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Judgment
K. Chandru, J.—In these 10 writ petitions, the Petitioners are different employers covered by the provisions of the Employees'' Provident
Fund and Miscellaneous Provisions Act, 1952 (for short PF Act). Some of the Petitioners are also multi national companies doing their business in
India.
A common question that arises for consideration in all the 10 writ petitions is that various allowances paid by the Petitioners to their employees
under different heads, such as conveyance, educational allowances, food concessions, medical, special holidays, night shift incentives, city
compensatory allowances were amounting to wages within the meaning of the term ''basic wage'' as per Section 2(b) of the PF Act covered for
deductions towards the Provident Fund.
In W.P. Nos. 15823, 22480, 25442 and 25443 of 2010 and 3427 of 2011, the Petitioners have come forward to challenge the notices issued
u/s 7A of the PF Act on various dates and it had not culminated into final orders. The Petitioners were merely directed to produce various records
to decide the question whether particular payment made by the Petitioners to their employees would be covered by the term ""basic wage"" for the
purpose of deduction towards Provident Fund subscription.
u/s 7-A(3), no orders can be passed unless the employer concerned is given a reasonable opportunity of representing their case. Even if an
adverse order is passed, the aggrieved employer can file a review u/s 7-B with the same authority. Thereafter, a further appeal lies to the EPF
Appellate Tribunal u/s 7-I. When there is hierarchy of authorities in deciding the matters raised herein, including comprehensive appeal to the
judicial tribunal, it is unthinkable as to how the Petitioners can file writ petitions even at the stage of show cause notice u/s 7-A. The issues raised
herein are not purely legal issues, but mixed questions of facts and law involved.
The Petitioners'' stand is that they are seeking this Court to give an authoritative ruling by holding certain allowances will not constitute wages u/s
2(b), then it will be binding on the authorities and that the employers can arrange their affairs based on the said ruling. The said request may look
attractive. However, this Court exercising powers under Article 226 of the Constitution of India cannot clutch on to a jurisdiction which it does not
have. The limited power of the judicial review can be exercised only when statutory authorities make an order and still it required an appropriate
correction by way of judicial review. The Petitioners cannot construe the High Court exercising power under Article 226 as an advance ruling
authority as provided in some taxing statutes. In fact, by the exercise of power under Article 226, the Court cannot give ruling based on
apprehension or on academic issues. It is preciously for this reason, the authorities have been created under the Act and also a judicial appellate
Tribunal has been constituted.
In none of the cases cited by the Petitioners, the Court had directly entertained a writ petition even before facts could be marshalled and findings
given by the PF Commissioner. Before the amendment made to the PF Act by Amending Act 33/1988 (with effect from 1.7.1997), there was no
scope for any appeal. Only the Central Government was given powers to remove difficulties u/s 19-Aand to determine the matters in cases of
doubt. But, with the introduction of Amending Act 33 of 1988, extensive amendments have been made, whereby determination by the PF
Commissioner can be made only after hearing the parties, but power of review was also given u/s 7-B with a further right of appeal to a judicial
Tribunal u/s 7-I. The appeal power is a comprehensive power and the Tribunal constituted under the Act can go into both questions of law and
facts. The decisions relied were all cases where the initial determination was made either by the Central Government or by the Tribunal.
Therefore, the Petitioners cannot invoke the jurisdiction under the spacious plea of getting a binding ruling from this Court, so that there is
certainty in their carrying on their business. As already observed, the Court cannot given any advance ruling whether a particular payment is a
basic wage"" in terms of Section 2(b) and it is essentially a question of fact based on relevant materials. The authorities are empowered to also call
for appropriate records and can enforce attendance of persons. They can receive evidence including issuing Commission for examination of
witnesses. If it transpired that the employers have adopted subterfuge in rechristening or labeling the allowances so as not to come within the terms
''basic wage'', and in effect they are basis wages within the purview of the Act, the authorities can demand subscription towards the escaped
payment. In case of deliberate delay, the Act provides for penalty by way of damages and interest on delayed payments.
Since the Act provides for determination by quasi judicial authority with power of review and also an appeal before a judicial appellate Tribunal,
the Petitioners will have to necessarily avail the remedies under the Act. In this context, it is necessary to refer to a judgment of the Supreme Court
in Raj Kumar Shivhare Vs. Assistant Director, Directorate of Enforcement and Another, , wherein the Supreme Court while dealing with an
alternative remedy available under the FEMA Act held that the Act cannot be bypassed and the jurisdiction under Article 226 of the Constitution
of India cannot be invoked. In the following passages found in paragraphs 31 and 32, the Supreme Court had observed as follows:
When a statutory forum is created by law for redressal of grievance and that too in a fiscal statute, a writ petition should not be entertained
ignoring the statutory dispensation. In this case the High Court is a statutory forum of appeal on a question of law. That should not be abdicated
and given a go-by by a litigant for invoking the forum of judicial review of the High Court under writ jurisdiction. The High Court, with great
respect, fell into a manifest error by not appreciating this aspect of the matter. It has however dismissed the writ petition on the ground of lack of
territorial jurisdiction.
No reason could be assigned by the Appellant''s counsel to demonstrate why the appellate jurisdiction of the High Court u/s 35 of FEMA
does not provide an efficacious remedy. In fact there could hardly be any reason since the High Court itself is the appellate forum.
