Decided On: 11.09.1962
Court: Supreme Court
The Appellant-company had a production bonus scheme in force which provided for payment of production bonus over and above wages fixed. Production bonus was to be paid on certain rates specified in the relevant scheme when the output reaches certain number of tons (say, x tons) per year and no such production bonus was to be paid when the output is less than x tons per year.
Central Government came up with a direction that production bonus, payable as part of a contract of employment (either at a flat rate or at a rate linked to the quantum of work turned out) satisfied the definition of “basic wages” under s. 2(b) of Employees’ Provident Funds Act (“Act“). The Appellant-company was further directed to effect recovery of provident fund contributions on production bonus and arrears contribution in this respect was also directed to be deposited in the statutory fund immediately. The present petition was filed against the above decision of the Central Government.
Whether production bonus is included within the term “basic wages” as defined in s. 2 (b) of the Act can be taken into account in calculating the provident fund contribution.
- The term, “bonus”, without any qualification, has been excluded from the scope of the term “basic wages” in the definition in Section 2(b) of the Act. Therefore, all kinds of bonuses, whether it is profit bonus or production bonus or attendance bonus or festival bonus, either as an implied condition of service or as a customary payment, are excluded from “basic wages”.
- Section 6 of the Act, which provides for “contribution” only refers to basic wages, dearness allowance and retaining allowance (if any) and contributions have to be made at the appropriate rate on these three payments and not on bonus which is not included in Section 6.
- When the Act was passed in 1952 the legislature was aware of the various kinds of bonus which were being paid by various concerns in various industries and when it decided to exclude bonus without any qualification from the term “basic wages” as defined in s. 2(b), it was not open to the Central Government to direct that production bonus should be included in basic wages for the purposes of contribution under Section 6.
Union of India:
- Production bonus being in the nature of incentive wage must be included in the definition of the term “basic wages” in s. 2(b), as basic wages 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 to him………… “.
- When the word “bonus” was used in clause (ii) of the exceptions to s. 2(b), it only referred to profit bonus, as it was well established before 1952 that the use of the word “bonus” without any qualification referred to profit bonus only in industrial adjudications.
- Wages are the price for labour and arise out of contract, and whatever is the price for labour and arises out of contract, was intended to be included in the definition of “basic wages” in s. 2(b), and only those things were excluded which were a reward for labour not arising out of the contract of employment but depending on various other considerations like profit or attendance.
Basis of Exclusion Clause:
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 example, 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.
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” as they 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).
Therefore, 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 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.
Scope of the term, “Bonus”: The legislature could not have been unaware that these different kinds of bonus were being paid by different concerns in different industries, when it passed the Act in 1952. When the legislature used the term “bonus” without any qualification in clause (ii) of the exception in s. 2(b), it must be referring to every kind of bonus which was prevalent in the industrial field before 1952. When reference was with respect to profit bonus, the term “bonus” though not qualified by the word “profit” had always been limited by specifying the year for which the bonus was being claimed.
Therefore, bonus, without any qualifying word, did not mean profit bonus only and nothing else. The use of the word “bonus” without any qualifying word before it or without any limitation as to year after it, must refer to bonus of all kinds. The reason for the exclusion of all kinds of bonus is the same, i.e., payment of bonus may not occur in all industrial concerns or it may not be made to all employees of an industrial concern. Accordingly, bonus of all kinds are excluded from the definition of the term “basic wages”.
If there were no exceptions to the main part of the definition in s. 2(b), whatever was payable in cash as price for labour and arose out of contract would be included in the term “basic wages”, and that reward for labour which did not arise out of contract might not be included in the definition. But the main part of the definition is subject to exceptions in clause (ii), and those exceptions clearly show that they include even the price for labour.
Conclusion: Production bonus is not to be included in “basic wage” for purpose of calculating provident fund contribution.
Author: Vivek Verma
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