Bridge & Roof Co. (India) Ltd Vs.
Union of India [1962] INSC 255 (11 September 1962)
WANCHOO, K.N.
SINHA, BHUVNESHWAR P.(CJ) IMAM, SYED JAFFER
SUBBARAO, K.
SHAH, J.C.
AYYANGAR, N. RAJAGOPALA
CITATION: 1963 AIR 1474 1963 SCR (3) 978
CITATOR INFO :
F 1963 SC1480 (1,3,4,9) D 1979 SC 607
(3,4,10)
ACT:
Employees Provident Fund-Bonus-Whether
excepted from definition of 'Basic Wages'-Contribution-Whether to be paid on
bonus-Bonus, whether denotes, only Profit Bonus--Central Government Order
Validity-Employees Provident Fund Act, 1952 (19 of 1952), ss. 2(b), 5, 6, 19A.
HEADNOTE:
The petitioner No. 1 is a public limited
company engaged in a manufacture of engineering goods. In additional to basic
wages and dearness allowance payable by petitioner No. 1 it has introduced two
Production bonus schemes. Certain difficulties and doubts having arisen on the
question whether production bonus could be taken into consideration in
calculating the contribution under s. 6 of the 979 Employees Provident Fund
Act, 1952, the Central Government passed an order by which it was directed that
the production bonus payable as part of a contract of employment either at a
flat rate or at a rate linked to the quantum of work turned out satisfied the
definition of "basic wages" under s. 2(b) of the Act. The petitioner
No. 1 was further directed to effect the recovery of provident fund and
contribution and to make deposit of arrears of contribution in accordance with
the first direction contained in the order. Thereupon the present petition was
filed under Art. 32 of the Constitution.
The main contention of petitioner No. 1 was
that ,bonus' without any qualification had been excepted from the terms
"basic wages" in the definition in s. 2(b) of the Act and therefore
all kinds of bonus were excluded from "Basic wages". Since the
section which provides for contribution only refers to basic wages, dearness
allowance and retaining allowance no contribution need be paid on bonus.
Consequ- ently the order of the Central Government directing that production
bonus should be included in basic wages for the purpose of contribution under
the section was invalid.
Held, that when the word "bonus"
was used without any qualification the legislature had in mind every kind of bonus
that may be payable to an employee which was prevalent in the industrial field
before 1952. It is not possible to accept the contention of the respondent that
whatever is the price of labour and arises out of contract is necessarily
included in the definition of "basic wages" and therefore production
bonus which is a kind of incentive wage would also be included, in view of the
exceptionof all kinds of bonus from the definition. Therefore the order of the
Central Government, which was presumably under s. 19A of the Act, was
incorrect.
M/s. Titagur Paper Mills Co. Ltd. v. Its
Workmen, [1959] Supp. 2 S.C.R. 1012, M/s. IspahaniLtd. Calcutta v. Ispahni
Employees Union, [1960] 1 S.C.R.24, The Graham Trading Co. Ltd. v. Its Worker,
[1960] 1S.C.R. 107 and Mill owners Association v. The Rashtriya Mill Mazdoor
Sangh, Bombay, (1960) L.L.J. 1247, referred to.
ORIGINAL JURISDICTION : Petition No. 62 of
1962.
Petition under Art. 32 of the Constitution of
India for enforcement of Fundamental Rights.
980 G.B. Pai, J. B. Dadachanji, O. C. Mathur
and Ravinder Narain for the petitioners.
Veda Vyasa and R, H. Dhebar, for respondents
Nos. 1 and 2.
M.S. K. Sastri and M. S. Narasimhan, for
respondent No.