The Supreme Court in United Bank of India Vs. Satyawati Tondon and Others, dealt with SARFAESI Act and DRT Act and in paragraphs 55
and 56, it had held as follows:
It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of
statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious
adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will
exercise their discretion in such matters with greater caution, care and circumspection.
Insofar as this case is concerned, we are convinced that the High Court was not at all justified in injuncting the Appellant from taking action in
furtherance of notice issued u/s 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set aside. Since the Respondent has
not appeared to contest the appeal, the costs are made easy.
Even under the ESI Act, the Supreme Court has held that if authorities make determination u/s 45A, unless it is challenged in a proceedings u/s
75, it can be deemed to become final and the authority can proceed to execute the order vide judgment in E.S.I.C. Vs. C.C. Santhakumar, . The
following passages found in paragraphs 17, 25, 28, 30 and 31 of the said judgment may be usefully reproduced below:
Prior to the incorporation of Section 45A under Act 44 of 1966, the only resort available to the Corporation was Section 75, for recovery of
contribution through the court. Since this procedure was found to be impracticable and delayed process involved, a special provision was
contemplated where under adjudication is to be made by the Corporation itself. By reason of incorporation of Section 45-A with effect from 17-
6-1967, it became possible for the Corporation to have determination of the question, binding on the principal employer, without resorting to the
ESI Court. In regard to the order u/s 45-A, the same is enforced, as envisaged u/s 45-B, which was similarly brought into the Act, by which the
contribution may be recovered as arrears of land revenue. With regard to the decision reached by the ESI Court in the application u/s 75, the said
decision is enforced, as envisaged in Sub-section (4) of Section 75 as if it is a civil court. The mode of recovery u/s 45-B of the Corporation and
the mode of recovery as per Section 75(4) by the ESI Court as the civil court are entirely different as both Sections 45 and 75 operate in different
spheres.
Section 45-A of the Act contemplates a summary method to determine contribution in case of deliberate default on the part of the employer.
By Amendment Act 29 of 1989, Sections 45-C to 45-I were inserted in the Principal Act, for the purpose of effecting recovery of arrears by
attachment and sale of movable and immovable properties or establishment of the principal or immediate employer, without having recourse to law
or the ESI Court. Therefore, it cannot be said that a proceeding for recovery as arrears of land revenue by issuing a certificate could be equated to
either a suit, appeal or application in the court. u/s 68(2) and Sections 45-C to 45-I, after determination of contribution, recovery can be made
straightaway. If the employer disputes the correctness of the order u/s 45-A, he could challenge the same u/s 75 of the Act before the ESI Court.
What Section 75(2) empowers is not only the recovery of the amounts due to the Corporation from the employer by recourse to the ESI
Court, but also the settlement of the dispute of a claim by the corporation against the employer. While this is so, there is no impediment for the
Corporation also to apply to the ESI Court to determine a dispute against an employer where it is satisfied that such a dispute exists. If there is no
dispute in the determination either u/s 45-A(1) or u/s 68, the Corporation can straightaway go for recovery of the arrears.
The legislature has provided for a special remedy to deal with special cases.
The determination of the claim is left to the Corporation, which is based on the information available to it. It shows whether information is sufficient
or not or the Corporation is able to get information from the employer or not, on the available records, the Corporation could determine the
arrears. So, the non availability of the records after five years, as per the Regulations, would not debar the Corporation to determine the amount of
arrears. Therefore, if the provisions of Section 45-A are read with Section 45-B of the Act, then, the determination made by the Corporation is
concerned. It may not be final so far as the employer is concerned, if he chooses to challenge it by filing an application u/s 75 of the Act. If the
employer fails to challenge the said determination u/s 75 of the Act before the Court, then the determination u/s 45-A becomes final against the
employer as well. As such, there is no hurdle for recovery of the amount determined u/s 45-B of the Act, by invoking the mode of recovery, as
contemplated in Sections 45-C to 45-I.
In ESI Corpn. v. F. Fibre Bangalore (P) Ltd., it was observed that it is not necessary for the Corporation to seek a resolution of the dispute
before the ESI Court, while the order was passed u/s 45-A. Such a claim is recoverable as arrears of land revenue. If the employer disputes the
claim, it is for him to move the ESI Court for relief. In other cases, other than cases where determination of the amount of contributions u/s 45-A is
made by the Corporation, if the claim is disputed by the employer, then, it may seek an adjudication of the dispute before the ESI Court, before
enforcing recovery.
In view of the above, this Court is not inclined to entertain at the stage of notice u/s 7A these five writ petitions, i.e., W.P. Nos. 15823, 22480,
25442 and 25443 of 2010, 3427 of 2011.
In the other five writ petitions, the Petitioners have moved the EPF Appellate Tribunal against orders u/s 7A and having failed in their attempts,
have come before this Court. Therefore, it is necessary to deal with each one of the cases on merits.
