The
Regional Director, Employees' State Insurance Corporation Vs. M/S. Popular
Automobiles [1997] INSC 754 (29 September 1997)
S.B.
MAJMUDAR, S. SAGHIR AHMAD
ACT:
HEADNOTE:
THE
29TH DAY OF SEPTEMBER, 1997 Present:
Hon'ble
Mr. Justice S.B. Majmudar Hon'ble Mr. Justice S. Saghir Ahmad V. J. Francis, Rajiv
Nanda, Ms. Anubha Jain and A.K. Sharma, Advs. for the appellant T. L. Vishwanatha
Iyer, Sr. Adv., S. Balakrishnan, S. Prasad, Ms. Ramni Tneja and G. Prakash,
Advs. with him for the Respondents.
The
following Judgment of the Court was delivered:
WITH [
Civil Appeal No. 6724 of 1997 (Arising out of S.L.P. (Civil) No. 14299 of
1984); Civil Appeal No. 6723 of 1997 (Arising out of S.L.P. (Civil) No. 528 of
1992); Civil Appeal No. 6725 of 1997 (Arising out of S.L.P. (Civil) No.
4029
of 1997); and Civil Appeal No. 6726 of 1997 (Arising out of S.L.P. (Civil) No.
13172 of 1997)]
S.B. Majmudar.
J.
Leave
granted in all the cognate Special Leave Petitions.
By
consent of learned advocates of parties all these appeals were heard finally
and are being disposed of by this common judgment. The Employees' State
Insurance Corporation (in short `the corporation') functioning in the State of Kerala
as well as in the State of Karnataka in the appeals concerned, have posed for
our consideration the following question of law:
"Whether
a suspended employee and his employer are liable to remit under the Employees'
State Insurance Act, 1948 (hereinafter referred to as `the Act') the requisite
contributions under the said Act in connection with the subsistence allowance
amounts received by the suspended employee during the period of his suspension
pending domestic enquiry." In the impugned judgments under appeal the High
Courts of Kerala and Karnataka have taken the view that there is no such
liability on the part of the suspended employee or his employer. The learned
counsel for the appellant-Corporation submitted to the contrary for our
consideration.
A few
relevant facts leading to these appeals may be noted at the outset. It is not
in dispute between the contesting parties that the respondents in these appeals
are the employers and the suspended persons are their employees.
Both
of them are governed by the Act. It is also not in dispute between the parties
that prior to the suspension of these employees the respondent-employers were
remitting the requisite contributions under Sections 39 and 40 of the Act both
by way of employees' contributions and the employers' contributions to the
Corporation which had insured all these employees concerned as per Section 38
of the Act in the manner provided thereunder. It is also not in dispute that
even during the period of suspension the suspended employees were covered by
the beneficial provisions of the Act and were entitled to all the benefits available
to employees under Chapter V of the Act and the coverage of entire beneficial
scheme provided by the Act in that Chapter from Section 46 to Section 73 was
available even in cases of suspended employees who were getting only
subsistence allowance as per the rules and regulations governing their
conditions of service. The High Courts in the impugned judgments have taken the
view that subsistence allowance paid to an employee during suspension pending
domestic enquiry would not be covered by the definition of the term `Wages' as
found in sub-section (22) of Section 2 of the Act. The said definition reads as
under:
"(22)
`Wages' means all remuneration pair 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 lay- 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;
(b) any
travelling allowance or the value of any travelling concession;
(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;" It was held that before any payment made by the employer to
the employee is covered by the said definition of `wages' it should be a
remuneration paid or payable in cash to an employee, if the terms of the
contract of employment, express or implied, were fulfilled. That in case of a
suspended employee the terms of contract of employment would not be fulfilled
as he is not actually rendering any service during the period of suspension.
