WELLMAN (INDIA) PVT. LTD. v.

THE EMPLOYEES' STATE INSURANCE CORPORATION

NOVEMBER 3, 1993.

(P.B. SAWANT AND YOGESHWAR DAYAL, JJ.J

Employees' State Insu; ance Act, 1948: Sections 2(22), 39 and 40-Attendance bonus payable under a settlement-Fonning part of a contract of

employ_ment-Whether "Wages''--Demand for payment of contribution of such C payment-Validity of.

A Bonus Scheme was formulated as part of a settlement entered into between the appellant-Company and Union of Workmen in the course of concmation proceeding before the Conciliation Officer under Section 12(3) of the Industrial Disputes Act, 1947. According to the Bonus Scheme a D worker was entitled to be paid an attendance bonus upto a maximum of 4 days wages, depending on the number of days a worker was present during a quarter. The Bonus Scheme had become an express contract of employ

ment since the date of the settlement.

E The appellant-Company filed an application before the Employees' Insurance Court against the respondent-Corporation for a declaration that the demand of the Corporation of the employees' contribution and the employer's contribution on the payment made under the Company's quarterly Attendance Bonus Scheme was not valid. The Insurance Court allowed the application.

The respondent-Corporation preferred an appeal before the High Court against the Insurance Court's decision. A Single Judge allowed the appeal holding that the attendance bonus was payable under the terms of the contract and, therefore, was 'Wages' within the meaning of section G 2(22) or the Employees' State Insurance Act, 1948. The Division Bench confirmed the Single Judge's decision. Hence the appeal by the appellant Company.

On the question whether the attendance bonus was remuneration within the meaning orthe first part of the definition of'wages' or was 'other H additional remuneration' within the meaning of the second part of the said 568

WELLMAN PVT. LTD. v. E.S.I.CORPORATION 569

definition given in Section 2(22) of the Act.

Dismissing the appeal, this Court.

HELD : 1.1. The attendance bonus payable to the employee is under the terms of the settlement which has become a part of the contract of employment. Hence the said bonus will fall within the ftrst part of the B definition of 'wages' under Section 2(22) of the Act which covers all remuneration paid or payable in cash to an employee if the terms of contract of einploymnt, express or implied, were fulfilled. [576-D-E]

1.2. The expression 'other additional remuneration, if any, paid •...•.... ' C in the second part of the said definition implies that the said remuneration is not payable under any contract of employment, express or implied. This is so, because while the first part of the definition refers to remuneration under the contract of employment, the second part does not refer to remuneration under any such contract. The definition is inclusive and D includes only such payments outside the contract as are mentioned in its second part and none other. The expression, 'if any, paid' after the words 'other additional remuneration' will be inconsistent if the remuneration is payable under the contract of employment since such payment is not dependent on the will of the employer but on the fulfillment of the terms E of the contract. The second part of the definition includes only such contractual payments as are specifically mentioned therein and the exclusionary part does not include the attendance bonus like the present which is payable as stated above under a contract. Hence, the expression 'other additional remuneration, if any, paid' not only does not refer to remuneration payable under any contract but refers to such remuneration which is payable at the will of the employer. [576-E-H, 577-AJ F

1.3. Every remuneration that is payable under the contract would, therefore, fall under the first part of the definition. [577-B]

Bala Subramanya Rajaram v. B.C. Patil & Ors., [1958) S.C.R. 1504; M/s. Harihar Polyfibres v. Regional Director, ES! Corporation, [1984) 4 S.C.C. 324; Bridge & Roof Co. (India) Ltd. v. Union of India, [1963) 3 S.C.R. 978 and Jay Engineering Works Ltd. & Ors. v. The Union of India & Ors.,

[1963) 3 S.C.R. 995, referred to.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6019 of

1993.

Form the Judgment and order dated 23rd Nov. 1982 of the Bombay High Court in Letters Patent Appeal No. 60 of 1979.

M.L. Verl.ifl, G.B. Pai, Soli J. Sorabjee, N.N. Goswami, Dr. S. Ghosh Tapas Ray, Harish Salve, N.N. Goswami and Dr. Anand Prakash Sr. Advs.