In W.P. No. 19751 of 2010, the Petitioner was an Advertisement Company. They were given a show cause notice dated 24.9.2008. The
Petitioner had sent a reply stating that the food and entertainment allowances given by them cannot be considered on par with the basic wages. It
was stated that their employees were not provided canteen facilities. They were paying food and entertainment allowances and the amounts were
paid in terms of contract of employment and hence, it will not attract contribution by treating it as a basic pay. Similarly the educational allowance
and conveyance allowances are paid for specific purposes in terms of contract of employment. Since they were already paying contributions on the
basic wages paid, the question of payment of contribution on these allowances will not arise. The authorities after hearing the parties had issued an
order dated 11.11.2008 holding that the Petitioner is liable to pay contribution in respect of education allowance, special allowance, conveyance
allowance and food concession. The authority had treated those allowances as part of basic wages. Aggrieved by the same, the Petitioner had
preferred an appeal u/s 7-I before the EPF Appellate Tribunal. It was taken on file as ATA No. 882 (13)2008. After notice to the authorities, by
a final order dated 22.7.2010, the appeal was dismissed. The Tribunal found that the wages are universally, necessarily and ordinarily paid to all
across the Board and such emoluments are basic wages. Since allowances are paid to all employees and no PF was deducted, the Company was
bound to pay subscription on the basic wages. The writ petition was admitted on 27.8.2010 and an interim stay was granted.
W.P. Nos. 970 and 3986 of 2011: Both writ petitions were filed by the same Software Company. In the first writ petition, the challenge is to
an order of the EPF Appellate Tribunal made in ATA No. 771 (13) 2004, dated 29.12.2010. The Tribunal held that the special allowance,
medical allowance and other allowances paid by the Company would also amount to basic wage. It is the stand of the Company that the
conveyance, special allowance, leave on loss of pay conveyance, leave on loss of pay special allowance, holiday allowance, night shift allowance
were not coming within the term of ''basic wage'' u/s 2(b).
In the second writ petition , by an order dated 28.1.2011, the Petitioner Company''s appeal in ATA No. 400(13) 2009 for the subsequent
period was rejected and identical contentions were raised by the Petitioner company. In the first writ petition, on 20.1.2011, private notice was
given to the Standing Counsel. Pending the same, an interim stay was granted. In the second writ petition, notice was taken by the counsel for the
Respondent Department and an interim stay was also granted.
In W.P. No. 1853 of 2011, the Petitioner is also a Software company. They have come forward to challenge an order of the ERP Appellate
Tribunal made in ATA No. 659(13) 2005, dated 8.12.2010. The Tribunal by its order had dismissed the Petitioner''s claim for exclusion of special
allowances from calculation of basic pay. When this writ petition came up on 31.1.2011, the Standing Counsel for the PF Department was
directed to take notice and an interim stay was also granted.
In W.P. No. 2908 of 2011, the Petitioner is running a machine tool factory. They have come forward to challenge an order of the EPF
Appellate Tribunal made in ATA No. 674(13) 2010, dated 31.12.2010. The Tribunal by a final order had refused to accept the case of the
Petitioner Company to exclude the special allowance, medical allowance and other allowances from making contribution towards payment of
subscription for PF. In this writ petition, notice of motion was ordered on 08.02.2011 and an interim stay was also granted.
Since in all these five writ petitions, the common question arises for consideration is regarding the true meaning of ''basic wage'' as per Section
2(b) of the PF Act, they were grouped together and a common order is passed.
Attacking the order of the Tribunal, Mr. A.L. Somayaji, learned Senior Counsel submitted that the authorities exercising power u/s 7A cannot
on their own held that the special allowance can be treated as dearness allowance. In this context, the learned Senior Counsel referred to a
judgment of a division bench of this Court in Regional Commissioner, EPF, Tamil Nadu and Pondicherry Vs. Management of Southern Alloy
Foundries (P) Ltd., . Reliance was placed upon the following passage found in paragraph 2 which reads as follows:
2... Needless to say that an officer like the Appellant has no power to deem something to be something else which it is not, it being the prerogative
only of the Legislature....
Therefore, the order including special allowance as basic wage passed by the authority and confirmed by the Tribunal was erroneous.
In the very same judgment, the division bench took care to state that the authority in the absence of giving reason and clear finding, cannot rely
upon Section 6 to include special allowance as basic wage. In the very same paragraph, it was stated as follows:
2... As a matter of fact, even the Appellant merely stated that as per Section 6 of the Employees Provident Funds and Miscellaneous Provisions
Act the special allowance should also be deemed to be dearness allowance. But he has not given any reason as to why the same should be
deemed to be dearness allowance. It is not the finding of the Appellant that the special allowance formed part of dearness allowance, but as he
himself states in his order, dated 7th March, 1977, it was only deemed to be dearness allowance....
The learned Senior Counsel referred to a subsequent division bench judgment of this Court in E.I.D. Parry (India) Ltd. Vs. Regional
Commissioner EPF Tamilnadu and Another, to contend that if parties in terms of contract employment agree that a particular sum should be
excluded, then the court cannot include those amounts. For this purpose, the learned Senior counsel relied upon the following passage found in
paragraph 4 of the said judgment, which reads as follows:
4... Therefore, the intention of the parties is very material. Why we say it is very material is because the Commissioner has taken the view as
though the parties are contracting out of the statutory provision, which is prohibited by the Act. Far from it, the parties are trying to be within the
framework of the statute. This is because in defining basic wages under Cl.(b) which clearly states ""in accordance with the terms of the contract of
employment"". Therefore, if in accordance with the terms of the contract of employment, if the parties agree that a particular sum should be
excluded, we cannot hold that it has to be treated as basic wages....