Learned
counsel appearing for the appellant-corporation contended that the aforesaid
view of the High Courts is clearly erroneous in law. He submitted that the Act
is a beneficial piece of legislation offering statutory insurance against
employment injuries suffered by insured workmen while in service and for
earning the statutory coverage of insurance the insured workmen had to
contribute as laid down by the Act and simultaneously their employers had also
to add their contribution to the said amount and remit the same to the
Corporation to enable the Corporation to discharge its statutory obligations
under the Act for the benefit of the insured employees. It was submitted that
during the period of suspension the employer-employee relationship does not get
snapped. The employee cannot be said to have refused to fulfil his part of the
contract as he is willing to work but it is the employer who does not want him
to work instead pays him reduced amount of wages as permissible under the rules
by way of subsistence allowance which in a given case beyond the requisite
period may not only go up from 50% of wages to 75% but may also go up in given
contingencies to a ceiling of 100% of wages. Consequently subsistence allowance
squarely falls within the first part of the definition of the term `wages' as
found in sub-section (22) of Section 2 of the Act. In support of his contention
three decisions of this Court were pressed in service - Modella Woollens Ltd. v.
Employees State Insurance Corporation and another [1994 Supp. (3) SCC 580]; Harihar
Polyfibres v. The Regional Director ESI Corporation [1985] 1 SCR 712; and
Indian Drugs & Pharmaceuticals Ltd. Etc. v. Employees State Insurance
Corporation Etc. [1996 (8) SCALE 688]. The first judgment refers to production
bonus. The second one refers, amongst others, to incentive bonus while the
third one refers to overtime wages. All these additional monetary benefits were
held to be covered by the inclusive definition of the term `wages' as found in
sub-section (22) of Section 2 of the Act. It was, therefore, contended that
there is no reason why subsistence allowance which is a reduced scale of wages
payable to the suspended employee cannot also form part and parcel of the term
`wages' as defined in the Act.
Learned
counsel for the respondent-employers on the other hand submitted, placing
reliance on a decision of a Bench of two learned Judges of this Court in the
case of Assistant Regional Director, Nagpur v. Model Mills Nagpur Ltd. [1993
Supp. (1) SCC 615], that prior to the amendment of the definition of the term
`wages' in the Act even payment for any leave period was not treated as wages.
He also placed reliance on two decisions of the Bombay High Court in the case
of Ganpatlal Mulchandji Joshi v. First Civil Judge, Class I, Nagpur and another
[Air 1958 Bombay 262] and Nutan Mills v. Employees State Insurance Corporation
[AIR 1956 Bombay 336] for submitting that even maternity leave benefit was not
considered to be wages in the first judgment and in the second judgment it was
held of course in the light of unamended definition of the term `wages' as
found in sub-section (22) of Section 2 of the Act that lay-off compensation
would not be included in the term `wages' for the purpose of computing
contributions from the employees and employers qua the said amount.
Before
referring to the aforesaid decisions it will be necessary to have a quick
glance at the scheme of the Act.
The
Act is to provide for certain benefits to employees in case of sickness,
maternity and employment injury and to make provision for certain other matters
in relation thereto. Thus this is a beneficial piece of legislation which
grants a statutory insurance coverage to employees in the establishments
covered by the Act so that the Corporation would be statutorily enjoined to
make available these benefits to the suffering employees and they may not have
to be at the mercy of the employees concerned who may or may not readily make
available these benefits to the suffering employees if statutory coverage of the
Act is not available to them. As laid down by Section 1 sub-section (4) of the
Act it shall apply, in the first instance, to all factories (including
factories belonging to the Government) other than seasoned factories. As per
sub-section (5) of Section 1 of the Act, `the appropriate Government may, in
consultation with the Corporation and where the appropriate Government is a
State Government, with the approval of the Central Government, after giving six
months' notice of its intention of so doing by notification in the Official
Gazette, extend the provisions of this Act or any of them, to any other
establishment or class of establishments, industrial, commercial, agricultural
or otherwise'. Section 2 is the Definition Section. Sub-section (4) thereof defines
`contribution' to mean, `the sum of money payable to the Corporation by the
principal employer in respect of an employee and includes any amount payable by
or on behalf of the employee in accordance with the provisions of this Act'.