1962. September 11. The Judgment of the Court
was delivered by WANCHOO, J.-The short question raised in this writ petition
under Art. 32 of the Constitution is whether production bonus is included
within the term "basic wages" as defined in s. 2(b) of the Employees'
Provident Funds Act, No. 19 of 1952, (hereinafter referred to as the Act) Writ
Petition 64 of 1962 (The Jay Engineering, Works Limited V. The Union of India)
was heard along with this petition. In that writ petition a further question
arose as to the nature of the production bonus scheme in force in that company
and parties have been given time to file additional. affidavits in that
connection. What we say therefore: in the present case as to reduction bonus
generally may not be taken necessarily to apply to the particular scheme in the
case of writ petition No. 64 of 1962.
The brief facts necessary for present
purposes are these.
Petitioner No. 1 (hereinafter' referred to as
the Company) is a public limited company engaged in the manufacture of
engineering goods, structural fabrication and rolling stock, and the Act
applies to the Company. The Company has a production bonus scheme in force
which provides for payment of production bonus over and above wages fixed by
the major engineering award of 1958, published in the Calcutta gazette dated
November 5, 1958, which governs 74 major engineering concerns in 981 that
region including the Company' That award is still in force and has fixed basic
wages and dearness allowance on time rate basis for the entire major
engineering industry.
In addition to basic wages and dearness
allowance payable under the award, the Company has two production bonus schemes
one for the hourly rated workers and the other for the rest. It is unnecessary
to go into the details of the two schemes; but the main feature of the two
schemes is that production bonus begins to be paid on certain rates specified
in the two schemes when the output reaches 5,000 tons per year and that no
production bonus is paid when the output is less than 5,000 tons per year. It
maybe added that the scheme relating to the hourly rated workers has been
revised from January 1, 1962 and the main feature of this revision is that the
Scheme is now applicable to those workers on a quarterly basis. According to
this revised scheme, production bonus begins when the output for the quarter
reaches 1300 tons, and there is no production bonus if the output is below 1300
tons. In the case of other staff, the old scheme is still in force, though it
is stated for the Company that negotiations are going on for revising the old scheme,
presumably to bring it into line with the new scheme introduced for hourly
rated workers since January 1, 1962.
We may now briefly refer to the relevant
provisions of the Act which require consideration. The Act provides by s. 5 for
the introduction of Employees' Provident Fund Scheme for certain industries
included in Schedule 1 to the Act. In consequence a Provident Fund Scheme was
framed in September 1952 knows as the Employees Provident Funds Scheme, 1952,
and it is applicable to the company. Section 6 of the Act provides for
contribution by the employer and the 982 employee to the provident fund and
this contribution is 6- 1/4 per centum of the basic wages, dearness allowance
end retaining allowance (if any) for the time being payable in the ease of
both. Section 6 further provides for certain increased contribution; but we are
not concerned with that in the present case. Basic wages" have been
defined in s. 2(b) of the Act thus :
" `Basic wages' means all emoluments
which are earned by an 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 whatever 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 employment, (iii) any presents made by
the employer;" Further, s. 19A of the Act provides for the removal of
difficulties and lays down that, if any difficulty arises in giving effect to
the provisions of the Act,, and in particular, if any doubt arises as to
certain matters including ,,whether the total quantum of benefits to which an
employee is entitled has been reduced by the employer", the Central
Government may by order, make such provision or give such direction, not inconsistent
with the provisions of the Act, as appears to it to be necessary or expedient
for the removal of the 983 doubt or difficulty, and the order of the Central
Government in such cases shall be final.
It appears that difficulties and doubts arose
on the question whether production bonus could be taken into account in
calculating the contribution of 6-1/4 per centum under s. 6 of the Act, and the
Central Government directed about the March 7, 1962 that the question whether
production bonus should be liable to provident fund deduction under the Act had
been reexamined by it and it had been decided that production bonus, payable as
part of a contract of employment either at a flat, rate or at a rate linked to
the quantum of work turned out satisfied the definition of "basic
wages" under s. 2 (b) of the Act. The Company was further directed to
effect recovery of provident fund contributions on production bonus without any
farther delay and arrear contribution in this respect payable with effect from January 1, 1960, was also to be deposited in the statutory fund immediately. The present
petition was thereafter filed in April 1962 and is directed against the
decision of the Central Government which was duly communicated to the Company
in March 1962.