V.J. Francis, Ms. Lekha Mathur, D.N. Mishra, E.M.S. Anam, U.A. Rana, Rajiv Tyagi, Ms. Nisha Bagchi, R.F. Nariman Ms. A Subhashini, A.K.

Srivastava, O.C. Mathur, P.K. Chakraborty, P.K. Chatterjee, Manoj Swarup C Suresh A.· Shroff. Ms. Smitba Inna, Meenakshi, Grover C.V. Subba Rao,

S.K. Gambhir Advs. with them for the appealing parties.

The Judgment of the Court was delivered by

SAWANT, J. Special leave granted.

The appellant-Company filed an application before the Employees' Insurance Court under Section 75 of the Employees' State Insurance Act, 1948 (hereinafter referred to as the 'Act) against the Employees' State Insurance Corporation (the 'Corporation') for a declaration that the ·· E demand of the Corporation of the employees' contribution and the employer's contribution on the payment made under the company's quarterly attendance bonus Scheme (the 'Bonus Scheme') was not valid ..

The Insurance Court allowed the said application and against that decision the Corporation preferred an appeal to the High Court. The learned Single .F Judge reversed the decision of the Insurance Court holding that the attendance bonus was payable under the terms of the contract and, therefore, was "wages" within the meaning of Section 2 (22) of the Act. In the Letters Patent Appeal preferred by the appellant, the Division Bench of the High Court confirmed the said decision. Hence the present appeal.

2. To appreciate the controversy between the parties, it is necessary to understand the salient features of the Bonus Scheme. The Bonus Scheme was a part of a settlement entered into between the appellantemployer and the union of the workmen in 1966. According to this Scheme which was introduced w.e.f. 1.7.1966, if a worker is present for all the H working days during a quarter, he is entitled to attendance bonus

WELLMAN PVT. LTD. v. E.S.l.CORPORATION (SAWANT, J.) 571

equivalent to four days' wages. If he remains absent for one day in a A quarter, he is to be paid attendance bonus equivalent to two days' wages for the first four quarters. If he is absent for two days in a quarter, he is entitled to attendance bonus equivalent to one day's wages in that quarter.

If a worker is absent for more than two days during a quarter, he is not entitled to any attendance bonus in that quarter. For the purpose of B attendance bonus, the quarters prescribed are April-June, July-September, October-December and January-March. If a worker is newly appointed in the middle of the quarter he is not entitled to attendance bonus for the relevant quarter. The attendance bonus is to be paid in the month following each year. For entitlement to the attendance bonus, further, casual leave or any kind of leave is to be treated as absence. Only privileged leave taken C in a single quarter is to be treated as presence in that quarter.

For our purpose, what is necessary to note is that a settlement was arrived at in the course of the conciliation proceedings before the Conciliation Officer under Section 12(3) of the Industrial Disputes Act, 1947 (the 'ID Act'). It was, therefore, binding on all parties to the dispute as well D as the successors and assignees of the appellant and the subsequently employed workmen under Section 18 (3) of that Act. The settlement could not be put end to by any of the parties unilaterally. In other words, the Bonus Scheme had become an express contract of employment since the date of the settlement. E

3. In the light of this legal status of the Bonus Scheme, we have to examine the relevant provisions of the present Act. Subsection (22) of . .

Section 2 of the Act defines "wages" as follows :

"2.(22). "wages" means all remuneration paid or payable in cash to F 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- G

(a) any contribution paid by the employer to any pension fund or provident fund, or under this Act;

(b) any travelling allowance or .the value of any travelling concession; H

A .,

(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;"

Sub-section (23) of Section 2 defines "wage period" in relation to an B employee to mean "the period in respect of which wages are ordinarily

payable to him whether in terms of the contract of employment, express or implied or otherwise".

Section 39 of the. Act deals with contributions to be paid by the c employer and the employee. Section 40 provides for payment of contribution by the principal employer in the first instance. Relevant provisions of the saici sections read as under :

"39. Contributions -1. The contribution payable under this Act in respect of an employee sW comprise contribution payable by the D employer (hereinafter referred to as the employer's contribution) and contribution payable by the employee (hereinafter ref erred to as the employees' contribution) and shall be paid to the corporation.

