Airfreight Ltd. Vs. State of Karnataka & Ors.

Citation: AIR 1999 SC 2459

Decided On: August 04, 1999

Judges: D.P. Wadhwa and M.B. Shah, JJ.

Facts:

The State Govt. of Karnataka issued a notification dated 19.08.1987 (“Notification“) under Section 27 of the Minimum Wages Act (“Act“) fixing the minimum rates of wages payable to certain categories of employees for “shops and commercial establishments”.

The Appellant company argued that it does not come under the categories of “shops and commercial establishments” as defined under the provisions of the Karnataka Shops and Commercial Establishment Act, 1961.

Further, it contended that it is paying total pay packet which is more than minimum wages prescribed under the impugned Notification and, therefore, (a) the Notification is not applicable to it; and (b) in any case, there is no violation of the Notification. The Appellant clarified that it is paying more than the minimum wages, but not bifurcating the basic wages and dearness allowance. He further submitted that under the Act, it is not required to divide minimum wages into two parts, one as basic wages and other as dearness allowance.

Issues:

1. Whether the business of Appellant is covered under the term “Shops” and “Commercial Establishment”.
2. Whether the mere fact that Appellant is paying more than minimum wages prescribed under the Notification, excludes it from the applicability of the Notification.
3. Whether Appellant is liable to pay the minimum wages as prescribed under the Notification.

Held:

Issue 1: Whether the business of Appellant is covered under the term “Shops” and “Commercial Establishment”.

Supreme Court here relied on several other landmark judgments and observed:

In Hindu Jea Band v. Regional Director[1], shop was held to be “a place where services are sold on retail basis” and, therefore, making available on payment of a stipulated price the services of musicians employed by the petitioner on wages made the petitioner’s establishment a ‘shop’.

In International Ore and Fertilizers (India) Pvt.. Ltd. v. Employees State Insurance Corporation[2], the petitioner carried on activities facilitating the sale of goods by its foreign principals to the State Trading Corporation or the Minerals and Metals Corporation; it arranged for the unloading of such goods and, their survey; upon delivery it collected the price payable and remitted to its foreign principals. These were considered to be trading activities, although the goods imported were not actually brought to the petitioner’s premises but were delivered to the purchaser there and the premises was held to be a shop.

In the case of Cochin Shipping Co. v. E.S.I. Corporation[3] wherein the company was engaged in the business of clearing and forwarding at the Port of Cochin situated in Willingdon Island the question was whether the establishment with the company is a ‘shop’ within the meaning of the expression as used in the Notification under the E.S.I. Act? The Court held that company was rendering service to cater to the needs of exporters and importers and others who want to carry the goods further. Therefore, it is a shop carrying on systematic, economic or commercial activity.

Further, in the case of Employees’ State Insurance Corporation v. R.K. Swamy and Ors.[4], the Court held that “the word ‘shop’ has acquired expanded meaning and means a place where services are sold on retail basis”. The Court further observed that the Employees State Insurance Act, 1948 was a beneficial legislation and, therefore, it was reasonably possible so to construe the word ‘shop’ as to include the activity of an advertising agency within it.

Supreme Court observed that the Appellant was carrying out various systematic commercial activities with profit motive and was also selling services on retail basis. Referring to the nature of Appellant’s business (as noted in para 6) relying on the above precedents, Supreme Court concluded that the Appellant would be covered by the expression “shops” and/or “commercial establishment”. It further clarified that the word, “shop”, inter alia, means any premises where trade or business is carried on or where the services are rendered to customers.

Issue 2: Whether the mere fact that Appellant is paying more than minimum wages prescribed under the Notification, excludes it from the applicability of the Notification.

The Apex Court in this case clarified that if some employer of the shop or establishment is paying more than minimum wages, it does not mean it should be specifically excluded from the operation of the Act. The process of making the Act applicable to certain industries or establishments situated in particular localities does not require that the State Government should make distinction with each and every shop and establishment by actual verification whether they were paying minimum wages or not.

Accordingly, the Supreme Court concluded that the Notification applies to all kinds of shops and commercial establishments – big or small – and that payment of more than prescribed minimum rates of wages is not relevant for deciding its applicability.

Issue 3: Whether Appellant is liable to pay the minimum wages as prescribed under the Notification.

Minimum rate of wages fixed under the Act is remuneration payable to the worker as one package of fixed amount. In cases where minimum wage is linked with the cost of living index, the amount paid on the basis of dearness allowance is not to be taken as an independent component of the minimum wages but as part and parcel of the process of rates of minimum wages which is to be determined after taking into consideration the cost of various necessities.

In cases where employer is paying total sum which is higher than minimum rates of wages fixed under the Act including the cost of living index (“VDA“), such employer is not required to pay VDA separately. However, for determining whether they are paying minimum rates of wages or not, the amount paid for the value of items which are excluded under Section 2(h) of the Act is not to be taken into consideration, viz.:

(i) the value of any house, accommodation, supply of light, water, medical care, or any other amenity or any service excluded by general or special order of the appropriate Government;

(ii) any pension fund or provident fund or under any scheme of social insurance;

(iii) any travelling allowance or the value of any travelling concession;

(iv) any sum paid to any person employed to defray special expenses curtailed on him by the nature of his employment or

(v) any gratuities payable on discharge;

Also, while fixing the minimum wages, the capacity of the employer to pay is treated as irrelevant.

Dearness Allowance is part and parcel of cost of necessities. In cases where the minimum rates of wages is linked up with V.D.A., it would NOT mean that it is a separate component which is required to be paid separately where the employer is already paying a total pay package more than the prescribed minimum rate of wages.

Author: Vivek Verma

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[1] (1987)ILLJ502SC

[2] [1987] 3 SCC 203

[3] (1993)IILLJ795SC

[4] (1994)ILLJ636SC