Manipal Academy of Higher Education vs. Provident Fund Commissioner

Citation: AIR 2008 SC 1951

Court: Supreme Court

Decided on: 12.03.2008


Regional Provident Fund Commissioner (“Commissioner“) ordered that the amount received on encashment of earned leave has to be considered for the purpose of calculation of “basic wage” under Section 2(b) of Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (“Act“). Accordingly, Respondent raised demands for provident fund contribution from the Appellant. The Appellant then preferred an appeal before the Employees Provident Fund Appellate Tribunal (“Tribunal“) which held that amount received on encashment of earned leave does not form part of basic wages.

The Respondent then filed a writ petition before the Karnataka High Court, where the court relied on the decision of Bombay High Court in Hindustan Lever Employees’ Union v. Regional Provident Fund Commissioner and Anr. [1995 (2) LLJ. 279] and set aside the the impugned order of the Tribunal.


Whether the amount received by encashing the earned leave is a part of “basic wage” under Section 2(b) of the  requiring pro rata employer’s contribution.



  1. The above judgment cannot be sustained as it merely followed the judgment of the Bombay High Court. A 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 decided on 12.10.2007;
  2. Controversy has been settled long back in Bridge and Roof Co. (India) Ltd. v. Union of India [1963(2)SCR978] which was also followed in Jay Engineering Works Ltd. and Ors. v. Union of India and Ors. [(1963) IILLJ72 SC];
  3. Concept of beneficial legislation is not applicable where the statutes and principles underlying it are clear and the question is no longer res integra (an entirely new or untouched matter).


  1. Even applying Bridge Roof’s case (supra) the view taken by the Bombay High Court and the Karnataka High Court reflects the correct position of law.


W.r.t Contention 1 of Appellant:

The Supreme Court differentiated the above decision of Bombay High Court from the present case based on the peculiar factual scenario of that case, which I am not discussing here for the sake of brevity.

Whether the amount received by encashing the earned leave is a part of “basic wage” under Section 2(b) of the  requiring pro rata employer’s contribution?

The Apex Court reiterated the basic principles as laid down in Bridge Roof’s case (supra) on a combined reading of Sections 2(b) and 6 of the Act as follows:

  • Where the wage is universally, necessarily and ordinarily paid to all across the board such emoluments are basic wages.
  • Where the payment is available to be specially paid to those who avail of the opportunity is not basic wages.
  • Conversely, any payment by way of a special incentive or work is not basic wages.

Supreme Court then referred to its judgment in T.I. Cycles of India, Ambattur v. M.K. Gurumani and Ors. [(2001)IILLJ1068SC] to reaffirm 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. Supreme Court further quoted from this case 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.

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. Therefore, in view of the above decisions of this Court in Bridge Roof’s case (supra) and T.I. Cycles’s case (supra), the inevitable conclusion is that basic wage was never intended to include amounts received for leave encashment.

W.r.t Contention 3 of Appellant:

Supreme Court further added that though the statute in question is a beneficial one, the concept of beneficial legislation becomes relevant only when two views are possible.

Author: Vivek Verma

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