Full Judgment Text
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PETITIONER:
THE REGIONAL DIRECTOR, EMPLOYEES’STATE INSURANCE CORPORATION
Vs.
RESPONDENT:
BATA SHOE COMPANY (P) LTD.
DATE OF JUDGMENT11/10/1985
BENCH:
PATHAK, R.S.
BENCH:
PATHAK, R.S.
SEN, A.P. (J)
CITATION:
1986 AIR 237 1985 SCR Supl. (3) 639
1985 SCC (4) 460 1985 SCALE (2)766
ACT:
Employees State Insurance Act, 1948 - S. 2(22) -
’Bonus’ Whether part of wages".
HEADNOTE:
The respondent-company has two branch factories.
Various agreements/settlements were entered into between the
managements of these factories and their employees regarding
the payment of bonus from time to time. The appellant -
Regional Director of Employees’ State Insurance Corporation
- called upon these factories from time to time to make
requisite contribution to the Employees’ State Insurance
Fund. Initially the managements of these factories
acknowledged their liability to deposit the amounts as part
of the contract of employment, but subsequently realising
that they were not liable in law to make any such
contribution under the employees’ State Insurance Act, 1948,
declined to make such payment. The managements of these
factories applied under cl. (g) of sub-s. (1) of s. 75 of
the Act for a decision by the Employees’ State Insurance
Court on the question of their liability, and contended that
the sum payable or paid by way of bonus to the employees was
not covered by the definition of the term "wages" in sub-
s.(22) of s.2 of the Act and, therefore, the respondent was
not liable to make any contribution. The Employees’ State
Insurance Court accepted the contention of the respondent.
Against that order the appellant preferred appeals
under S.82 of the Act, which were dismissed by the High
Court holding that the Employees’ State Insurance Court was
right in taking the view that the bonus in question did not
form part of the wages as defined in sub-s. (22) of s. 2 of
the Act.
Dismissing the appeals of the appellant to this Court,
^
HELD: 1. The bonus in question, in the instant appeals, does
not fall under any category or class mentioned in the
definition of "wages" set forth in sub-s.(22) of S. 2 of the
Employees’ State Insurance Act, 1948. [645 E]
640
In the instant case, the bonus paid by the respondent
to its employees is in the nature of ex-gratia payment or,
as has been described in one of the settlements, paid as a
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gesture of goodwill on the part of the respondent. The bonus
in question was neither in the nature of production bonus
nor incentive bonus nor customary bonus nor any statutory
bonus. It cannot be regarded as part of the contract of
employment. Although the provisions relating to it were
included in the Standing Orders and Rules, they were
subsequently excluded from them. Therefore, the bonus paid
or payable by the respondent to its employees under the
successive settlements and agreements made between them
cannot be regarded as remuneration paid or payable to the
employees in fulfillment of the terms of the contract of
employment. [644 C-F]
2. The concept of bonus has been analysed and described
by this Court as representing the cash incentive paid in
addition to wages and given conditionally on certain
standards of attendance and efficiency being attained. When
wages fall short of the living standard or the industry
makes huge profits part of which are due to the contribution
which the workmen make in increasing production, the demand
for bonus becomes an industrial claim. It has not been shown
that this Court has subsequently widened the concept of
bonus to include a payment made by the employer ex-gratia or
as an expression of goodwill towards its employees. [644 F-
H; 645 A - C]
3. The first category of remuneration falling within
the definition of "wages" in sub-s.(22) of S. 2 of the Act
is not satisfied by the bonus in question in the instant
appeals. The second category of remuneration defined within
the expression "wages" by sub-s.(22) of S. 2 of the Act
speaks of other additional remuneration paid at intervals
not exceeding two months. The bonus under consideration here
is not paid at intervals not exceeding two months. It is
payable within "one month after the end of each quarter".
[645 C-E]
Muir Mills Co. Ltt. v. Suti Mills , [1955] 1 S.C.R.
991; Shree Minakshi Mills Ltd. v. Their Workmen [1958]
S.C.R. 878; and Standard Vacuum Refining Co. of India v. Its
Workmen and Anr., [1961] 3 S.C.R. 536 relied on.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 741-42
of 1978.
From the Judgment and Order dated 2.5,1975 of the Patna
High Court in Appeals from Original Orders Nos. 92 and 93 of
1971.
641
Abdul Khader, R.N. Kapoor and Miss A. Subhashini for
the Appellants.
G.B. Pai, Parveen Kumar, Anil Kumar Sharma and P.R. Das
for the Respondent.