But, in that case, the division bench referred to the earlier judgment in Alloy Foundries (P) Ltd.''s case. Further, after referring to the judgment
of the Supreme Court in M/s. Bridge & Roofs Co.''s case, the division bench made a distinction which is found in paragraph 7 of the said
judgment, which reads as follows:
We do not understand this passage''s meaning that if the payment is made to all the employees irrespective of the nature of the payment, it would
straightaway partake the character of basic wages. But the Supreme Court clearly pointed out that it is only on combined reading of Section 2(b)
and Section 6, the basis for computation can be arrived at and we are adopting the same basis in the instant case also. Therefore, we find the order
of the Respondent, the Regional Provident Fund Commissioner, cannot be supported in law and accordingly the same is quashed....""Therefore,
what is required is treating certain amounts as basic wage should be only on the basis of a combined reading of Section 2(b) and Section 6.
Therefore, it can be safely held that merely because parties have come to an arrangement to exclude certain amounts, calling it outside the term
basic wage"", that by itself will not make the amount excluded from the definition of ''basic wage''. In essence, there cannot be contracting out of
the statute at the whims of the parties.
The learned Senior Counsel further referred to a judgment of the Supreme Court in M/s. Whirlpool of India Ltd. Vs. Employees'' State
Insurance Corporation, , which is a case arose under the ESI Act. The Supreme Court had dealt with the definition of ''wage'' found u/s 2(22) of
the ESI Act. In that case, the Supreme Court had excluded the ""Production incentive"" scheme from falling outside the purview of the term ''wage''.
The learned Senior counsel placed reliance upon the following passage found in paragraph 14 of the said judgment which reads as follows:
14.... The High Court has found that the payment was made quarterly. It is not for us to rewrite the definition of wages even if we assume that
there is a possibility of misuse by employers by making the payment at a period exceeding two months and thus circumventing the provisions of the
Act. When in the last part of Section 2(22), the word used is ''paid'', we cannot add the word ''payable'' or other similar expression thereto.
But, however, before understanding the said judgment, it is necessary to refer to a definition of a term ""wage"" u/s 2 (22) of the ESI Act. In
paragraph 6 of the very same judgment, the Supreme Court dealt with the definition which is as follows:
Under the first part of Section 2(22), all the remuneration paid or payable in cash to an employee, if the terms of the contract of employment,
express or implied, were fulfilled would be ''wages''. Under this part neither the actual payment nor when the payment is made is of any relevance.
The last part of Section 2(22) relates to payment of additional remuneration. The additional remuneration, if any, paid at intervals not exceeding
two months and not falling in (a) to (d) would also be wages within the meaning of the term as defined. Under this part of the definition, there has to
be payment and not only payability and the payment has to be at intervals not exceeding two months.
Thereafter, the Supreme Court made a distinction of the two earlier judgments of the Supreme Court in Wellman (India) Pvt. Ltd. Vs.
Employees'' State Insurance Corporation, and Modella Woollens Limited v. Employees State Insurance Corporation . After holding that they may
not be relevant in deciding the issue on hand, the Supreme Court had placed reliance upon a judgment in Harihar Polyfibres Vs. Regional Director,
ESI Corporation, and Handloom House Ernakulam Vs. Regional Director, ESI, . The relevant paragraph found in paragraphs 11 and 12 may be
usefully extracted below:
In Harihar Polyfibres v. Regional Director, ESI Corpn. affirming the decision of the Full Bench of the Andhra Pradesh High Court holding that
under the third part of the definition to constitute ''wages'', it has to be actual factum of payment made at intervals not exceeding two months,
''house rent allowance'', ''night shift allowance'', ''incentive allowance'' and ''heat, gas and dust allowance'' were held to be covered by the definition
of ''wages'' in Section 2(22). In this case, it was held that for the aforesaid allowances to be covered by the definition of ''wages'', it was not
necessary that the payments should be in terms of employment.
In Handloom House v. Regional Director, ESI it has been held that any additional remuneration paid at intervals exceeding two months has
been excluded from the purview of the definition. It is clear that if the amount paid or payable is not remuneration on fulfilment of the terms of
employment falling under the first part and is also not covered by the second part of the definition, it would be wages if the payment is made at
intervals not exceeding two months.
The Supreme Court also held in paragraph 15, on the facts of that case, that the payment of production incentive do not fall either under the
first part or at a later part of the definition ''wage'' of the ESI Act. It is not clear as to how the said judgment in Whirlpool of India Ltd. has any
assistance to the case of the Petitioners.
Further the learned Senior Counsel referred to a judgment of the Supreme Court in H.R. Adyanthaya Vs. Sandoz (India) Ltd., etc. etc., and
placed reliance upon the following passage found in paragraph 24 which reads as follows:
24... Hence the position in law as it obtains today is that a person to be a workman under the ID Act must be employed to do the work of any of
the categories, viz., manual, unskilled, skilled, technical, operational, clerical or supervisory. It is not enough that he is not covered by either of the
four exceptions to the definition. We reiterate the said interpretation.
Reliance was placed for the purpose of interpretation of a particular provision in the statute. This is to emphasis that what was not covered by the
statute cannot be said to be deemed to be included in the main part of the definition.
In the present case, emphasis made by the learned Senior Counsel was on the main part of the definition ''basic wage'' and if it did not include
an item, then the authorities cannot include the said item into the said definition. The parties, i.e., employer and employee are allowed to exclude
certain items for not being covered by the provisions of the said Act. There is internal evidence to show that these allowances will not come within
the definition of the term '' basic wage''. Reliance was placed upon certain circulars issued by the Central Provident Fund Commissioner, dated
15.7.1961 and various other circulars.