2. the contributions shall be paid at such rates as may be prescribed

E by the Central Gvernment : - Provided that the rates so prescribed shall not be more than the rates which were in force immediately before the commencement of the Employees' State Insurance (Amendment) Act, 1989.

3. The wage period in relation to an employee shall be the unit in

~ F respect of which all contributions shall be payable under this Act.

4. The contributions payable in respect of each wage period shall ./ ordinarily fall due on the last day of the wage period and where an employee is employed for part of the wage period is employed

G under two or more employers during the same wage period the contributions shall fall due on such days as may be specified in the regulations.

5 (a) If any contribution payable under this Act is not paid by the principal employer on the date on which such contribution has H become due, he shall be liable tQ pay simple interest at the rate of

WELLMANPVf.LID.v. E.S.l.CORPORATION[SAWANT, J.) 573

twelve per cent, per annum or at such higher rate as may be A specified in the regulations till the date of its actual payment :

Provided that higher interest specified in the regulations shall not exceed the lending rate of interest charged by any scheduled bank.

(b) Any interest recoverable under clause (a) may be recovered as an arrear of land revenue or under section 45C to Section 45-1."

40. Principal employer to pay contribution in the first instance. -1.

The principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate C employer, both the employer's contribution and the employee's contribution.

2. Notwithstanding anything contained in any other enactment but subject to the provisions of this Act and the regulations, if any, D made thereunder, 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 the contribution is payable, or in excess of the sum representing the employee's contribution for the period."

4. The controversy in the present case centres round the question as to F whether the attendance bonus in question is remuneration within the meaning of the first part of the definition of "wages" or is "other additional remuneration" within the meaning of the second part of the said definition given in Section 2 (22) of the Act. If it falls within the first part of the, definition the appellant's case must fail. However, if it is "other additional G remuneration", the appellant has also to prove that it is not pl!id under the contract and that it is paid at intervals exceeding two months. In other words, if the interval of payment of the additional remuneration is more than two months, it would not be "wages" within the meaning of the said definition.

5. Shri Salve, appearing for the appellant relied upon two decisions H

A of this Court in support of his contention that attendance bonus is not wages. In Bala Subramanya Rajaram v. B.C. Patil & Ors., (1958] SCR 1504, what fell for consideration was whether the bonus awarded by the industrial court was wages within the meaning of that word under the Payment of Wages Act, 1936. There the definition of "wages" leaving aside the part of

B the definition which is not material, read as follows :

"'Wages' means all remuneration .......... which would, if the terms of the contract of employment, express or implied, were fulfilled, be payable, whether conditionally upon regular attendance, good work or conduct or other behaviour of the person employed, or C otherwise, to a person employed in respect of this employment or of work done in such employment and includes any bonus or other additional remuneration of the nature aforesaid which would be so payable and any sum payable to such person by reason of the termination of his employment, but does not include ..•....... "

D The Cou, rt held that the bonus awarded by the Industrial Court was not in terms of a contract of employment but as a result of an industrial dispute raised by the workmen. It would not fall within the definition of "wages" under that Act.

In M/s. Harihar Polybibres v. Regional Director, ES/ Corporation, E (1984] 4 sec 324, the very definition of "wages" under Section 2(22) of the

- present Act fell for consideration and it "'.as held that the word "remuneration" occurring in the context of the words "other additional remuneration" need not be under the contact of employment and that such remuneration would include house rent allowance, night-shift allowance, incentive alp lowance and heat, gas and dust allowance. In this context, the Court held that the Act is a welfare legislation and the definition of "wages" is designedly wide. Any ambiguous expression should receive a beneficial construction under the definition. Here again, what fell for consideration was whether the said allowances were "other additional remuneration" and G whether such additional remuneration had to be a part of the contract of employment. The Court held that the said allowances were other additional remuneration and that such additional remuneration need not be a term of the contract of employment. .