The main contention of the Company is that
bonus without any qualification has been expected from the terra ",basic
wages" in the definition in s. 2(b) of the Act. Therefore, all kinds of
bonus whether it be profit bonus or production bonus or attendance bonus or
festival bonus either as an implied condition of service or as a customary
payment, are excluded from "basic wages". Farther, s.6 which provides
for contribution only refers to basic wages, dearness allowance and retaining
allowance (if any) and contributions have to be made at the appropriate rate on
these three payments and not on bonus which is not included in s. 6 It is urged
that when the Act was passed 984 in 1952 the legislature was aware of the
various kinds of bonus which were being paid by various Concerns in various
industries and when it decided to exclude bonus without any qualification from
the term "(basic wages" as defined in s. 2(b), it was not open to the
Central Government to direct that production bonus should be included in basic
wages for the purposes of contribution under s. 6. Besides this contention
based on the interpretation of the word "bonus" in s. 2(b), it is
further contended that if the word "bonus" therein excludes
production bonus the provision would be unconstitutional as it would be hit by
Art. 14 of the Constitution inasmuch as production bonus is not a general
feature of all industrial concerns but has been introduced only in some. The
result of including production bonus within basic wages would be that some
concerns where production bonus prevails would be contributing to the provident
fund at a much higher rate than others where no production bonus prevails.
The petition has been opposed on behalf of
the Union of India and also on behalf of the two trade unions, which are existing
in the Company. It is contended for the respondents that wages are the price
for labour and arise out of contract, and the use of the term "basic
wages" merely indicates that a certain part of the total wages is being
separated for certain purposes only. Therefore production bonus being in the
nature of incentive wage must be included in the definition of the term
"basic wages" in s. 2(b), as basic wages there defined are "all
emoluments which are earned by an 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......... Therefore, production bonus being in the
nature of an incentive wage is included 985 in the terms "all
emoluments" in the definition of "basic wages", for production
bonus is earned by an employee while on duty in accordance with the terms of
the contract of employment. It is further submitted that when the word
"bonus"' was "used in el. (ii) of the exceptions to s. 2(b), it
only referred to profit bonus, as it was well established before 1952 that the
use of the word "bonus" without any qualification referred to profit
bonus only in industrial adjudications. Therefore, when cl. (ii) of the
exceptions to s. 2(b) excepted "bonus" without any qualification it
referred only to profit bonus and not to any other kind of bonus.
The main question therefore that falls for
decision is as to which of these two rival contentions is in consonance with s.
2 (b). There is no doubt that ",basic wages" as defined therein means
all emoluments which are earned by an 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. If there were no exceptions to this definition, there
would have been no difficulty in holding that production bonus whatever be its
nature would be included within these terms. The difficulty, however, arises
because the definition also provides that certain things will not be included
in the term "basic wages", and these are contained in three clauses.
The first clause mentions the cash value of any food concession while the third
clause mentions any presents made by the employer.
The fact that the exceptions contain even
presents made by the employer shows that though the definition mentions all
emoluments which are earned in accordance with the terms of the contract of
employment, care was taken to exclude presents which would ordinarily not be
earned in accordance with the terms of the contract of employment.
986 Similarly, though the definition includes
"all emoluments" which are paid or payable in cash, the exception
excludes the cash value of any food concession, which in any case was not
payable in cash. The exceptions therefore do not seem to follow any logical
pattern which would be in consonance with the main definition.
Then we come to el. (ii). It excludes
dearness allowance, 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 employment. This exception suggests that
even though the main part of the definition includes all emoluments which are
earned in accordance with the terms of the contract of employment, certain
payments which are in fact the price of labour and earned in accordance with
the terms of the contract of employment are excluded from the main part of the
definition of "basic wages". It is undeniable that the exceptions
contained in el. (ii) refer to payments which are earned by an employee in
accordance with the terms of his contract of employment. It was admitted by
counsel on both sides before us that it was difficult to find any one basis for
the exceptions contained in the three clauses. It is clear however from cl. (ii)
that from the definition of the word "basic wages" certain earnings
were excluded, though they must be earned by employees in accordance with the
terms of the contract of employment. Having excluded " dearness
allowance" from the definition of "basic wages". a.