The Judgment of the Court was delivered by
PATHAK, J. These appeals by special leave are directed
against the common judgment and order of the Patna High
Court dismissing two appeals filed by the Regional Director,
Employees’ State Insurance Corporation on the question
whether the respondent is liable to pay the disputed bonus
to its workmen.
The respondent, Bata Shoe Company (P) Ltd., has a
branch factory at Digha Ghat and another at Mokamah in the
State of Bihar. At the Digha Ghat branch, the respondent
entered in to a settlement with its workmen on May 6, 1947,
in which it was agreed that production bonus payable to the
workmen would remain unaltered but employees earning less
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than Rs 200 would get an extra bonus called "good attendance
bonus" at 5% of their yearly salary provided they completed
active service for 265 days annually inclusive of Saturdays.
It was stipulated that attendance bonus would be calculated
in the same way as production bonus On November 28, 1951
there was an agreement by which it was agreed that "the
system of attendance bonus for the year 1952 will be
discontinued and the ex-gratia bonus’s percentage will be
increased by 5%, i.e. instead of 10% it will be 15% to all
employees." It was also agreed that corresponding changes
would be made in the Standing Orders and Rules in order to
incorporate these changes Later, another settlement was
recorded, this time before the Chairman, Industrial
Tribunal, Bihar, in a pending Reference of 1955 where it
was mentioned that the respondent had agreed to increase the
general bonus, effective from the first quarter of 1957,
from 15% to 16% Thereafter on July 27, 1961 there was
another settlement which provided
"In view of the overall satisfactory settlement on
all the outstanding points of the Union and of
those points raised by the management, as a
gesture of good will the management declared that
with effect from 3rd quarter of 1961 the General
Bonus will be increased from 16-1/2% to 17-1/2%
The workmen’s representatives appreciated this
gesture of the management and expressed
satisfaction on behalf of the workman on the
increase of General Bonus."
642
This was followed by a further settlement dated January 9,
1963 arrived at in the course of conciliation proceedings
before the Conciliation Officer-cum-Deputy Labour
Commissioner, Bihar. It provided that :
"BONUS:
The rate of payment of bonus, effective from 4th
quarter of 1962 will stand revised at 19% in place
of 17-1/2% as at present. The payment of bonus
will be made one month after the end of each
quarter at the rate of 19% of the total salary
and/or wages paid to each workman and employee
during the quarter immediately preceding (such
salary or wages are exclusive of any other special
allowance or rewards granted to him during such
period). Such bonus will be payable only to those
who have completed six months’ approved service
ending on the last day of the quarter; and to
those who have completed less than six months’
approved service on the last day of the quarter,
the bonus will be payable at the rate of 19-1/2%
of their total salary or wages as aforesaid. The
bonus will be avail able only to those who are in
the employ of the company on the last day of the
quarter and who have given regular and approved
service during the quarter to which the payment of
bonus is available.’
The last document recording a settlement is dated July 17,
1963, and pursuant to it the bonus clause was deleted from
the Standing Orders and Rules.
The facts relating to the respondent’s Mokamah factory
are substantially similar, except that the bonus scheme was
not incorporated at any time in the Standing Orders and
Rules.
The respondent company at its two factories, Digha and
Mokamah, was called upon from time to time by the Regional
Director, Employees’ State Insurance Corporation to make the
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requisite contribution to the Employees’ State insurance
Fund. At first, the managements of the two factories
acknowledged their liability to deposit the amounts as part
of the contract of employment, but subsequently realising,
as they allege, that they were not liable in Law to make any
such contribution under the Employees’ State Insurance Act
1948, they declined to make such
643
payment. Apprehending coercive methods of recovery on the
part of the appellant, the managements of the two factories
applied under the cl.(g) of sub-s.(l) of s. 75 of the Act
for a decision by the employees’ Insurance Court on the
question of their liability. The contention of the
respondent was that the sum payable or paid by way of bonus
to the employees was not covered by the definition of the
term wages in sub-s. (22) of s. 2 of the Act and, therefore,
the respondent was not liable to make any contribution. The
employees’ State Insurance Court accepted the contention of
the respondent. Against that order the Regional Director,
Employees’ State Insurance Corporation, Patna preferred
appeals under s. 82 of the Employees’ State Insurance Act
1948, and the appeals have been dismissed by the Patna High
Court by its judgment and order dated May 2, 1975. The High
Court has held that the employees’ State Insurance Court was
right in taking the view that the bonus in question did not
form part of the wages as defined in sub-s. (22) of s. 2 of
the Employees’
State Insurance Act, 1948.