The learned Senior Counsel also referred to Coal Mines Provident Fund Scheme, wherein the term ""basic wage"" was defined in an exhaustive
manner. Payment of food concession, dearness allowance, house rent allowance and other similar allowances, overtime, bonus, commission,
presents and donations were excluded from the definition. That should be the same spirit of the definition ''basic wage'' found under the Act. That
definition can be taken as an internal aid for construing the definition ''basic wage'' for the purpose of the Act. However, this Court is unable to
agree with the said submission made by the learned Senior counsel appearing for Petitioners.
The Supreme Court in Maharashtra State Co-operative Bank Ltd. Vs. The Assistant Provident Fund Commissioner, has held that the
provisions of the Act has to be interpreted in purposive manner and principles set out in the Directive Principles of State Policy must be kept in
mind. The following passage found in paragraph 30 may be usefully extracted below:
Since the Act is a social welfare legislation intended to protect the interest of a weaker section of the society i.e. the workers employed in
factories and other establishments, it is imperative for the courts to give a purposive interpretation to the provisions contained therein keeping in
view the Directive Principles of State Policy embodied in Articles 38 and 43 of the Constitution. In this context, we may usefully notice the
following observations made by Krishna Iyer, J. in Organo Chemical Industries v. Union of India : (SCC pp.587 & 591-92, paras 28 & 40 41) ''
The pragmatics of the situation is that if the stream of contributions were frozen by employers'' defaults after due deduction from the wages and
diversion for their own purposes, the scheme would be damnified by traumatic starvation of the Fund, public frustration from the failure of the
project and psychic demoralisation of the miserable beneficiaries when they find their wages deducted and the employer get away with it even after
default in his own contribution and malversation of the workers'' share. ''Damages'' have a wider socially semantic connotation than pecuniary loss
of interest on non-payment when a social welfare scheme suffers mayhem on account of the injury. Law expands concepts to embrace social
needs so as to become functionally effectual.
***
The measure was enacted for the support of a weaker sector viz. the working class during the superannuated winter of their life. The financial
reservoir for the distribution of benefits is filled by the employer collecting, by deducting from the workers'' wages, completing it with his own equal
share and duly making over the gross sums to the Fund. If the employer neglects to remit or diverts the moneys for alien purposes the Fund gets
dry and the retirees are denied the meagre support when they most need it. This prospect of destitution demoralises the working class and
frustrates the hopes of the community itself. The whole project gets stultified if employers thwart contributory responsibility and this wider fall-out
must colour the concept of ''damages'' when the court seeks to define its content in the special setting of the Act. For, judicial interpretation must
further the purpose of a statute. In a different context and considering a fundamental treaty, the European Court of Human Rights, in the Sunday
Times Case, observed:
The Court must interpret them in a way that reconciles them as far as possible and is most appropriate in order to realise the aim and achieve the
object of the treaty.
A policy-oriented interpretation, when a welfare legislation falls for determination, especially in the context of a developing country, is
sanctioned by principle and precedent and is implicit in Article 37 of the Constitution since the judicial branch is, in a sense, part of the State. So it
is reasonable to assign to ''damages'' a larger, fulfilling meaning.
The employer and employee would have settlement agreeing to keep certain payments outside the purview of Section 2(b) defining the term
basic wages"" and the authorities cannot go into the term of the said settlement is concerned, it must be noted that once there is statutory definition
of basic wages and if certain amounts which are otherwise liable to be included in the term ''basic wages'', but nevertheless kept outside by the
employer, such contracting out of statute can never be permitted and there cannot be any private arrangement in respect of such transaction. In
essence there cannot be an stopple against the statute.
The Supreme Court in Union of India (UOI) and Another Vs. Ogale Glass Works, has held in paragraph 47 as follows:
Admittedly the Appellants were not parties to the award. No doubt under the Industrial Disputes Act the award will be binding, as against the
Respondent and its workmen. But the Appellants are seeking in these proceedings to enforce the statutory duty cast upon them to collect the
contributions due from the Respondent which again is a statutory liability under the Act and the Scheme. The object of the Appellants in enforcing
the Act is only to discharge the statutory duty enjoined on them for the benefit of the employees concerned. In view of the decision of this Court, it
is clear that the Act and the Scheme apply to all the sections of the Respondent, and if so it follows that the Respondent is liable to make
contributions and that at the rate specified in the Act.
The said judgment of the Supreme Court was quoted and followed by the Bombay High Court in Gosalia Shipping Pvt. Ltd., Goa and
Another Vs. Regional Provident Fund Commissioner, Goa and Anr, . In paragraph 11, the Bombay High Court had observed as follows:
11... This judgment of the Apex Court should conclude the matter. Therefore any settlement and the Award between the parties cannot be binding
on an Authority under the Act who can arrive at a conclusion based on all materials available including settlements if any produced before him.
The question as to the authority u/s 7A can go into the question as to whether certain items can come within the term ""basic wags"" and he can
lift the veil to determine the issue has also been considered by the Supreme Court in Rajasthan Prem Krishan Goods Transport Co. Vs. Regional
Provident Fund Commissioner, New Delhi and Others, . The Supreme court in paragraph 6 of its judgment had observed as follows:
6.... Now, this finding is essentially one of fact or on legitimate inferences drawn from facts. Nothing could be suggested on behalf of the Appellant
as to why could the Regional Provident Fund Commissioner not pierce the veil and read between the lines within the outwardliness of the two
apparents. No legal bar could be pointed out by the learned Counsel as to why the views of the Regional Provident Fund Commissioner, as
affirmed by the Central Government, be overturned.
