Muir Mills Co. Ltd. Vs. Its Workmen
 INSC 69 (7 April 1960)
GUPTA, K.C. DAS GAJENDRAGADKAR, P.B.
CITATION: 1960 AIR 985 1960 SCR (3) 488
Industrial Dispute-Wage structure-Production
bonus and incentive bonus, if could be taken into consideration when fixing new
basic wage-Intention of Government if can be interpreted to Prejudice interest
of Labour, Industry and Country-U.P. Industrial Disputes Act, 1947 (U. P. 28 of
The appellant paid wages to its workmen in
the Carding Department on piece rate basis and in addition, the workmen were
entitled to receive further emoluments if their production exceeded a certain
norm. The right to receive these additional emoluments had become a part of the
terms of service of these workmen. In 1948 the Government of Uttar Pradesh with
a view to make it obligatory on the employers in the different industries to
keep the wages of workmen at a certain level, by its order under the provisions
of s. 3 of the U.P. Industrial Disputes Act, 1947, laid down the standard of
basic wages and dearness allowance for different industries in the province.
The appellant in giving effect to the said order of the Government for
introducing the new piece rate raised the fixed piece rate but stopped the
system of paying additional emoluments, as it thought itself to be justified,
in taking into consideration for this purpose the amounts actually earned by
the workers including what had been earned as additional emoluments which were
being paid to the workmen by way of productive and incentive bonuses. The
workmen's case was that by stopping the additional emoluments which they used
to get on the basis of better production by extra efforts the employer had in
fact reduced the wages to which they were entitled and the fact that higher
piece rates were introduced did not affect the question. The question was
whether the Government order required or authorised the company to. include the
incentive bonus and the production bonus which they had been so long paying in
fixing the new piece rate for the purpose of compliance with the directions given
in the Government order as regards the basic wages:
Held, that the Government. order did not
require or justify the employer including the production and incentive bonuses
in the calculation of the rates of the basic wage of the workers and
consequently the Government order did not have the effect of absolving the
company from the duty of continuing to pay the production and incentive bonuses
to workmen as before:
Held, further, that the concept of "
basic " is not peculiar to wages alone; it is what is normally allowable
to all, irrespective of special claims and is also ordinarily understood to
mean that part of the price of labour, which the employer must pay to all 489
workmen belonging to all categories. The phrase is used ordinarily in marked
contradistinction to " dearness allowance " the quantum of which
varies from time to time, in accordance with the rise or fall in the cost of
Thus understood " basic wage" never
includes the additional emoluments which some workmen may earn, on the basis of
a system of bonuses related to the production.
Titaghur Paper Mills Co. Ltd. v. Their
Workmen,  SUPP.
(2) S.C.R. 1012, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 305 of 1959.
Appeal by special leave from the Decision
dated January 10, 1957, of the Labour Appellate Tribunal of India, Bombay, in
Appeal No. 111-346 of 1955.
G. S. Pathak, S. P. Sinha and K. K. Sinha for
G. N. Dikshit, for the appellants.
Maqbool Ahmad Khan (General Secretary of the
Union), for respondent No. 1.
J. P. Goyal, for respondent No. 2.
1960. April 7. The Judgment of the Court was
delivered by DAS GUPTA, J.-This appeal by the employer, the Muir Mills Co.,
Ltd., Kanpur, is against the decision of the Labour Appellate Tribunal of
India, Bombay, modifying an award of the Adjudicator, Kanpur, in a reference
made by the Government of: U. P. under the provisions of ss. 3, 4 and 8 of the Industrial
Disputes Act, 1947. The matter in dispute referred was originally set out in
these terms :" Whether the employers have wrongfully and/or unjustifiably
reduced the wages of their workmen of Carding Department, given in the annexure
? If so, to what relief are the workmen entitled and from what date ? " By
an order dated April 25, 1955, the Government amended this issue by
substituting there for the following:" Whether the employers have
wrongfully and/or unjustifiably reduced the wages of their workmen of Carding
Department, given in the annexure., by discontinuing the payment of production
and/or special bonus, if so, to what relief are the workmen entitled and from
what date ? 490 It will be noticed that the issue as re-framed by the amendment
indicated the manner in which the reduction in the wages of these workmen had
been alleged to be made, viz., by " discontinuing the payment of
production and/or special bonus ". To understand how the question of such
a reduction arose and also the considerations which arise in deciding the question
whether the reduction, if any, was wrongful and/or unjustifiable a few facts
need to be mentioned: The appellant company is a textile mill employing in its
Carding Department workmen known as Inter Tenters, Roving Tenters, Draw Frame
Tenters and Slubbers. All these workmen are paid wages on piece rate basis.