Shri Salve, learned counsel appearing for the appellt also relied H upon Bridge & Roof Co. (India) Ltd. v. Union of India, [1963] 3 SCR 978

WELLMAN PVT.LTD. v. E.S.l.CORPORATION (SA WANT, J.) 575

where the question which fell for consideration was whether the production A bonus paid by the Company could be taken into consideration in calculating the contribution under Section 6 of the . Employees' Provident Fund Act, 1952. The definition of "basic wages" under Section 2 (6) of that Act was as follows :

'"Basic wages' means means all emoluments which are earned by B

~ employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include •

(i) the cash value of any food concession;

/ /

(ii)° any dearness allowance (that is to say, all cash payments by

whateve~ name called paid to an employee on account of a rise in

the cost' of living), house-rent allowance, overtime allowance, bonus; commission or any other similar allowance payable to the employee in respect of his employment or of work done, in such D employment; ·

(iii) any presents made by the employer;"

It would thus be apparent from the above definition that "bonus" without any qualification was expressly excepted from the term "basic E wages". It was argued on behalf of the Company that in view of the unqualified use of the word bonus, all kinds of bonus including production bonus were excluded from the said definition and hence production bonus could not be taken into consideration for calculating the contribution. The Court accepted the said contention and set aside the decision of the F Central Government that Provident Fund contribution must also be made on the production bonus.

In Jay Engineering Works Ltd. & Ors. v. The Union of India & Ors.,

(1963) 3 SCR 995, which was also relied upon by Shri Salve, again the definition of the term "basic wages" under Section 2{b) of the Employees G Provident Funds Act fell for consideration in the context of a peculiar production bonus scheme. Under the scheme, a certain proportion of the production was taken to correspond to the minimum basic wages and dearness allowance fixed by the awards and this was termed as "quota".

The production above the quota was paid at piece-raes. There was also a H

A norm fixed which _was much higher than the quota. Every workman who failed to produce the norm was to be considered as guilty of misconduct and liable to be dismissed. The company relng upon the decision of this Court in Bridge & Roof Co. case (supra) contended that the entire payment for production above the quota was payment of production bonus and, B therefore, could not be taken into account for the purposes of contribution

to Provident Fund. It was also contended that even if the payment for such production was not production bonus, it should be treated as payment in the nature of "other similar allowance" appearing in the said definition of "basic wages". The Court held that the real base or standard of production was the norm and any payment above the norm would be real production C bonus and any payment upto the norm was "basic wages" for the purposes of the Act and that the payment made above the norm would alone be production bonus and would not be available for calculating the contribution to the Provident Fund.

6. As pointed out above, the attendance bonus payable to the employees is under the terms of the settlement which has become a part of the contract of employment. Hence the said the said bonus will fall within the first part of the definition of "wages" under Section 2(22) of the Act which covers all remuneration paid or payable in cash to an employee if.the terms of contract of employment, express or implied, were fulfilled.

E It is, therefore, really not necessary for us to consider whether it will be "other additional remuneration" and if so whether further it will be excluded from the definition of "wages" because it is not payable within a period of two months from the date it is due. However, if it is necessary to express our view on the point, according to us, the expression "other F additional remuneration, if any, paid ............. " implies that the said remuneration is not payable under any contract of employment, express or implied. This is so because while the first part of the definition refers to remuneration under the contract of employment, the second part does not refer to remuneration under any such contract. Secondly, the definition is inclusive and includes only such payments outside the contract as are G mentioned in its second part and none other. Thirdly, the expression "if any, paid" after the words "other additional remuneration" will be inconsistent if the remuneration is payable under the contract of employment since such payment is not dependent on the will of the employer but on the fulfilment of the terms of the eontract. Lastly, the second part of the H definition includes only such contractual payments as are specifically men-

WELLMAN PVT. LTD. v. E.S.l.CORPORATION [SAWANT, J.) 577

tioned therein and the exclusionary part does not include the attendance A bonus like the present which is payable as stated above under a contract.

Hence the expression "other additional remuneration, if any, paid" not only does not refer to remuneration payable under any contract but refers to such remuneration which is payable at the will of the employer. Every remuneration that is payable under the contract would, therefore, fall B under the first part of the definition.

For the above reasons, we agree with the conclusion of the High Court and dismiss the appeal with costs.

N.P.V.

Appeal dismissed .