The learned Senior Counsel placed reliance upon a judgment of the Supreme Court in Bridge and Roof Co. (India) Ltd. Vs. Union of India
(UOI), . In that case, the Supreme Court held that production bonus cannot come within the term ''basic wages'' for the purpose of the EPF Act.
That case arose out of the decision rendered by the Central Government u/s 19A. In paragraph 11, the Supreme Court had observed as follows:
11.... 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 included in the definition of ""basic wages"" and therefore production bonus which is a kind of incentive wage would be included.
Further, in paragraph 12, the Supreme Court had observed as follows:
12...The scheme in force in the Company is a typical scheme of production bonus of this kind with a base or standard up to 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 Section 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 base or standard and it cannot form part of the definition of ''basic wages'' in Section 2(b) because of the exception of
all kinds of bonus from that definition. We are, therefore, of opinion that production bonus of this type is excluded from the definition of ''basic
wages'' in Section 2(b) and therefore the decision of the Central Government which was presumably u/s 19 A. of the Act to remove the difficulty
arising 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 Article 14 in the present case.
The learned Senior Counsel also referred to a judgment of the Supreme Court in T.I. Cycles of India, Ambattur Vs. M.K. Gurumani and
Others, , wherein the Supreme Court held that the production incentive cannot be brought within the term ""basic wages"". In paragraphs 16 and 17,
the findings of the Supreme Court are set out, which are as follows:
Incentive payment is based on two components: group performance index and individual/sectional performance index. It was made clear that
no incentive will be payable to workmen on leave, absent, away from duty or on holidays. The minimum performance level is indicated in each
sectional incentive table and below which no incentive will be paid for any reason whatsoever. If a person works for more than one group during
the month, he will be awarded incentive as per the performance of each group in the respective periods. Clause 9.1 also sets out that incentive
payment payable under the Scheme will not be regarded as wages and, therefore, the payment shall not be taken into account for the purpose of
leave wages, overtime wages, wages in lieu of notice, provident fund contributions, bonus, gratuity or any other allowance. However, this clause is
subject to review in case of statutory amendments, if any.
The authorities were carried away by considering that the bonus is payable on the basis of output equivalent to certain pieces per man day. But
it is made clear in the Scheme that each payment will be made not on the basis of pieces of per man day nor is it a piece-rate work for which
wages are paid but it is an additional incentive for payment of bonus in respect of extra work done. The measure of extra work done is indicated
by pieces and not wages as such that are paid on that basis. It is not that in respect of each piece any wages are paid but altogether if certain
number of pieces are produced, additional incentive will be payable at a particular rate. Therefore, the authorities have completely missed the
scope of the scheme and have incorrectly interpreted the same. Inasmuch as both the High Court and the authorities have incorrectly understood
the position in law and have wrongly held that the concept of ''wages'' under the Act would include bonus and that even on facts the Scheme would
attract Section 4(2) of the Act. Proviso to Section 4(2) of the Act is to the effect that in case of a piece-rated employee, daily wages shall be
computed in a particular manner but that is not the rate at which the wages are paid in the present case at all. Therefore, Section 4(2) of the Act is
not attracted in the case of the present Scheme with which we are concerned.
The learned Senior Counsel also referred to a judgment of the Supreme Court in Manipal Academy of Higher Education Vs. Provident Fund
Commissioner, , wherein the Supreme Court held that leave encashment cannot attract deduction towards PF. There, the Supreme Court referring
to the Bridge Roof''s case (cited supra) and TI Cycles of India''s case (cited supra), had observed in paragraphs 10 to 12 as follows:
The basic principles as laid down in Bridge & Roofs case2 on a combined reading of Sections 2(b) and 6 are as follows:
(a) Where the wage is universally, necessarily and ordinarily paid to all across the board such emoluments are basic wages.
(b) Where the payment is available to be specially paid to those who avail of the opportunity is not basic wages. By way of example it was held
that 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.
(c) Conversely, any payment by way of a special incentive or work is not basic wages.
In TI Cycles of India v. M.K. Gurumani. it was held that incentive wages paid in respect of extra work done is to be excluded from the basic
wage as they have a direct nexus and linkage with the amount of extra output. It is to be noted that any amount of contribution cannot be based on
different contingencies and uncertainties. The test is one of universality. In the case of encashment of leave the option may be available to all the
employees but some may avail and some may not avail. That does not satisfy the test of universality. As observed in Daily Partap v. Regl.
Provident Fund Commr. the test is uniform treatment or nexus under-dependent on individual work.
The term ''basic wage'' which includes all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in
accordance with the terms of the contract of employment can only mean weekly holidays, national holidays and festival holidays, etc. In many
cases the employees do not take leave and encash it at the time of retirement or same is encashed after his death which can be said to be
uncertainties and contingencies. Though provisions have been made for the employer for such contingencies unless the contingency of encashing the
leave is there, the question of actual payment to the workman does not take place. In view of the decision of this Court in Bridge & Roofs case2
and TI Cycles case4 the inevitable conclusion is that basic wage was never intended to include amounts received for leave encashment.
The learned Senior Counsel took pain to contend that even before the Supreme Court''s decision, this Court in Thiru Arooran Sugars Ltd.