Before 1948 the rates in force per hank were -/2/3/for the Inter Tenters,
-/2/3/for the Slubbers and Draw Frame Tenters and -/2/5/for the Roving Tenters.
In addition to this these workmen were entitled to receive further emoluments
if their production exceeded a certain norm. The rates for these further
emoluments then in force were two annas per rupee of basic earnings of Rs. 15
to Rs. 25 per month and three annas per rupee for basic earnings above Rs. 25
per month. Apart from these emoluments payment was also made at 9 pies per hank
if the production on any day was 7 hanks or more. Though both these additional
emoluments were related to production the Tribunals below have described the
first kind as production bonus and the second kind as incentive bonus and it
will be convenient to adhere to that description here.
These two kinds of additional payments which
the workmen would receive only if their production would reach and surpass
certain standards had the result of increasing the total emoluments received by
some of the workmen much above, what they would be getting under the fixed rate
The right to receive these additional
emoluments had become a part of the -terms of service of these workmen. With
effect from December 1, 1948, however the appellant-company stopped the system
of paying such additional emoluments but instead -raised the fixed rate per
hank to -/3/9/for Inter Tenters, -/3/6/for Slubbers and Draw Frame Tenters and
-/4/9/for Roving Tenters. This was done immediately after an order had been
made 491 by the Government under the provisions of s. 3 of the U. P.
Industrial Disputes Act, 1947, laying down the
standards of basic wages and dearness allowance for different industries in the
Province. Clause 2 of this order fixed the minimum basic wage for cotton and
woollen textile industries in Kanpur and certain other areas at Rs. 30 per
month. Clause 3 provided for payment of dear food allowance. Clause 5 provided
that persons who are already employed on November 30, 1948, in any industrial
textile concern shall receive wages at the increased rates mentioned therein.
Clause 7 provided that " every employee of an industrial concern or
undertaking to which this order applies, shall be paid wages including dear
food allowance in accordance with the provisions of cls. (2), (3), (5) and (6).
" There is a proviso to the clause which says that where the consolidated
wage payable to an employee who was on the pay roll of the concern or
undertaking on November 30, 1948, is more than the consolidated wage payable in
accordance with the provisions of the said clauses, the difference shall be
paid to him as personal wage. Clause 8 defines " basic wages " as
" consolidated wages payable to an employee on November 30, 1948, minus
Dear Food Allowance calculated according to the rates prevalent in the concern
on the said date.
The workmen's case is that by stopping the
additional emoluments which they used to get on the basis of better production
by extra efforts the employer had in fact reduced the wages to which they were
entitled and the fact that higher piece-rate were -introduced with effect from
December 1, 1948, does not affect the question. The employer's contention is
that by the Government order it was-required to introduce new piece-rates after
taking into consideration the amounts actually earned by workers including what
had been earned by additional emoluments and so the stoppage of these
additional emoluments did not amount to any reduction.
The Adjudicator held that these additional
emoluments payable as production bonus and incentive bonus had not been taken
into consideration by the company while arriving at the revised piece-rates. He
492 held further that these could not be taken into consideration in law as the
Government order did not contemplate these bonuses to be taken into
consideration in arriving at the appropriate figure for basic wages for the
purpose of the order. In that view the Adjudicator held that there had been an
Unjustifiable reduction in the wages of the workmen and directed the management
to restore with effect from December 1, 1948, " the system of granting
production and incentive bonuses to such of the workmen who are entitled to it
". He also gave directions as to how the calculations should be made for
the purpose of incentive bonus and production bonus.
The Appellate Tribunal thought it unnecessary
to consider the question whether these bonuses had been actually taken into
consideration while fixing new piece rates, being of opinion that if the
Government order did not require or justify the employer's including these
bonuses in the calculation of the new rates the company would be bound in law
to restore these bonuses even if they had actually taken them into
consideration. It held that the Government order did not require or justify the
employer including these bonuses in the calculation of the rates of wages for
the purposes of the Government order. In the result the appellate tribunal
agreed with the first tribunal's decision that this system of granting
production and incentive bonuses must be restored. In view of the fact however
that for a long time after December 1, 1948, the workmen did not raise this
question the appellate tribunal was of opinion that the restoration should be
only with effect from February 1, 1954. As regards the rates at which these
bonuses had to be calculated they also modified the directions given by the Tribunal.
The main contention raised before us on
behalf of the appellant-company is that the appellate tribunal was wrong in
thinking that the Government order did not require or justify the company in
including the additional emoluments being paid by way of production bonus and
the incentive bonus in the calculation of the rates of basic wages for the
purpose of the order, 493 Before we proceed to consider this question it is
proper to mention a preliminary contention which was sought to be raised by Mr.