6 then provides for inclusion of dearness
allowance for purposes of contribution. But that is clearly the result of the
specific provision in s.6 which lays down that contribution shall be 6-1/4 per
centum of the basic wages, dearness allowance and retaining allowance (if any).
We must therefore try to discover some basis for the exclusion 987 in cl. (ii)
as also the inclusion of dearness allowance and retaining allowance (for any).
in s. 6. Itseems that the basis of' inclusion in s. 6 andexclusion in cl. (ii)
is that whatever is payable in all concerns' and is earned by all permanent
employees is included for the purpose, of contribution under s. 6, but whatever
is not payable by all concerns or may not be earned by all employees of a
concern is excluded for the purpose of contribution. Dearness allowance (for
examples is payable in all concerns either as an addition to basic wages or as
a part of consolidated wages where a concern does not have separate dearness
allowance and basic wage Similarly, retaining allowance is pay able to all
permanent employees in all seasonal factories like sugar factories and is
therefore included in a. 6; but house-rent allowance is not paid in many
concerns and sometimes in the same concern it is paid to some employees but not
to others, for the theory is that house- rent is included in the payment of
basic wages plus dearness allowance or consolidated wages. Therefore,
house-rent allowance which may not be payable to all employees of a concern and
which is certainly not paid by all concern is taken out of the definition of
"basic wages", even though the basis of payment of house rent
allowance where it is paid is the contract of employment. Similarly, 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". Similarly,
commission or any other similar allowance is excluded from the definition of
"basic wages" for commission and other allowances are not necessarily
to be found in all concerns;
nor are they necessarily earned by all 988
employees of the same concern, though where they exist they are earned in
accordance with the terms of the contract of employment. It seems therefore
that the basis for the exclusion in cl. (ii) of the exceptions in s. 2 (b) is
that all that is not earned in all concerns or by all employees of concern is
excluded from basic wages. To this the exclusion of dearness allowance in cl.
(ii) is an, exception. But that exception has been corrected by including
dearness allowance in s. 6 for the purpose of contribution. Dearness allowance
which is an exception in, the definition of "basic wages", is
included for the purpose of contribution by s. 6 and the real exceptions
therefore in el. (ii) are the other exceptions beside dearness allowance, which
has been included through s. 6.
This brings us to the consideration of the
question of bonus, which is also an exception in el. (ii). Now the word
"bonus" has been used in this clause without any qualification.
Therefore, it would not be improper to infer that when the word
"bonus" was used without any qualification in the clause, the
legislature had in mind every kind of bonus that may be payable to an employee.
It is not disputed on behalf of the respondents that bonuses other than profit
bonus were in force and well-known before the Act came to be passed in 1952.
For example, the Coal Mines Provident Fund and Bonus Schemes Act, No. 46 of
1948, provided for payment of bonus depending on attendance of employees during
any period. Besides the attendance bonus, four other kinds of bonus had been
evolved under industrial law even before 1952 and were in force in various
concerns in various industries. There was first production bonus, which,. was
in force in some concerns long before 1952 (see 989 Messrs. Titaghur Paper
Mills Co. Limited v. Its Workmen).