The contribution payable by an employer under the Employees’
State Insurance Act, 1948 is computed with reference to the
wages of the employee, and in these appeals the only
question is whether the bonus paid by the respondent to its
employees at the Digha Ghat and the Mokamah branch factories
under the settlements mentioned earlier can be regarded as
wages as defined by sub-s. (22) of s. 2 of the Act. Sub-s.
(22) of s. 2 defines wages as follows:-
"(22) wages" means all remuneration paid or
payable in cash to an employee if the terms of the
contract of employment, express or implied, were
fulfilled and includes any payment to an employee
in respect of any period of authorised leave,
lock-out, strike which is not illegal or lay-of f
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
644
(d) any gratuity payable on discharge."
The entire argument of the appellants before the High
Court was that the bonus paid or payable to the employee by
the respondent was in the nature of remuneration paid in
cash to the employees under the express terms of the
contract of employment. In other words, the appellants
relied on that part. of the definition of "wages" which
speaks of "all remuneration paid or payable, in cash to an
employee, if the terms of the contract of employment,
express or implied, were fulfilled". Before us, the
appellants rely on the same provision in the definition.
They also rely on that part of the definition which speaks
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of "wages" as "other additional remuneration, if any, paid
at intervals not exceeding two months.....". The remaining
provision of the definition were not relied on. We are
therefore, called upon to consider whether the bonus in
question satisfies the terms of either of the two kinds of
remuneration mentioned above.
It is plain from what has gone before that the bonus
paid by the respondent to its employees is in the nature of
ex-gratia payment or, as has been described in one of the
settlements, it is paid as has been described in one of the
settlements, it is paid as a gesture of goodwill on the part
of the respondent. It is nothing else. In cannot be regarded
as part of the contract of employment. Although the
provisions relating to it were included in the Standing
Orders and Rules, they were subsequently excluded from them.
In our opinion, therefore , the bonus paid or payable by
the respondent to its employees under the successive
settlements and agreements made between them cannot in
fulfilment of the terms of the of employment. Although the
provisions relating to it were included in the Standing
Orders and Rules, they were subsequently excluded from them.
In our opinion, there fore, the bonus paid or payable by the
respondent to its employees under the successive settlements
and agreements made between them. cannot be regarded as
remuneration paid or payable to the employees in fulfilment
of the terms of the contract of employment.
The concept of bonus has received the attention of this
Court in a series of cases, and we need mention only some of
the. One of the first authoritative decisions rendered by
this Court is Muir Mill Co. Ltd. v. Suti Mill, [1955] 1
S.C.R. 991, where N. H. Bhagwati, J. speaking for the Court,
analysed the concept of bonus and described it as
representing the cash incentive paid in addition to wages
and given conditionally on certain standards of attendance
and efficiency being attained. When wages fall short of the
living standard or the industry makes huge profits profits
part of which are due to the contribution
645
Which the workmen make in increasing production, the demand
for bonus, it was said, becomes an industrial claim. The
view was followed by this Court in the Shri Meenakahi Mills,
Ltd. v. Their Workmen, [1958] S.C.R. 878, but the two
conditions, that the wages paid to workmen fall short of
living wages and that the industry should be shown to have
wade profits which are partly the result of the contribution
made by the workmen in increasing production were regarded
as being of cumulative significance. Then followed Standard
Vacuum Refining Co. of India v. Its Workmen and
Ant.,[1961] 3 S.C.R. 536, which dealt with the concept of
bonus elaborately while re-affirming what had been said in
the earlier two cases. It has not been shown to us that this
Court has subsequently widened the concept of bonus to
include a payment made by the employer ex-gratia or as an
expression of goodwill towards its employees. It seems to us
clear that the first category of remuneration falling within
the definition of "wages" in sub-s.(22) of 8. 2 of the
Employees’ State Insurance Act, 1948 is not satisfied by the
bonus in question in these appeals.
The second category of remuneration defined within the
expression " wages" by sub-s. (22) of 8. 2 of the Act speaks
of other additional remuneration paid at intervals not
exceeding two months. It cannot be disputed that the bonus
under consideration here is not paid at intervals not
exceeding two months. It is payable "one month after the end
of each quarter" .
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We have carefully perused the terms of the definition
of "wages" set forth in sub-s. (22) of 8. 2 of the
Employees’ State Insurance Act, 1948, and we are satisfied
that the bonus in question in these appeals does not fall
under any category or class mentioned in the definition.
In the result, we find ourselves in agreement with the
high Court, and therefore we dismiss the appeals with costs.
A.P.J. Appeals dismissed.
646