Pathak, on behalf of the appellant. Referring to a note made by the Adjudicator
on August 27, 1955, he wanted to argue that it was not open to the tribunals
below to consider at all the question whether under the Government order the
appellant could have included the incentive bonus in the calculation of the
basic rate. The note is in these words :" The parties are represented. The
calculations have been filed by them which were made in the presence of the
Adjudicator. There is no difference between the parties that while calculating
the rates with effect from 1-12-48 if production and incentive bonus have been
considered the question of any relief does not arise, and vice versa. The
workers say that in the said wages, these bonuses have not been included while
the employers contend that they have been included.
The latter have not filed the required
Proceedings closed." At first sight,
this does seem to give a basis for an argument that the parties agreed before
the Tribunal to treat the matter as a question of fact only and that the
workmen did not want to raise any question that under the Government order
these bonuses could not be included in the calculation of the rates. It is
unnecessary however for us to examine the effect of such concession in view of
what transpired before the appellate tribunal. From the judgment of that
Tribunal we find that on behalf of the workmen it was stated that they had not
conceded any such position in the lower tribunal and that their contention was
that such bonuses had not and could not be taken into consideration.
It is also clear from the judgment that in
view of this the parties argued their appeal before the appellate tribunal on
both these contentions, viz., whether the Government order in question allowed
the employers to include the bonuses in question in the calculation of the new
rates of basic wages in the case of the piece-rate workers like those concerned
in this and if so, whether the employers have in 63 494 fact taken these
bonuses into account. It is clear that the contention that in view of the
concession made on August 27, 1955, it was not open to the appellate tribunal
to go into the question whether the Government order required or authorised the
employer's including the bonuses in the calculation of the new rates was
abandoned before the tribunal below. When it was pointed out to Mr. Pathak that
in view of this, he should not be allowed to raise this contention Mr. Pathak
fairly abandoned this contention here also.
The real question therefore is whether the
Government order required or authorised the company to include the incentive
bonus and the production bonus which they had been so long paying in fixing the
new piece rate for the purpose of compliance with the directions given in the
Government order as regards the basic wages. In finding the correct answer to
this question it is necessary to examine the entire scheme of the Government
order. The relevant clauses of the Government order have already been set out.
The purpose of the scheme, on the face of it, is to make it obligatory on the
employers in different industries to keep wages of workmen at a certain level.
This purpose is sought to be achieved by laying down on the one hand the basic
wages Which must be paid and on' the other hand the dearness allowance-called
in the Government order dear food allowance-which must be paid. The concept of
basic wage is familiar to employers and workmen and all who have to deal with
the problems of labour's remuneration. It may be profitably remembered in this
connection that the concept of a " basic " is not peculiar to wages
alone. For instance, when any rationing system is introduced for any commodity,
whether it is food, or coal, or petrol or some other commodity, it is usual to
fix a quantum as the basic ration.
The underlying idea is to fix some amount as
what every individual coming under the system will get; while additional
amounts to be fixed in accordance with further directions will be allowed to
some individuals, in view of their special claims as supplementary rations.
" Basic " in all such cases is what is normally allowable to all-irrespective
495 of special claims. The phrase "I basic wages " is also ordinarily
understood to mean that part of the price of labour, which the employer must
pay to all work-' men belonging to all categories. The phrase is used
ordinarily in marked contra-distinction to " dearness allowance ",
the quantum of which varies from time to time, in accordance with the rise or
fall in the cost of living.
Thus understood " basic wage" never
includes the additional emoluments which some workmen may earn, on the basis of
a system of bonuses related to the production. The quantum of earnings in such
bonuses varies from individual to individual according to their efficiency and
diligence ; it will vary sometimes from season to season with the variations of
working conditions in the factory or other place where the work is done; it
will vary also with variations in the rate of supplies of raw material or in
the assistance obtainable from machinery. This very element of variation,
excludes this part of workmen's emoluments from the connotation of " basic
wages ". But, says the appellant, whatever may be ordinarily under. stood
by the word " basic wages " hardly matters when the Government order
itself contains a definition of " basic wage ". Clause 8, which has
already been referred to is in these words:-" Basic Wages " for the
purposes of this order will mean consolidated wages payable to an employee on
November 30, 1948, minus Dear Food Allowance calculated according to the rates
prevalent in the concern on the said date." On behalf of the appellant Mr.
Pathak concentrates on the words " consolidated wage ", and argues
that everything which answers to the description of wage must be included in
this process of consolidation.
Contending next that the emoluments payable
by way of production bonus and incentive bonus are " wages even if not
ordinarily understood to be basic wages he argues that the result of the definition
in cl. 8 is that basic wages for this order is the sum total of all emoluments
answering to the description of wages thus including production and incentive
bonuses, but excluding by reason of the express words used " dearness
allowance, 64 496 In support of his argument that production or incentive
bonuses which used to be paid by the company is also a kind of wage the learned
advocate has placed strong reliance on some observations made by this Court in
Titaghur Paper Mills Co., Ltd. v. Their Workmen (1) that a production bonus is
in the nature of an incentive wage.
