Full Judgment Text
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CASE NO.:
Appeal (civil) 1832 of 2004
PETITIONER:
Manipal Academy of Higher Education
RESPONDENT:
Provident Fund Commissioner
DATE OF JUDGMENT: 12/03/2008
BENCH:
Dr. ARIJIT PASAYAT & P. SATHASIVAM
JUDGMENT:
JUDGMENT
CIVIL APPEAL NO. 1832 OF 2004
(with Civil Appeal Nos. 2535, 2536, 2539,2540 and 2541 of 2004)
Dr. ARIJIT PASAYAT, J.
1. In all these appeals common points of law are involved
and therefore they are disposed of by a common judgment.
2. The dispute in each case is whether the amount received
by encashing the earned leave is a part of "basic wage" under
Section 2(b) of the Employees’ Provident Fund and
Miscellaneous Provisions Act, 1952 (in short the ’Act’)
requiring pro rata employer’s contribution. In each case the
Regional Provident Fund Commissioner (in short the
’Commissioner’) held that the amount received on encashment
of earned leave has to be reckoned for the purpose of Section
2(b) of the Act. Accordingly, demands were raised. Appeal was
preferred before the Employees Provident Fund Appellate
Tribunal (in short the ’Tribunal’) which held that it is not a
part of basic wages. However, it was observed that a different
view was taken by the Bombay High Court and, therefore, the
respondent in the appeals i.e. the Commissioner should take
up the matter before the Karnataka High Court. Accordingly,
Writ Petitions were filed before the Karnataka High Court. A
learned Single Judge allowed the Writ Petitions and set aside
the impugned orders. The present appellant preferred Writ
Appeals before the Karnataka High Court which came to be
dismissed by the common impugned judgment.
3. Learned counsel for the appellant pointed out that the
impugned judgment cannot be sustained as it merely followed
the judgment of the Bombay High Court in Hindustan Lever
Employees’ Union v. Regional Provident Fund Commissioner
and Anr. (1995 (2) LLJ. 279). It is pointed out that different
view has been taken by the Madras High Court in Thiru
Arooran Sugar Ltd. and Ors. v. Assistant Provident Fund
Commissioner, Employees Provident Funds Organisation and
connected cases disposed of by judgment dated 12.10.2007. It
is submitted that the controversy was settled long back in
Bridge & Roof Co. (India) Ltd. v. Union of India (1963 (2) SCR
978) which was followed in Jay Engineering Works Ltd. and
Ors. v. Union of India and Ors. (1963 (3) SCR 995); and the
concept of beneficial legislation is misplaced philanthropy
where the statutes and principles underlying it are clear and
the question is no longer res integra.
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4. Learned counsel for the respondent on the other hand
submitted that even applying Bridge Roof’s case (supra) the
view taken by the Bombay High Court and the Karnataka High
Court in the present impugned judgment reflects the correct
position in law.
5. Sections 2(b) and 6 of the Act read as follows:
"2(b) "Basic wages" means all emoluments which
are earned by an employee while on duty or on leave
or on holidays with wages in either case in
accordance with the terms of the contract of
employment and which are paid or payable in cash
to him, but does not include-
(i) the cash value of any food concession;
(ii) any dearness allowance (that is to say, all cash
payments by whatever name called paid to any
employee on account of a rise in the cost of living),
house rent allowance, overtime allowance, bonus,
commission or any other similar allowance payable
to the employee in respect of his employment or of
work done in such employment;
(iii) any presents made by the employer.
6. Contributions and matters which may be
provided for in the Scheme-
The contribution which shall be paid by the
employer to the Fund shall eight and one-third per
cent of the basic wages dearness allowances and
retaining allowance (if any) for the time being
payable to each of the employees (whether employed
by him directly or by or through a contractor) and
the employees’ contribution shall be equal to the
contribution payable by the employer in respect of
him and may if any employee so desires and if the
Scheme makes provision therefore be an amount
not exceeding eight and one-third per cent of his
basic wages dearness allowances and retaining
allowance (if any) subject to the condition that the
employer shall not be under an obligation to pay
any contribution over and above his contribution
payable under this section;
Provided that in its application to any establishment
or class of establishments which the Central
Government after making such inquiry as it deems
fit may by notification in the Official Gazette specify
this section shall be subject to the modification that
for the words "eight and one-third per cent" at both
the places where they occur the words "ten per cent"
shall be substituted:
Provided further that where the amount of any
contribution payable under this Act involves a
fraction of a rupee the Scheme may provide for the
rounding off of such fraction to the nearest rupee
half of a rupee or quarter to a rupee.