(Industrial Alcohol Unit) and Ors. v. Assistant Provident Fund Commissioner, Tiruchirapalli reported in 2007 (4) LLN 831 had taken a similar
view. It was held by this Court that deduction towards PF cannot be based upon different contingencies and uncertainties.
A careful reading of the decision in Manipal Academy of Higher Education''s case as well as Thiru Arooran Sugars'' case will show that
payment based upon contingencies could not be made part of basic wages for the purpose of deduction towards PF. But payment made on
monthly basis labeling it as various types of allowances is not a contingency payment and if the intention of the employer was to get over the
payment under the PF Act, the same can never be allowed.
The learned Senior Counsel thereafter referred to a division bench judgment of this Court in Regional Provident Fund Commissioner v. Wipro
Limited and Anr. reported in 2009 IV LLJ 513 (Mad) and it was held that canteen subsidy and performance linked compensation will not come
within the term ""basic wages"".
There was similar reference to an another division bench judgment of this Court in M/s. Gordon Woodroffe Ltd., Madras v. The Regional
Commissioner, Employees Provident Fund, Madras reported in 2011 LLR 29, where the special allowance was considered as not falling under
the term ''basic wages''.
The learned Senior Counsel also referred to the decisions in Assistant Provident Fund Commissioner, Gurgaon v. G4S Security Services
(India) Ltd. and Anr. reported in 2011 LLR 316 of the Punjab & Haryana High Court, Burmah Shell Oil Storage and Distributing Company of
India Ltd. Vs. The Regional Provident Fund Commissioner Delhi and Others, of the Delhi High Court and Gujarat Cypromet Ltd. Vs. Assistant
P.F. Commissioner, , of the Gujarat High Court in support of his contention.
Per contra, the learned Counsel for the Respondents referred to a judgment of the Supreme Court in Harihar Polyfibres Vs. Regional Director,
ESI Corporation, and relied upon the following passage found in paragraph 2, which reads as follows:
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 beneficent 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; second, whatever payment is made to an employee in respect of any period of authorised leave,
lock-out, strike which is not illegal or lay-off is wages; and third, other additional remuneration, if any, paid at intervals not exceeding two months is
also wages; this is unqualified by any requirement that it should be pursuant to any term of the contract of employment, express or implied.
However, ''wages'' does not include any contribution paid by the employer to any pension fund or provident fund, or under the Act, any traveling
allowance or the value of any traveling concession, any sum paid to the person employed to defray special expenses entailed on him by the nature
of his employment and any gratuity payable on discharge. Therefore wages as defined includes remuneration paid or payable under the terms of the
contract of employment, express or implied but further extends to other additional remuneration, if any, paid at intervals not exceeding two months,
though outside the terms of employment. Thus remuneration paid under the terms of the contract of the employment (express or implied) or
otherwise if paid at intervals not exceeding two months is wages. The interposition of the clause ''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'' between the first clause, ''all remuneration paid or payable
in cash to an employee, if the terms of the contract of employment, express or implied, was fulfilled'' and the third clause, ''other additional
remuneration, if any, paid at intervals not exceeding two months,'' makes it abundantly clear that while ''remuneration'' under the first clause has to
be under a contract of employment, express or implied, ''remuneration'' under the third clause need not be under the contract of employment but
may be any ''additional remuneration'' outside the contract of employment. So, there appears to our mind no reason to exclude ''House Rent
Allowance'', ''Night Shift Allowance'', ''Incentive Allowance'' and ''Heat, Gas and Dust Allowance'' from the definition of ''wages''. A Full Bench of
the Karnataka High Court in NGEF Ltd. v. Deputy Regional Director, E.S.I.C1 considering the question at some length held that the amount paid
by way of incentive under the scheme of settlement entered into between the Management and its workmen was wages within the meaning of
Section 2(22) of the Employees'' State Insurance Act. It was observed by the Full Bench of the Karnataka High Court as follows:
It is true that the word ''remuneration'' is found both in the first and second parts of the definition. But the condition attached to such payment in the
first part cannot legitimately be extended to the second part. The other ''additional remuneration'' referred to in the second part of the definition is
only qualified by the condition attached thereto (that is, paid at intervals not exceeding two months). That was also the view taken by a Full Bench
of the Andhra Pradesh High Court in ESI Corpn., Hyderabad, A.P. Paper Mills Ltd.2 and also the Bombay High Court in Mahalaxmi Glass
Works Pvt. Ltd. v. ESI3. But this aspect of the matter has been completely overlooked by this Court in Kirloskar case4.
He also referred to a judgment of the Supreme Court in Prantiya Vidhyut Mandal Mazdoor Federation Vs. Rajasthan State Electricity Board
and others etc. etc., and referred to the following passages found in paragraphs 9 and 10, which are as follows:
We do not agree with the Division Bench of the High Court that the wages which are substituted from back-date as a result of an award under
the Act are not the basic wages as defined under the Fund Act. If the original emoluments earned by an employee were ''basic wages'' under the
Fund Act, there is no justification to hold that the substituted emoluments as a result of the award are not the ''basic wages''. The reference to the
arbitration, the acceptance of the award by the parties and the resultant wage-increase with retrospective effect, are the direct consequences of the
settlement between the workmen and the Board. We are of the view that revision of wage-structure, as a result of an award under the Act, has to
be taken as a part of the contract of employment in the context of the Fund Act. This Court in Harihar Polyfibres v. Regional Director, ESI
Corporation, while dealing with the definition of wages under Employees'' State Insurance Act, 1948 held as under:
(SCC p. 325, para 2))
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.
