(India) Pvt. Ltd. Vs. Employees State Insurance Corpn  INSC 476 (3 November 1993)
P.B. SAWANT, P.B. YOGESHWAR DAYAL (J)
1994 AIR 1037 1994 SCC (1) 219 JT 1993 (6) 227 1993 SCALE (4)353
Judgment of the Court was delivered by SAWANT, J.- Special leave granted.
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 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 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.
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 appellant-employer and the union of workmen
in 1966. According to this scheme which was introduced w.e.f. July 1, 1966, if a worker is present for all the
working days during a quarter, he is entitled to attendance bonus equivalent to
four days' wages. If he remains absent for one day in a quarter, he is to be
paid attendance bonus equivalent to two days' wages for the first four
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 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 in a single quarter is to be treated as presence in that quarter.
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').
was, therefore, binding on all parties to the dispute as well 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 an 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.
the light of this legal status of the Bonus Scheme, we have to examine the
relevant provisions of the present Act. Sub-section (22) of Section 2 of the
Act defines "wages" as follows:
(22) 'wages' means all remuneration paid or payable in 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 Jay-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;
travelling allowance or the value of any travelling concession;
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
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 employer and
the employee. Section 40 provides for payment of contribution by the principal
employer in the first instance. Relevant provisions of the said sections read
Contributions.- (1) The contribution payable under this Act in respect of an
employee shall comprise contribution payable by the employer (hereinafter
referred to as the employer's contribution) and distribution payable by the
employee (hereinafter referred to as the employees' contribution) and shall be
paid to the Corporation.
The contributions shall be paid at such rates as may be prescribed by the Central
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.
The wage period in relation to an employee shall be the unit in respect of
which all contributions shall be payable under this Act.
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, or is employed 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.
(a) If any contribution payable under this Act is not paid by the principal
employer on the date on which such contribution has become due, he shall be
liable to pay simple interest at the rate of twelve per 223 cent, per annum or
at such higher rate as may be specified in the regulations till the date of its
that higher interest specified in the regulations shall not exceed the lending
rate of interest charged by any scheduled bank.
Any interest recoverable under clause (a) may be recovered as an arrear of land
revenue or under Section 45-C to Section 45-1.
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 employer, both the employer's
contribution and the employee's contribution.
Notwithstanding anything contained in any other enactment but subject to the
provisions of this Act and the regulations, if any, 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:
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
controversy in the present case centres round the question as to 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 remuneration", the appellant has also to prove that it is not
paid under the contract and that it is paid at intervals not 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.
Goswami, appearing for the appellant relied upon two decisions of this Court in
support of his contention that attendance bonus is not wages. In Bala Subrahmanya
Rajaram v. B.C. Patill 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 the definition which is not material, read as follows:
means all remuneration ... which would, if the terms of the contract of employment,
express or implied, were fulfilled, be 1 1958 SCR 1504: AIR 1958 SC 518 :(1958)
1 LLJ 773 224 payable, whether conditionally upon regular attendance, good work
or conduct or other behaviour of the person employed, or 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......
Court 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.
Harihar Polyfibres v. Regional Director, ESI Corpn.2 the very definition of
"wages" under Section 2(22) of the present Act fell for consideration
and it was held that the word "remuneration" occurring in the context
of the words "other additional remuneration" need not be under the
contract of employment and that such remuneration would include house rent
allowance, night-shift allowance, incentive allowance 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 whether such
additional remuneration had to be a part of the contract of employment.
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.
Salve, learned counsel appearing for the Corporation, on the other hand, relied
upon Bridge and Roof Co. (India) Ltd. v. Union of India' where the question
which fell for consideration was whether,the production 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(b) of that Act was as follows:
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;
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;
(1984) 4 SCC 324: 1984 SCC (L&S) 747 3 (1963) 3 SCR 978 : AIR 1963 SC 1474:
(1962) 2 LLJ 490 225 (iii) any presents made by the employer;"
would thus be apparent from the above definition that "bonus" without
any qualification was expressly excepted from the term "basic 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 Central Government that Provident
Fund contribution must also be made on the production bonus.
Jay Engineering Works Ltd. v. Union of India' which was also relied upon by Shri
Salve, again the definition of the term "basic wages" under Section
2(b) of the Employees 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-rates.
There was also 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 relying upon the decision of this Court in
Bridge and Roof Co. case3 contended that the entire payment for production
above the quota was payment of production bonus and, 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 bonus and any payment up to
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.
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 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. 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 additional 4 (1963) 3 SCR 995
: AIR 1963 SC 1480 :(1963) 2 LLJ 72 226 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 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 contract. Lastly, 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.
Every remuneration that is payable under the contract would, therefore, fall
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.