Case: Ti Cycles Of India,Amattur Vs. M.K. Gurumani

2. Respondent Nos. 3 to 23 were workmen in the establishment of the appellant. They filed applications under the Payment of Gratuity Act, 1972 [hereinafter referred to as `the Act] for a direction to pay balance of gratuity by the appellant for a period of service rendered by them. Respondents Nos. 3 to 23 retired from the establishment of the appellant and they were paid gratuity calculating basic wages and dearness allowance only. They claimed that they were also paid incentive wages as per Section 4(2) of the Act. The appellant contended that they were governed by settlements and awards regarding wages and other service conditions, which had clearly set out that incentive earnings should not be reckoned as wages for the purpose of provident fund, bonus, gratuity, ESI, overtime, etc. They also submitted that the incentive earnings would not partake the character of wages for the purpose of gratuity under the provisions of the Act and that the respondents had already received gratuity on the basis of the last drawn basic wages and dearness allowance and, therefore, sought for dismissal of the applications.The Controlling Authority held as followsthe incentive payment, the norms fixed were in pieces, per jar, per unit, per truck per paid, per trap per cistern, per hands, etc. Therefore, incentive payment was made on the basis of pieces or number of items produced.On that basis, the Controlling Authority concluded that Section 4(2) of the Act was attracted as it deals with the piece rate wages but wages paid for the any overtime work should not be taken into account as wages and that the appellant had paid incentive wages to their workers on the basis of pieces produced by the workers. It was further held that the incentive wages were actually calculated on the basis of pieces and also the rate was fixed per piece or unit, etc. In those circumstances, the Controlling Authority held that incentive wages were actually paid piece rate wages. Although the Controlling Authority agreed with the contention that wages would mean basic wage and dearness allowance, he stated that the incentive wages paid on the basis of piece rates and amount fixed per piece have to be treated as piece rate wages in terms of Section 4(2) of the Act and, therefore, allowed the applications.4. Appeal preferred against the same having failed, writ petition was filed. On dismissal of the writ petition further appeal was preferred before the High Court. The Division Bench of the High Court after referring to various decisions of this Court and of the High Court, held that the incentive payments in question would fall within the definition of `wages for the purpose of the Act. The High Court found that there is a difference in the term `wages employed under the Act and `basic wages defined under the Employees Provident Funds & Miscellaneous Provisions Act, 1952 [for short `PF Act]. While the Act defines the term `wages, the PF Act defines the term `basic wages and, therefore, the term `basic wages has got to be contra-distinguished from the term `wages and that difference will have to be construed in the context of the enactment and the purpose thereof. Apart from that the High Court relied upon Section 4(2) of the Act as has been done by the Controlling Authority. The High Court, having dismissed the writ appeal, this appeal is preferred by special leave.

Court's reasoning:
14. Incentive payment is based on two components : group performance index and individual/sectional performance index. It was made clear that no incentive will be payable to workmen on leave, absent, away from duty or no holidays. The minimum performance level is indicated in each sectional incentive table and below which no incentive will be paid for any reason whatsoever. If a person works for more than one group during the month, he will be awarded incentive as per the performance of each group in the respective periods. Clause 9.1 also sets out incentive payment payable under the scheme will not be regarded as wages and, therefore, the payment shall not be taken into account for the purpose of leave wages, overtime wages, in lieu of notice, provident fund contributions, bonus, gratuity or any other allowance. However, this clause is subject to review in case of statutory amendments if any.15. The Authorities were carried away by considering that the bonus is payable on the basis of output equivalent to certain pieces per man-day. But it is made clear in the scheme that each payment will be made not on the basis of pieces of per man-day nor is it a piece rate work for which wages are paid but it is an additional incentive for payment of bonus in respect of extra work done. The measure of extra work done is indicated by pieces and not wages as such that are paid on that basis. It is not that in respect of each piece any wages and paid but altogether if certain number of pieces are produced, additional incentive will be payable at a particular rate. Therefore, the authorities have completely missed scope of the scheme and have incorrectly interpreted the same. Inasmuch as both the High Court and the authorities have incorrectly understood the position in law and have wrongly held that the concept of `wages under the Act would include bonus and that even on facts the scheme would attract Section 4(2) of the Act. Proviso to Section 4(2) of the Act is to the effect that in case of a piece-rated employee, daily wages shall be computed in a particular manner but that is not the rate at which the wages are paid in the present case at all. Therefore, Section 4(2) of the Act is not attracted in the case of the present scheme with which we are concerned.