(1) Then there was festival or puja bonus
which was in force as an implied term of employment long before 1952 (see
Messrs. Ispahani Limited Calcutta v. Ispahani Employees' Union) (2). Then there
was customary bonus in connection with some festival (see The Graham Trading Co. (India) Limited v. Its Workmen). (3). And lastly, there was profit bonus the principles
underlying which and the determination of whose quantum were evolved by the
Labour Appellate Tribunal in the Mill owners' Association v. The Rashtriya Mill
Mazdoor Sangh, Bombay. (4) The legislature therefore could not have been
unaware that these different kinds of bonus were being paid by different
concerns in different industries, when it passed the Act in 1952. Therefore,
unless the contention on behalf of the respondents that bonus when it was used
without qualification can only mean profit bonus is sound, it must be held that
when the legislature used the term "bonus" without any qualification
in cl. (ii) of the exception in s. 2 (b), it must be referring to every kind of
bonus which was prevalent in the industrial field before 1952. The contention
therefore of the respondents that when the term "bonus" was used in
industrial law before 1952 without any qualifying term it meant only profit
bonus and nothing else, requires careful consideration." We do not think
however that this contention is well founded. It is true, as will appear from
the terms of reference in various cases of profit bonus that the word
"profit" was not used as a qualifying word before the word
"bonus" in such cases. It may also be that in many cases where a
particular type of bonus was in dispute, say, attendance or "puja bonus,
the qualifying word "attendance" or "puja" was use in
references. But it appears that where a reference 1. [1959] Supp. 2 S.C.R.
1012. 2. [1960] 1 S.C.R. 24.
3. [1960] 1 S. C. R. 107. 4. [1950] I.L.J.
1247.
990 was in connection with profit bonus, the
usual practice was to make the reference after qualifying the word bonus"
by the year for which the profit bonus was claimed. For example, we may refer
to the case of Millowners' Association Bombay v. The Bashtrya Mill Mazdoor
Sangh. (1) Therein para 16 at p. 1252, we find the term of reference in
Reference No. 1 of 1948 (Millowners' Association Bombay v. The Employees in the
Cotton Textile Mills Bombay) in these terms- "Re : Bonus for the year
1947" It seems therefore that when reference was with respect to profit
bonus, the term "bonus" though not qualified by the word
"profit" bad always been limited by specifying the year for which the
bonus was being claimed. Though, therefore, it may be true that literally
speaking, the word ",profit" was not used to qualify the word
"'bonus" when references were made with respect to profit bonus, the
matter was put beyond controversy that the use of the word "bonus"
without any qualification was with reference to profit bonus by adding the year
for which the bonus was being claimed. It would therefore be not right to say
that in industrial adjudications before 1952, bonus without any qualifying word
meant profit bonus and nothing else. Further though the word "profit"
was not used to qualify the word "bonus", the intention was made
quite clear when profit bonus was meant by using the words "for the year
so and Sol# after the word "bonus". We are therefore not prepared to
accept that where the word "bonus" is used without any qualification
it only means profit bonus and nothing else. On the other hand, it seems to us
that the use of the word "bonus" without any qualifying word before
it or without any limitation 1. (1950) L.L.J. 1247.
991 as to year after it must refer to bonus
of all kinds known to industrial law and industrial adjudication before 1952.
The reason for the exclusion of all kinds of
bonus is also in our opinion the same which led to the exclusion of house- rent
allowance, overtime allowance, commission and any other similar allowance,
namely, that payment of bonus may not occur in all industrial concerns or it
may not be made to all employees of an industrial concern (as, for example,
attendance bonus) and that is why bonus of all kinds was also excluded from the
definition of the term "basic wages".
The Act is an All-India Act applicable to all
industries mentioned in Sch. I and to all concerns engaged in those industries;
and the intention behind the exclusion seems to be to make the incidence of
provident fund the same in all industrial concerns, which are covered by the
Act so that it was necessary to exclude from the wide definition of ,basic
wages" given in the opening part, all such payments which would not be
common to all industries or to all employees in the same concern. We have
already . pointed out that to this principle, only dearness allowance in cl.
(ii) is an exception; but that exception has been corrected by the inclusion of
dearness allowance in s.6. We are therefore of opinion that there is no reason
why when the, word "bonus" is used in el. (ii) without any qualifying
word, it should not be interpreted to include all kinds of bonus which were
known to industrial adjudication before 1952 and which must therefore be deemed
to be within the knowledge of the legislature.