Explanation 1: For the purposes of this section
dearness allowance shall be deemed to include also
the cash value of any food concession allowed to the
employee.
Explanation 2: For the purposes of this section
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retaining allowance means an allowance payable for
the time being to an employee of any factory or
other establishment during any period in which the
establishment is not working for retaining his
services."
6. In Bridge Roof’s case (supra) it was inter-alia observed as
follows:
"8. The main question therefore that falls for
decision is as to which of these two rival
contentions is in consonance with s. 2(b).
There is no doubt that "basic wages" as defined
therein means all emoluments which are
earned by an employee while on duty or on
leave with wages in accordance with the terms
of the contract of employment and which are
paid or payable in cash. If there were no
exceptions to this definition, there would have
been no difficulty in holding that production
bonus whatever be its nature would be
included within these terms. The difficulty,
however, arises because the definition also
provides that certain things will not be
included in the term "basic wages", and these
are contained in three clauses. The first clause
mentions the cash value of any food
concession while the third clause mentions
that presents made by the employer. The fact
that the exceptions contain even presents
made by the employer shows that though the
definition mentions all emoluments which are
earned in accordance with the terms of the
contract of employment, care was taken to
exclude presents which would ordinarily not
be earned in accordance with the terms of the
contract of employment. Similarly, though the
definition includes "all emoluments" which are
paid or payable in cash, the exception excludes
the cash value of any food concession, which
in any case was not payable in cash. The
exceptions therefore do not seem to follow any
logical pattern which would be in consonance
with the main definition.
9. Then we come to clause (ii). It excludes
dearness allowance, house-rent allowance,
overtime allowance, bonus, commission or any
other similar allowance payable to the
employee in respect of his employment or of
work done in such employment. This exception
suggests that even though the main part of the
definition includes all emoluments which are
earned in accordance with the terms of the
contract of employment, certain payments
which are in fact the price of labour and
earned in accordance with the terms of the
contract of employment are excluded from the
main part of the definition of "basic wages". It
is undeniable that the exceptions contained in
clause (ii) refer to payments which are earned
by an employee in accordance with the terms
of his contract of employment. It was admitted
by counsel on both sides before us that it was
difficult to find any one basis for the
exceptions contained in the three clauses. It is
clear however from clause (ii) that from the
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definition of the word "basic wages" certain
earnings were excluded, though they must be
earned by employees in accordance with the
terms of the contract of employment. Having
excluded "dearness allowance" from the
definition of "basic wages", s. 6 then provides
for inclusion of dearness allowance for
purposes of contribution. But that is clearly
the result of the specific provision in s. 6
which lays down that contribution shall be 6-
1/4 per centum of the basic wages, dearness
allowance and retaining allowance (if any). We
must therefore try to discover some basis for
the exclusion in clause (ii) as also the inclusion
of dearness allowance and retaining allowance
(for any) in s. 6. It seems that the basis of
inclusion in s. 6 and exclusion in clause (ii) is
that whatever is payable in all concerns and is
earned by all permanent employees is included
for the purpose, of contribution under s. 6, but
whatever is not payable by all concerns or may
not be earned by all employees of a concern is
excluded for the purpose of contribution.
Dearness allowance (for examples is payable in
all concerns either as an addition to basic
wages or as a part of consolidated wages where
a concern does not have separate dearness
allowance and basic wages. Similarly, retaining
allowance is payable to all permanent
employees in all seasonal factories like sugar
factories and is therefore included in s. 6; but
house-rent allowance is not paid in many
concerns and sometimes in the same concern
it is paid to some employees but not to others,
for the theory is that house-rent is included in
the payment of basic wages plus dearness
allowance or consolidated wages. Therefore,
house-rent allowance which may not be
payable to all employees of a concern and
which is certainly not paid by all concern is
taken out of the definition of "basic wages",
even though the basis of payment of house-
rent allowance where it is paid is the contract
of employment. Similarly, 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".