Sub-section
(6 ) of Section 2 defines `Corporation' to mean "Employees' State
Insurance Corporation set up under this Act." The appellant-Corporation is
the said Corporation.
Sub-section
(8) of Section 2 defines `employment injury' to mean, `a personal injury to an
employee caused by accident or an occupational disease arising out of and in
the course of his employment, being an insurable employment, whether the
accident occurs or the occupational disease is contracted within or outside the
territorial limits of India.' Sub-section (9) of Section 2 defines `employee'
to mean, `any person employed for wages in or in connection with the work of a
factory or establishment to which this Act applies'. We are not concerned in
the present cases with such employees whose wages exceed the prescribed limit
of wages permanently. Hence we need not refer to that part of the definition of
`employee'. Sub-section (10) of Section 2 defines `exempted employee' to mean,
`an employee who is not liable under this Act to pay the employee's contribution'.
Such
exempted employees are contemplated by Section 42 which lays down that, `no
employee's contribution shall be payable by or on behalf of an employee whose
average daily wages during a wage period are below such wages as may be
prescribed by the Central Government.' Chapter IV deals with `Contributions'.
Section 38 lays down that, `subject to the provisions of this Act, all
employees in factories, or establishments to which this Act applies shall be
insured in the manner provided by this Act'. Section 39 deals with
contributions payable under the Act. Such contributions as per sub-section (1)
thereof will comprise of contribution payable by the employer (referred to as
the employer's contribution) and shall be paid to the Corporation. These contributions
are to be paid at such rates as may be prescribed by the Central Government.
Section 40 enjoins the principal employer to pay contribution in the first
instance. Section 41 deals with `Recovery of contribution from immediate
employer'. As indicated earlier, the benefits flowing from the scheme of the
Act which are available to the insured employees comprise of diverse benefits
enumerated in Chapter V as provided in Sections 46 to 73.
On the
aforesaid scheme of this Act, therefore, it becomes very clear that all
employees are entitled to get the statutory coverage of the benefits being
insured employees and any person employed for wages is to be treated as an
employee for the purpose of the Act. Under these circumstances an employee who
is admittedly covered by the Act and who is entitled to get the benefits under
the Act as insured employee will not cease to be an employee covered by the Act
if he is placed under interim suspension pending domestic enquiry on any
alleged misconduct by his employer.
It is
axiomatic to say that during suspension period pending enquiry the
employer-employee relationship does not come to an end. It would come to an end
only when after enquiry his services on proof of misconduct are ordered to be
terminated. Till then he continues to be an employee for all purposes subject
to only two consequences flowing from such interim suspension, namely, in the
first place the employee will remain prohibited from actually offering his
services and discharging his duties as the employer does not want him to do so
and secondly during the period of suspension pending enquiry the remuneration
payable to the employee will get curtailed the rules and which may range from
50% at the lowest to even 100% of the wages at the highest if the suspension
continues beyond the requisite period as contemplated by the service rules and
regulations concerned.
It is
also to be kept in view and there is no dispute on this aspect that even during
suspension when the employee is being paid subsistence allowance and not full
wages he remains entitled to get all the benefits as available to working
employees on the same basis as laid down by various provisions of Chapter V. It
is not as if a suspended employee gets lesser benefits as compared to a working
employee under the provisions of the said Chapter. They stand at par. It is
also to be appreciated that subsistence allowance is not to be refunded by the
suspended employee whatever may ultimately be the result of the domestic
enquiry. Hence only because the total remuneration paid to the suspended
employee gets reduced to 50% or to any higher percentage going up to 100% it is
not possible to appreciate as to how it can be said that on the amount of
subsistence allowance received by him permanently he is not bound to contribute
any amount to the Corporation and equally the employer of such a suspended
employee is also not bound to make his parallel contribution as per the rates
provided under the Act especially when all the benefits of statutory insurance
coverage are made available by the Corporation to such a suspended employee.