This brings us to the consideration of the
contention raised on behalf of the respondents that wages are the price for
labour and arise out of contract, and that whatever is the price for labour and
arises out of contract, was intended to be included in the definition of
"basic wages" 992 in s.2(b), and that only those things, were
excluded which were a reward for labour not arising out of the contract of
employment but depending on various other considerations like profit or
attendance. It may be, as we have pointed out earlier, that if there were no
exceptions to the main part of the definition in s.2(b), whatever was payable
in cash as price for labour and arose out of contract would be included in the
term "basic wages", and that reward for labour which did not arise
out of contract might not be included in the definition. But the main part of
the definition is subject to exceptions in cl. (ii), and those exceptions
clearly show that they include even the price for labour. It is therefore not
possible to accept the contention on behalf of the respondents that whatever is
price for labour and arises out of contract is include 1 in the definition of "basic
wages" and therefore production bonus which is a kind of incentive wage
would be included.
This court had occasion to consider
production bonus in Messrs. Titaghur Paper Mills Co. Ltd. v. Its Workmen, (1)
It was pointed out that "the payment of production bonus depends upon
production and is in addition to wages. In effect, it is an incentive to higher
production and is in the nature of an incentive wage". rho straight piece
rate plan where payment is made according to each piece produced is the simplest
of incentive wage plans. In a straight piece rate plan, payment is made
according to each piece produced and there is no minimum and the worker is free
to produce as much or as little as he likes, his payment depending upon the
number of pieces produced. But in such a case payment for all that is produced
would be basic wage as defined in s. 2(b) of the Act, even though the worker is
working under an incentive (1) [1959] Supp 2 S. C.R. 10 12.
993 wage plan. The difficulty arises where
the straight piece rate system cannot work as when the finished product is the
result of the co-operative effort of a large number of workers each doing a
small part which contributes to the result. In such a case the system of
production bonus by tonnage or by any other standard is introduced. The core of
such a plan is that there is a base or a standard above which extra payment is
earned for extra production in addition to the basic wages which is the payment
for work upto the base or standard. Such a plan typically guarantees time wage
upto the time represented by standard performance and gives workers a share in
a savings represented by superior performance. The scheme in force in the
Company is a typical scheme of production bonus of this kind with a base or
standard upto which basic wages as time wages are paid and thereafter extra
payments are made for superior performance. This extra payment may be called
incentive wage and is also called production bonus. In all such cases however
the workers are not bound to produce anything beyond the base or standard that
is set out. The performance may even fall below the base or standard but the
minimum basic wages will have to be paid whether the base or standard is
reached or not. When however the workers produce beyond the base or standard
what they earn is not basic wages but production bonus or incentive wage. it is
this production bonus which is outside the definition of "basic
wages" in s. 2 (b), for reasons which we have already given above. The
production bonus in the present case is a typical production bonus scheme of
this kind and whatever therefore is earned as production bonus is payable
beyond a a base or standard and it cannot form part of the definition of
"basic wages" in s. 2 (b) because of the exception of all kinds of
bonus from that definition. We are therefore of opinion that 994 production
bonus of this type is excluded from the definition of "basic wages"
in P. 2 (b) and therefore the decision of the Central Government, which was
presumably under s. 19A of the Act, to remove the difficulty arising a out of
giving effect to the provisions of the Act, by which such a bonus has been
included in the definition of "basic wages" is incorrect. In view of
this decision, it is unnecessary to consider the effect of Art. 14 in the
present case.
We therefore allow the petition and hold that
production bonus of the typical kind in force in the Company is excerpted from
the term "basic wages" and therefore the decision of the Central
Government communicated to the Company on March 7, 1962, that provident fund
contributions must also be made on the production bonus earned by the employees
in 'his Company, must be set aside. As this petition was heard along with
petition No.64 of 1962 and the main arguments were in that petition, we order
parties to bear their own costs.
Petition allowed.
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