We will presently consider how far the fact
that these bonuses are in the nature of an incentive wage assists the
appellant's contention that it has to be included in the " consolidated wage"
within the meaning of cl. 8 of the order.
But before we do that, it will be proper to
see exactly what this Court said in the above case. A question had been raised
as regards the jurisdiction of the Industrial Tribunals to go into the question
of any production bonus claim at all, that being a matter of agreement between
the employer and the employees. In considering this question this Court thought
fit to consider first what a production bonus essentially is. In the course of
that discussion the Court said:" Before we go into the question of
jurisdiction of a tribunal under the Industrial Disputes Act, 1947 (hereinafter
called the Act), we should like to consider what production bonus essentially
is. 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." "There is a base or standard above
which extra payment is made for extra production in addition to the basic wage.
Such a plan typically guarantees time wage up
to the time represented by standard performance and gives workers a share in
the savings represented by superior performance." "Therefore
generally speaking, payment of production bonus is nothing more or less than a
payment of further emoluments depending upon production as an incentive to the
workmen to put in more than the standard performance. Production (1) 
SUPP. 2 S.C.R. 1012 497 bonus in this case also is of this nature and is
nothing more than additional emolument paid as an incentive for higher
production. We shall later consider the argument whether in this case the
production bonus is anything other than profit bonus. It is enough to say at
this stage that the bonus under the scheme in this case also depends essentially
on production and therefore is in the nature of incentive bonus." It is
important to notice that while the learned counsel is undoubtedly right in
saying that a bonus related to production was described in this case as in the
nature of an incentive wage, the Court was equally emphatic in laying down that
such bonuses form no part of wages as ordinarily understood and again that
these are in addition to basic wages. Can it be reasonably said that even such
"incentive wage" though not forming part of basic wage' as ordinarily
understood was intended to be included in the consolidation of wages which cl.
8 speaks of? The answer must be in the negative. While it is true that the word
" consolidated wage " taken away from the context would import the
inclusion of every kind of wage, we have to remember that here it is basic wage
which is being, defined. It will be unreasonable to think that in defining
basic wage the Government would include something which is always understood to
be outside the ordinary concept of basic wage.
Remembering as we must that it is basic wage
which is being defined here it is reasonable to think that only such emoluments
which are receivable by the workmen generally, as a normal feature of their
earnings and therefore satisfy the characteristics of " basic wage ",
are intended to be covered by the consolidation. It is because dear food
allowance does not satisfy this characteristic that this has been expressly
excluded. Mr. Pathak's argument that when in the case of dearness allowance an
express exclusion has been made, everything else in the nature of wages has to
be included would have been of great force but for the fact that when
"basic wage" is being defined the presumption must be that anything
which is essentially 498 different and distinct from basic wage was not
intended to be included.
It is worth mentioning also that the
notification does not in terms refer to piece rate system of payment. That
itself is a reason for thinking that production bonuses which are an essential
feature of piece rate system but not of time rate system, were not in the
contemplation of those who drafted the order.
Equally pertinent is the consideration that
when the Government is evolving a scheme to improve the wage structure of
workmen it would not knowingly do anything which would have the effect of
removing incentives to production. Such removal would harm labour by preventing
workmen from earning more by extra efforts, harm capital by diminishing the
return there from and harm the country as a whole at a time when higher
production is the crying need of every branch of industry. An interpretation
which would impute to Government such an unthinkable intention to harm all
concerned, cannot be lightly accepted; but that would be the necessary result
if " consolidated wages " in the definition of basic wages is
interpreted to include even an incentive wage like bonus related to production.
On every consideration it is therefore abundantly clear that production bonus
and incentive bonus were not within basic wages as defined in the Government
It was faintly argued by Mr. Pathak that the
fact that the workmen did not for a number of years raise any objection to the
stoppage of the old system of production bonus and incentive bonus shows that
they themselves understood the Government order to mean that these bonuses
would be included in fixing the basic wages for the purpose of the order.
Whether that was so or not it is unnecessary for us to consider, for when the
only reasonable interpretation of the words used in the order is that these are
not to be included, it matters little how the 'employer or the workmen
understood these words to mean.
We have therefore come to the conclusion that
the Labour Appellate Tribunal was right in holding that the Government order
did not require or justify the employer including the production and incentive
bonuses in the calculation of the rates of the basic wage of the workers and
consequently that the Government order did not have the effect of absolving the
company from the duty of continuing to pay the production and incentive bonuses
to workmen as before.
No objection has been raised before us as
regards the directions given by the appellate tribunal for the calculation of
The appeal is accordingly dismissed with