However, great reliance was placed by learned counsel for the respondents on a
decision of this Court in the case of Bala Subrahmanya Rajaram v. B.C. Patel
and others [AIR 1958 SC 518] wherein it has been observed that the word
`remuneration' means the amount payable for service rendered. The aforesaid
observation was made in the context of the payment of Wages Act with which this
Court was concerned in the said decision. We fail to appreciate how the said
decision can be of any real assistance to the respondents in the present cases
as the term `wages' as defined by Section 2 sub section (22) of the Act means
all remuneration paid or payable in cash to an employee, if the terms of the contract
of employment, express or implied, were fulfilled. Thus it is a more
comprehensive definition which takes in its sweep in the first part all
remuneration paid or payable to the employee.
Therefore,
the amount payable to an employee or actually paid to an employee if the terms
of the contract of employment were fulfilled would constitute wages. A regular
employee who is willing to work and whose services are taken by the employer
gets the remuneration for the work actually done by him under the contract of
employment. But in case of a suspended employee he gets lesser amount by way of
subsistence allowance but that is also as a remuneration for being continued on
the roll of employment as an employee and so far as he is concerned he cannot
be said to have not fulfilled his part of the terms of contract of employment
as he is willing to offer his services but it is the employer who prohibits him
from actually giving his services under the contract of employment. The
situation almost resembles to grant of half pay leave or leave on even more
than half pay as the case may be. Therefore, it cannot be said that the
suspended employee does not fulfil is part of the contract of employment or
commits breach of any of the terms of the contract of employment. The prohibition,
if any, is imposed by the employer against him and that prohibition in the
absence of any rules and regulations governing the payment of remuneration
during suspension to the concerned employee would have entitled the suspended
employee to get the full remuneration because he was ready and willing to
perform his part of the contract of employment but it was the employer who
prohibited him from performing his duties, But if there is a valid service
regulation which reduces the scale of remuneration, during suspension, the
employee gets that reduced permissible scale of remuneration by way of
subsistence allowance. All the same it cannot be said that it is not the
remuneration paid to him though at a reduced rate.
It is
also to be appreciated that a suspended employee who gets all the benefits
under the Act, may in given contingencies remain suspended for a number of
years pending the enquiry and in the meantime may be entitled to draw 100% of
wages as subsistence allowance under the relevant service rules and
regulations. Under these circumstances even though he may get full wages by way
of subsistence allowance and even though he may be entitled to all the benefits
under the Act he may not be required to contribute anything if the contention
of the learned counsel for the respondents is accepted and ultimately if he is
removed from service after the decision in the departmental enquiry he would
walk away with all benefits under the Act without any corresponding obligation
to contribute towards the said benefits. On the other hand, if he is fully
exonerated and reinstated in service and in the meantime if he had contributed
proportionately to the extent of subsistence allowance earned by him the
balance of remuneration which may be paid to him for the back period may make
him liable to contribute only remaining proportionate amount of contribution to
the extent of additional remuneration paid to him to make up for the difference
between the full wages for the period of erstwhile suspension in question and
the actual subsistence allowance given to him and for which he had already
contributed earlier. In either case employer will also remain liable to give
his proportionate contribution along with employee's contribution both on
subsistence allowance amount as well as on balance of wages paid up to the
employee later on. If the suspended employee is ultimately removed from
service, there would arise no occasion for such employee to make additional
contribution on any extra amount other than subsistence allowance received by
him and equally employer would not be called upon to make proportionate
contribution on any extra amount save and except on such subsistence allowance
received by the employee concerned.
The
interpretation canvassed by learned counsel for the respondents would create an
anomalous situation as aforesaid while the submission canvassed by learned
counsel for the appellant-Corporation would avoid the same and would fructify
and enhance the benevolent purpose underlying the enactment of this welfare
legislation.
