22) are wide enough to take in bonus of any kind and the Legislature, if intended to exclude bonus, would have certainly stated so in the definition of 'wages' just as in the case of Industrial Disputes Act, 1947, Payment of Bonus Act, 1965 and Payment of Wages Act, 1938. True, Section 2(rr) of the Industrial Disputes Act defines wages as all remuneration paid or payable to a workman in respect of his employment but excluding bonus. The definition of salary or wage under Clause 21 of Section 2 of the Payment of Bonus Act, 1965 specifically excluded bonus (incentive, production and attendance bonus). The definition of wages in the several Acts, therefore, varies depending upon their scheme and intendment. The Industrial Disputes Act is a procedural Act pertaining to the decision of industrial disputes. It does not confer any rights on any one. It only enables the parties, the employees or employers to raise a dispute and the appropriate Government to refer the same to a Tribunal for adjudication. The definition of wages under Section 2(rr) of the Industrial Disputes Act has to be construed in the light of the scheme and intendment of this Act. Any bonus be it incentive, production or attendance bonus has been specifically excluded in the definition of salary or wage under Section 2(21) of the Payment of Bonus Act. We may now notice the definition of wages in Payment of Wages Act, 1938. Wages as per that definition means all remuneration such as salary allowances and includes any remuneration payable under any award or settlement for overtime work on holidays or in leave period, any additional remuneration payable under the terms of employment whether called a bonus or in any other name, but does not include any bonus (whether under a scheme of profit sharing or otherwise) which does not form part of the remuneration paid under the terms of employment. The definition of wages in the Payment of Wages Act appears to be very wide. However, any annual bonus paid on the basis of production just as in the present case has been specifically excluded although additional remuneration called bonus was included. The mere omission to specifically exclude bonus in the definition of 'wag s' under Section 2(22) of the present Act cannot be considered to be decisive or, in any way, a pointer in support of the plea of the appellant. The definition has to be construed in the light of thescheme and intendment of the Act.
21. Sri Naidu next contended that the bonus payment in the instant case is 'additional remuneration' within the meaning of the latter part of Section 2(22) and such remuneration is 'wages' as the same is paid within an interval of two months and cited the decision of the Punjab High Court in Sharma v. Employees State Insurance Corporation 1968-I L.LJ. 441], in support of his claim. The decision does not advance his case. Therein two workers and trainees were paid for extra work at their homes. The employees were not permitted under law to work at home. The amounts so paid by the employer were called rewards. The Court held that the aforesaid rewards were 'wages' within the meaning of Section 2(22) of the Act and, therefore, contribution was payable on such sums. On those facts, the payments in question really amounted to 'wages' as they have been paid for the extra work done by the workers at home. Hence the decision can be justified on that sore (sic) the employer had termed such payments as rewards. Secondly if the amounts are really rewards the decision must be held to be no longer good law in view of the decision of the Supreme Court in the case of Braithwaite & Co. (India) Limited 1968-I L.LJ. 554.
22. The decision of the Supreme Court in Titaghar Paper Mills Co. Ltd. v. Its Workmen 1959-II L.LJ. 9 at 14, does not render any assistance to the appellant herein. Therein the problem that arose for decision was whether the Tribunal had jurisdiction to decide the dispute and whether the dispute fell within the meaning of Section 2(k) of the Industrial Disputes Act. This is indicated in the following passage in the judgment:
The problem that is before us whether the tribunal under the Act will have jurisdiction to deal with a production bonus scheme in a concern where it has been introduced. The answer to this question depends upon the terms of the Act and not on the consideration whether the scheme can be initiated only by the employer in the first instance. In order that the tribunal may have jurisdiction all that is necessary is that an industrial dispute within the meaning of Section 2(k) of the Act should exist or be apprehended and there should be a reference of such dispute by the appropriate Government to the Tribunal under Section 10.
On the facts of that case, it was held that as disputes arising about an emolument come within the words 'terms of employment' and, therefore, the Tribunal had jurisdiction under the Act to deal with the scheme of production bonus which had been introduced in the appellant-company.
23. The next case cited by the appellant is Accountant General, Bihar v. N. Bakhsi : AIR1962SC505 . Therein the interpretation of the term remuneration occurring in Article 314 of the Constitution fell for consideration. It was held that the expression remuneration in Article 314 is not used in any limited sense as mere salary but it is of wide import. The right to passage benefits to the members of the Indian Civil Service was preserved under the Constitution and, therefore. Rule 3 of the All India Services (Overseas Pay, Passage and Leave Salary) Rules, 1967 was held to be ultra vires.
24. Hence the facts of the aforesaid decision relied upon by the appellant are distinguishable from the facts of the present case.
25. The submission of Sri Naidu that the annual bonus paid or payable to the employees in the present case under the Productivity Index Plan is as per the terms of the contract of employment cannot be acceded to. True, as pointed out by the appellant's counsel, P. W.I has stated as follows:
26. This settlement relates to all terms and conditions of service of workers. Ex. A-2 is the only document of settlement relating to the terms and conditions of service for 1970.... This settlement was the result of the dispute between the workers and management. This bonus is paid in lieu of profit sharing bonus under Section 32(7) of the Payment of Bonus Act.
27. This evidence of P.W. 1, in our judgment, does not support the plea of the appellant. The expression terms and conditions of service cannot be equated to the terms of the contract of employment. Hence, the terms and conditions of service of workers referred to by P.W. 1 should not be construed as the terms of the contract of employment within the meaning of Clause (22) of Section 2 of the Act, which defines the term wages. It is clear from the evidence of P.W. 1 that the comprehensive annual bonus is being paid to the employees in lieu of profit-sharing bonus under Section 32(7) of the Payment of Bonus Act and the advance payments are made at the request of the workers' union. Hence, there is no merit in this plea of the appellant.
28. It was next pressed upon us by the appellant's counsel that the appellant corporation is a creature of a statute which is a special piece of legislation and, therefore, the definition of wages should be construed reasonably and in favour of the appellant even if two views are possible in interpreting the same. True, such interpretation may be favoured if two plausible views of construing the term wages are permissible. But, on a careful reading of the provisions of Section 2(22) of the Act, we are of the firm view that this principle cannot be applied in the instant case as the definition of wages under the Act is capable of being interpreted only in the way which we have found.
29. That apart, we may add that the employees in the present case are not aggrieved by the stand taken by the employer. The conduct of the employees is also relevant and material, as the ultimate beneficiaries in the present controversy are the employees themselves.
30. For all the reasons stated, we must answer the question in the negative and against the appellant holding that the comprehensive annual bonus paid or payable as per the terms of Ext. A-2 by the respondent-company to the employees is not 'wages' within the meaning of Section 2(22) of the Act.
31. In the result, the appeal is dismissed, but, in the circumstances, there shall be no order as to costs.