Similarly, commission or any other similar
allowance is excluded from the definition of
"basic wages" for commission and other
allowances are not necessarily to be found in
all concerns; nor are they necessarily earned
by all employees of the same concern, though
where they exist they are earned in accordance
with the terms of the contract of employment.
It seems therefore that the basis for the
exclusion in clause (ii) of the exceptions in s.
2(b) is that all that is not earned in all
concerns or by all employees of concern is
excluded from basic wages. To this the
exclusion of dearness allowance in clause (ii) is
an exception. But that exception has been
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corrected by including dearness allowance in
s. 6 for the purpose of contribution. Dearness
allowance which is an exception in the
definition of "basic wages", is included for the
propose of contribution by s. 6 and the real
exceptions therefore in clause (ii) are the other
exceptions beside dearness allowance, which
has been included through s. 6.
7. Similarly in Jay Engineering’s case (supra) it was
observed as follows:
"9. Finally, it was urged that even if the
payment for production between the quota and
the norm is not production bonus which can
be taken out of definition of basic wages in the
Act, it should be treated as payment in the
nature of "other similar allowance" appearing
in s. 2(b)(ii). We are of opinion that this
payment for work done between the quota and
the norm cannot be treated as any "other
similar allowance". The allowances mentioned
in the relevant clause are dearness allowance,
house-rent allowance, overtime allowance,
bonus, and commission. Any "other similar
allowance", must be of the same kind. The
payment in this case for production between
the quota and the norm has nothing of the
nature of an allowance, it is a straight
payment for the daily work and must be
included in the words defining basic wage i.e.,
"all emoluments which are earned by an
employee while on duty or on leave with wages
in accordance with terms of the contract of
employment".
10. In the view we have taken of the scheme in
this case, the petition succeeds partly. We
direct that the petition of the payment which is
made by the petitioner for production above
the "norm" would be production bonus and
would be covered by the judgment of this
Court in Bridge and Roof Company, but that
portion of the payment which is made by
petitioner for production up to the quota as
well as production between the "quota" and the
"norm" is basic wage within the meaning of
that term in the Act. The petition is therefore
partially allowed as indicated above. In the
circumstances we pass no order as to costs."
.
8. It is to be noted that in the case before the Bombay High
Court the factual scenario was somewhat peculiar. There the
employer was including the amount of leave encashment as
emoluments for the purpose of calculating provident fund
dues from the employer as well as employee’s contribution.
When the Employees’ Union took up the issue to the
Commissioner it was informed that the provision does not
provide for deduction of provident fund on leave encashment.
9. On the strength of the letter dated 3.7.1991 of the
Commissioner, Hindustan Lever Ltd. decided to make
provision for deduction. It was this direction of the department
which was challenged by the Union. In this context the High
Court has held that the Commissioner’s letter/circular was
illegal and leave encashment dues should be included for
provident fund contribution. In fact it was the understanding
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of the parties over the period that leave encashment will be
included in the wages.
10. The basic principles as laid down in Bridge Roof’s case
(supra) 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.
11. In TI Cycles of India, Ambattur v. M.K. Gurumani and
Ors. (2001 (7) SCC 204) 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. Regional Provident Fund Commissioner (1998 (8)
SCC 90) the test is uniform treatment or nexus under-
dependent on individual work.
12. 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 Roof’s
case (supra) and TI Cycles’s case (supra) the inevitable
conclusion is that basic wage was never intended to include
amounts received for leave encashment.
13. Though the statute in question is a beneficial one, the
concept of beneficial legislation becomes relevant only when
two views are possible.
14. The appeals deserve to be allowed which we direct. But if
any payment has already been made it can be adjusted for
future liabilities and there shall not be any refund claim since
the fund is running one. There will be no order as to costs.