In
this connection one submission of learned counsel for the respondents requires
to be noted. He submitted, placing reliance on the inclusive part of the
definition of the term `wages' in Section 2 sub-section (22) of the Act, that
in a case where the employee is ready to work but the employer does not allow
him to work by imposing lock-out or lay-off, payment made to such employee gets
covered only by the inclusive part of the definition which means that otherwise
it would not have been covered by the first part of the definition. That
similar is the situation where the workman is suspended pending enquiry and
payment is made to way of subsistence allowance. In such a case also employee
is ready but the employer does not allow him to work. On the analogy of rent
made during the period of lock-out or lay- off, such subsistence allowance
would also not be covered by the first part of the definition and as the
inclusive part of the definition does not mention subsistence allowance, it
should be treated to be outside the sweep of Section 2 sub- section (22) of the
Act. In our view, this submission does not stand scrutiny. It has to be kept in
view, as noted earlier, that subsistence allowance paid to a suspended employee
is not recoverable or refundable even though ultimately the suspended employee
is removed from service on the proof of misconduct for which he was proceeded
against in departmental enquiry. The Kerala Payment of Subsistence Allowance
Act, 1972 also clearly provides in Section 3 sub- section (2) that an employee
shall not in any event be liable to refund or forfeit any part of the
subsistence allowance admissible to him under sub-section (1). But even apart
from the said statutory provision on the general principles applicable to
subsistence allowance paid to an employee pending departmental enquiry no such
allowance is refundable by him in case the employee gets ultimately removed
from service on proof of misconduct. So far as the submission of learned
counsel for the respondents on the inclusive part of the definition is
concerned it has to be kept in view that if the first part of the definition of
`wages' will include all remuneration paid or payable in cash to an employee if
the terms of contract of employment, express or implied, were fulfilled and
consequently even if an employee is suspended as per the service regulations by
the employer pending enquiry it cannot be said that the employee has committed
breach of any of the terms of the contract of employment. Nor can it be said
that the employer has committed breach of any of the terms of the contract of
employment as the service rules applicable to the employee would be part and
parcel of his conditions of employment and acting on the said service rules if
the employer prohibits the employee from reporting for duty and doing actual
work the employer cannot be said to be committing breach of any of the terms of
the contract of employment. Thus neither party can be said to have committed
breach of any of the terms of the contract of employment when legally
permissible suspension pending enquiry is imposed by the employer on the
employee. Such is not a case when a lock-out or a lay-off is imposed by the
contract of employment as in case of lock-out the employer commits breach of the
contract of employment by refusing to give work to the employee for no fault of
his.
Similarly
in case of lay-off the employees are refused work by the employer for no fault
of the employees. Therefore, in either case the employer for no fault of the employees.
Therefore,
in either case the employer would be committing breach of the terms of the
contract of employment by his own act which may be justified or otherwise.
Under these circumstances, therefore, but for the inclusive part of the
definition encompassing payment made to an employee in respect of any period of
lock-out or lay-off, said payment would not have been covered by the definition
of `wages' under Section 2 sub-section (22) of the Act. The first part of the
said definition obviously would not apply to such a case as terms of the
contract of employment cannot be said to be complied with at least by the
employer in such an eventuality. Such is not the case when employer acting as
per terms of employment governing the employees suspends him pending enquiry.
It is
not time for us to briefly refer to various decisions of this Court to which
our attention was invited by learned counsel for the parties. In the case of Modella
Woollens Ltd. (supra) a Bench of two learned Judges of this Court had to
consider whether the term `wages' as defined by sub-section (22) of Section 2
of the Act would cover production bonus. The Court observed that production
bonus is nothing but remuneration for additional production which he employees
have brought about. In the case of Harihar Polyfibres (supra) another Bench of
two learned Judges of this Court had to consider the question whether the
expression `wages' as defined by Section 2 sub-section (22) of the Act would
include, amongst others, incentive allowance. Chinnappa Reddy, J. delivering
the main judgment made the following pertinent observations in this connection
at page 714 of the Report:
"The
Employees State Insurance Act is a welfare legislation and the definition of
`wages' is designedly wide. Any ambiguous expression is, of course, bound to
receive a beneficial construction at our hands too. Now, under the definition
first, whatever remuneration is paid or payable to an employee under the terms
of the contract of the employment, express or implied is wages; thus if
remuneration is paid in terms of the original contract of employment or in
terms of a settlement arrived at between the employer and the employees which
by necessary implication becomes part of the contract of employment it is
wages:....." In the case of Indian Drugs & Pharmaceuticals Ltd. Etc.
