Case: Manipal Academy Of Higher Education Vs. Provident Fund Commissioner

2. The dispute in each case is whether the amount received by encashing the earned leave is a part of "basic wage" under Section 2(b) of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (in short the Act) requiring pro rata employers contribution. In each case the Regional Provident Fund Commissioner (in short the Commissioner) held that the amount received on encashment of earned leave has to be reckoned for the purpose of Section 2(b) of the Act. Accordingly, demands were raised. Appeal was preferred before the Employees Provident Fund Appellate Tribunal (in short the Tribunal) which held that it is not a part of basic wages. However, it was observed that a different view was taken by the Bombay High Court and, therefore, the respondent in the appeals i.e. the Commissioner should take up the matter before the Karnataka High Court. Accordingly, Writ Petitions were filed before the Karnataka High Court. A learned Single Judge allowed the Writ Petitions and set aside the impugned orders. The present appellant preferred Writ Appeals before the Karnataka High Court which came to be dismissed by the common impugned judgment.

Court's reasoning:
, the petition succeeds partly. We direct that the petition of the payment which is made by the petitioner for production above the "norm" would be production bonus and would be covered by the judgment of this Court in Bridge and Roof Company, but that portion of the payment which is made by petitioner for production up to the quota as well as production between the "quota" and the "norm" is basic wage within the meaning of that term in the Act. The petition is therefore partially allowed as indicated above. In the circumstances we pass no order as to costs.It is to be noted that in the case before the Bombay High Court the factual scenario was somewhat peculiar. There the employer was including the amount of leave encashment as emoluments for the purpose of calculating provident fund dues from the employer as well as employees contribution. When the Employees Union took up the issue to the Commissioner it was informed that the provision does not provide for deduction of provident fund on leave encashment.9. On the strength of the letter dated 3.7.1991 of the Commissioner, Hindustan Lever Ltd. decided to make provision for deduction. It was this direction of the department which was challenged by the Union. In this context the High Court has held that the Commissioners letter/circular was illegal and leave encashment dues should be included for provident fund contribution. In fact it was the understanding of the parties over the period that leave encashment will be included in the wages.10. The basic principles as laid down in Bridge Roofs case (supra) on a combined reading of Sections 2(b) and 6 are asWhere the wage is universally, necessarily and ordinarily paid to all across the board such emoluments are basic wages.(b) Where the payment is available to be specially paid to those who avail of the opportunity is not basic wages. By way of example it was held that overtime allowance, though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment but because it may not be earned by all employees of a concern, it is excluded from basic wages.(c) Conversely, any payment by way of a special incentive or work is not basic wages.In TI Cycles of India, Ambattur v. M.K. Gurumani and Ors. (2001 (7) SCC 204 ) it was held that incentive wages paid in respect of extra work done is to be excluded from the basic wage as they have a direct nexus and linkage with the amount of extra output It is to be noted that any amount of contribution cannot be based on different contingencies and uncertainties. The test is one of universality. In the case of encashment of leave the option may be available to all the employees but some may avail and some may not avail. That does not satisfy the test of universality. As observed in Daily Partap v. Regional Provident Fund Commissioner (1998 (8) SCC 90 ) the test is uniform treatment or nexus under- dependent on individual work.12. The term basic wage which includes all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in accordance with the terms of the contract of employment can only mean weekly holidays, national holidays and festival holidays etc. In many cases the employees do not take leave and encash it at the time of retirement or same is encashed after his death which can be said to be uncertainties and contingencies. Though provisions have been made for the employer for such contingencies unless the contingency of encashing the leave is there, the question of actual payment to the workman does not take place. In view of the decision of this Court in Bridge Roofs case (supra) and TI Cycless case (supra) the inevitable conclusion is that basic wage was never intended to include amounts received for leave encashment.13. Though the statute in question is a beneficial one, the concept of beneficial legislation becomes relevant only when two views are possible.