The workmen have inherent right to collective-bargaining under the Act. The demands raised by the workmen through their unions are decided
by conciliation, settlement or adjudication under the Act. These are time-consuming proceedings. When ultimately the dispute is settled/decided in
workers'' favour the accrued benefit may be made available to them from back date. This is what has happened in the present case. The award
given in the year 1985 has been made operative from April 1, 1980. Under the circumstances it would be in conformity with the objects of the
Fund Act, which is a social welfare legislation, to hold that the revised pay scales have become part of the contract of employment with effect from
April 1, 1980.
The learned Standing Counsel also referred to a judgment of the Supreme Court in The Daily Partap Vs. The Regional Provident Fund
Commissioner, Punjab, Haryana, Himachal Pradesh and Union Territory, Chandigarh, and referred to the following passage found in paragraph 15
which reads as follows:
It, therefore, becomes clear that in order to become a genuine Production Bonus Scheme so as to get covered by exception (ii) to the
definition of ''basic wages'' as found u/s 2(b) of the Act, it must be shown that the Scheme in question seeks to offer production bonus to the
workmen concerned who put in extra output wherein either bonus be fixed to all of them collectively on the basis of total extra output on a sliding
scale or may be paid individually to a given number of workmen who by their own efforts earn such bonus. Thus in each case, payment of bonus
cannot be of a fixed or proven nature having no nexus with the quantity of extra output produced by them. As in the present case, the Scheme
relied on by the Appellants does not fulfil this legal test, it does not attract exception (ii) to Section 2(b). It remains in the realm of basic extra wage.
The decision rendered by learned Single Judge of the High Court as confirmed by the Division Bench decision, cannot, therefore, be found fault
with. The submission of learned Counsel for the Appellants that in the Scheme in question, there was no compulsion for the workman to put in
extra work and the management could not compel him to do extra work nor can it allege any misconduct on the part of such workman who does
not want to do excess work cannot be of any avail to the learned Counsel for the Appellants as even if this criterion may be common to the present
Scheme as well as the genuine Production Bonus Scheme, the further requirement of the Scheme to become a genuine Production Bonus Scheme,
namely, that the payment by way of bonus to the eligible workman concerned should vary in proportion to the extra output put up by him beyond
the norms of output prescribed for him, is conspicuously absent in the present Scheme, as seen earlier, and on the other hand, this requirement
which is the very heart of a genuine Production Bonus Scheme is missing in the present Scheme and therefore, similarity on only one aspect
between the genuine Production Incentive Scheme and the present Scheme, namely, that the workman could not have been compelled to carry out
extra work pales into insignificance on the facts of the present case. Therefore, the second question has to be answered against the Appellants and
in favour of the Respondent.
The learned Standing Counsel also referred to a division bench judgment of the Calcutta High Court in Regional Provident Fund Commissioner
(II) and Another Vs. Vivekananda Vidyamandir and Others, . In paragraph 19, the Calcutta High Court had observed as follows:
Having regard to the discussion made above, the special allowance in the facts and circumstances of the case appears to be the Dearness
Allowance described by a different name or in the alternative it would be part of the basic wages. By no stretch of imagination, the special
allowance paid in this case can be treated to be similar other allowance for the purpose of claiming exemption from contribution u/s 6. Therefore,
the learned Tribunal had rightly held that contribution was payable on the said amount. In the present case the special allowance has to be treated
as part of the pay subject to the liability of contribution u/s 6 of the 1952 Act.
It will not be out of context to refer to a judgment of the Supreme Court in Regional Director, Employees'' State Insurance Corporation Vs.
M/s. Popular Automobiles, , wherein the Supreme Court held that even subsistence allowance will be wages within the meaning of Section 2(22)
of the ESI Act. The Supreme Court while doing so referred to the earlier judgments of the Supreme Court in Harihar Polyfibre case (cited supra)
and Modella Woollens Ltd case (cited supra), which arose under the PF Act and in paragraph 12 had observed as follows:
It is now 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.1 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 the employees have brought about. In the case of Harihar Polyfibres2 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
(SCR) page 714 of the Report: (SCC p.325, para 2)
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 beneficent 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 very same judgment, after referring to a case of Indian Drugs and Pharmaceuticals Ltd. and Others Vs. Employees'' State Insurance
Corporation and Others, , in paragraph 13, the Supreme Court had observed as follows:
In the case of Indian Drugs & Pharmaceuticals Ltd.3 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 be 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....
If it is seen in this context, then the orders passed by the Tribunal which are under challenge cannot be found fault with. The contentions raised
by the Petitioners are misconceived and bereft of legal reasons. The Petitioners had an opportunity of putting forth their views before the
Commissioner and also had a judicial review before the EPF Appellate Tribunal. The contentions raised by them were rightly rejected by the
Tribunal.
In the light of the above factual matrix and the legal precedents set out above, this Court is unable to countenance the prayers made by the
Petitioners. It is not a case where interference by exercising extraordinary jurisdiction of this Court vested under Article 226 of the Constitution of
India, is called for. Hence all the five writ petitions, i.e., W.P. Nos. 19751 of 2010, 970, 3986,1853 and 2908 of 2011 are bound to fail.
In the result, all the 10 writ petitions will stand dismissed. However, the parties are allowed to bear their own costs. Consequently, connected
miscellaneous petitions stand closed.