(supra)
a Bench of two learned Judges of this Court K. Ramaswamy and G.B. Pattanaik,
JJ., considered the question of overtime wages in the light of the definition
of `wages' as found in Section 2 sub-section (22) of the Act. In this
connection it was observed that whatever remuneration paid or payable forms
wages under implied terms of the contract.
It is
of course true that none of these judgments dealt with the question with which
we are concerned in these appeals.
However,
the common thread which runs through these three judgments is to the effect
that the definition of the word `wages' should be liberally construed as the
Act is a welfare piece of legislation. On the interpretation of the relevant
terms found in the definition of the term `wages', as discussed earlier, it
cannot be gainsaid that anything paid even by way of subsistence allowance to
an existing employee though suspended by the employer cannot but he said to be
remuneration paid to him under the terms of the contract of employment if they
were fulfilled by the employee as well as by the employer. However learned
counsel for the respondents vehemently relied upon a Division Bench judgment of
the Bombay High Court in the case of Nutan Mills (supra) for submitting that in
the light of the earlier unamended definition of the term `wages' as found sub-
section (22) of Section 2 of the Act lay-off compensation was not held to be
covered by the term `wages'. The said decision cannot be of any assistance to
learned counsel for the respondents for two obvious reasons. Firstly, the High
Court was considering unamended definition of the term `wages'. The Legislature
made its intention clear by amending the definition and bringing in
compensation for lay-off also within the scope of the inclusive part of the
definition of the term `wages'. But that apart, secondly it is seen that in the
said judgment Chagla, CJ., speaking for the Division Bench of the Bombay High
Court n terms observed that the provisions of the Industrial Disputes Act make
it clear that there is no relationship of master and servant during the period
of lay-off. Employer has no right to dictate to the employee that he shall
present himself at his office, nor is there any obligation upon the employee so
to do. During the period of lay-off the employee would be entitled to go and
serve another master. The only result of his doing so would be that he would be
disentitled to receive compensation. Therefore, during the period of lay- off
the employee is no longer the servant or the workman of his employer. That
relationship is suspended and that relationship would only be revived when he
is reinstated under the terms of the contract. It is trite to say that in case
of an employee suspended pending departmental enquiry such legal result does
not follow. On the contrary he continues to be the employee and the employer
continues to be his employer. He has to stay at the headquarters as directed by
the employer. All that happens is that during the suspension period the
employee is not allowed to actually work and he is not given full remuneration
but only permissible subsistence allowance by way of remuneration for remaining
attached to the service of the employer as per the relevant service regulations
governing his contract of service. Consequently the aforesaid decision of the
Bombay High Court is also of no avail to learned counsel for the respondents.
As a
result of the aforesaid discussion it must be held that the High Courts in the
impugned judgments erred in taking the view that subsistence allowance was not
a part of wages as defined by Section 2 sub-section (22) of the Act.
It
must be held that such allowance forms part of wages as per sub-section (22) of
Section 2 of the Act and consequently on the said amount the employee will be
liable to contribute under Section 39 by way of employee's contribution and
equally the employer would be liable to contribute his share by way of
employer's contribution on the amount of subsistence allowance paid to the
suspended employee. The appeals are allowed. The impugned judgments and orders
of the High Courts in respective cases are set aside. The appellant-
Corporation is held entitled to enforce the recovery of the contributions
centering round subsistence allowance paid to the suspended employees concerned
for the respective period in accordance with law.
No
costs.
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