Bombay High Court
Employees State Insurance Corporation vs M/S. Universal Medikit Pvt.Ltd on 18 April, 2019
Author: A.S.Chandurkar
Bench: A.S.Chandurkar
1 FA702.07(J)
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR
FIRST APPEAL NO.702 OF 2007
The Employees State Insurance Corporation,
Panchdeep Bhavan, Ganeshpeth,
Nagpur. ..APPELLANT
Versus.
M/s.Universal Medikit Pvt. Ltd,
A private limited Company incorporated under
The Companies Act, 1956 having its Registered
Office at Shop No.41, 'Manisha Plaza'
Sonapur Lane, LBS Marg, Kurla(W),
Mumbai-70 and
Head Office at Universal Square, 545,
Shanti Nagar, Nagpur-02 ..RESPONDENT
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Mrs. B.P.Maldhure, Advocate for appellant.
Shri A.J.Pathak, Advocate for respondent sole.
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CORAM A.S.CHANDURKAR, J.
ARGUMENTS WERE HEARD ON : 28.02.2019
JUDGMENT PRONOUNCED ON : 18.04.2019
JUDGMENT
This appeal under Section 82(2) of the Employees' State Insurance Act, 1948 (for short, the said Act) has been heard on the following substantial question of law :
"Whether the amount of conveyance allowance can be treated as wages under Section 2(22) of the said Act?"
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2 FA702.07(J)
2. The aforesaid substantial question law arises on the following facts:-
A) The respondent-M/s. Universal Medikit Private Ltd. is a Company that is engaged in the business of marketing medicines. Said establishment is covered under the provisions of the said Act since December 1989 and its employees are getting benefits under the said Act. The said Company was paying contribution on the amounts of basic wages and house rent allowance. On 09.01.2004 an Inspector of the appellant-Corporation visited the Company and submitted his inspection report. It was found that contribution had not been paid for the period from April 2002 to March 2003 on the amount of conveyance allowance. On that basis, the Corporation called upon the Company to pay contribution on the amount of conveyance allowance for the aforesaid period. In reply to the said demand, it was stated by the Company that conveyance allowance paid to its employees was in the form of travelling allowance and that it was not a part of wages as contemplated by Section 2(22) of the said Act. According to the Company, the amount of conveyance allowance could not be treated as forming part of wages. In response, the Corporation referred to a Circular in which it was stated that conveyance allowance was a part of wages and hence contribution on the same was liable to be paid. Thereafter, on 31.05.2004 an order under Section 45-A of the said Act was passed directing the Company to pay contribution on the amount of conveyance allowance. Being aggrieved by that order, the Company filed an application under Section 75 of the said Act. ::: Uploaded on - 20/04/2019 ::: Downloaded on - 20/04/2019 23:08:11 :::
3 FA702.07(J) B) The Corporation filed its written submission and justified the demand of contribution on the amount of conveyance allowance. It was pleaded that conveyance allowance was paid to every employee each month in the form of wages in terms of the contract of employment. Reference was made to its Circular justifying such demand. It was further stated that despite grant of sufficient opportunity, the Company did not avail the said opportunity. The demand as made was therefore legal and the application was liable to be rejected. C) The learned Judge of the Employees' State Insurance Court after considering the material on record came to the conclusion that the conveyance allowance was paid by way of reimbursement of amounts spent by an employee for travelling from his residence to the office and it was similar to the amount of travelling allowance. Disregarding the Circular dated 21.11.2001 it was held that the demand of contribution by the Corporation on the amount of conveyance allowance was not justified. Hence by the judgment dated 12.02.2007 the application as filed by the Company under Section 75 of the said Act was allowed and the demand of contribution as made by the Corporation on the amount of conveyance allowance was set aside. Being aggrieved, present appeal has been filed.
3. Mrs. B.P.Maldhure, the learned counsel for the appellant by referring to the various provisions of the said Act submitted that payment of conveyance allowance would be part of wages under Section 2(22) of the said Act. Referring to the Circular dated 21.11.2001 it was submitted that the Corporation after ::: Uploaded on - 20/04/2019 ::: Downloaded on - 20/04/2019 23:08:11 ::: 4 FA702.07(J) taking into consideration the legal position in view of various decisions of various High Courts had found that fixed conveyance allowance being paid to the employees ought to be treated as wages for all purposes. Such payment was distinct from travelling allowance in view of the fact that the travelling allowance was paid on the basis of actual expenses incurred and it was paid occasionally. On the other hand conveyance allowance was paid on a regular basis every month to each employee. In support of her submissions, the learned counsel placed reliance on the decisions in Harihar Polyfibers Vs. Regional Director, E.S.I.Corporation, AIR 1984 SC 1680, Regional Director, Employees State Insurance Corporation VS. I T Solutions (India) Private Limited, 2002 Lab. I.C.. 3138 and Rajashree Cement Limited Vs. D Y Director(I), 2004(3) LLJ 1039. It was thus submitted that the learned Judge of the Employees' State Insurance Court ignored the Circular in question and wrongly allowed the application as filed by the Company under Section 75 of the said Act.
4. Per contra, Shri A.J.Pathak, the learned counsel for the respondent- Company supported the impugned judgment. According to him conveyance allowance could not be treated as part of wages and contribution was not liable to be claimed on that amount. He submitted that conveyance allowance was in the nature of travelling allowance to enable the employees to reach the destination where the work was to be done and it was rightly held by the Employees' State Insurance Court that it could not be included in the amount of wages. According to him the Circular relied upon by the Corporation had no binding effect ::: Uploaded on - 20/04/2019 ::: Downloaded on - 20/04/2019 23:08:11 ::: 5 FA702.07(J) especially as the provisions of Section 97(3) of the said Act had not been complied with. To support his contentions, the learned counsel placed reliance on the decisions in Management of Oriental Hotels Ltd. Cheenai, Vs. Employees' State Insurance Corporation, Chennai, 2002 (I) LLJ 14; Regional Director, E.S.I. Corporation Vs. UNO Security Services, 2016 (IV) LLJ 471 and Omega Zips Vs. Joint Director, ESI Corporation Sub-Regional Office, 2017 (155) FLR
938. It was thus submitted that the judgment of the Employees' State Insurance Court did not call for any interference.
5. I have heard the learned counsel for the parties at length and I have also perused the records of the case. It is not in dispute that the establishment in question is covered under the provisions of the said Act and contribution is being paid on the amount of wages which includes the amount of house rent allowance and other allowances. The only aspect which is to be considered is whether conveyance allowance paid to the employees could be treated as part of wages for demanding contribution thereon. In the proceedings under Section 75 of the said Act both the parties did not choose to lead any evidence. They sought to rely upon documentary material that was placed on record. The Company sought to rely upon the notice dated 17.02.2004 issued by the Corporation as well as its reply dated 16.03.2004 clarifying the position. The Company also relied upon the order passed under Section 45-A of the said Act. On behalf of the Corporation it relied upon inspection report date 09.01.2004 as well as visit note in that regard. It also referred to the Circular dated 21.11.2001. The adjudication by the Court is ::: Uploaded on - 20/04/2019 ::: Downloaded on - 20/04/2019 23:08:11 ::: 6 FA702.07(J) on the basis of this documentary material.
6. The provisions of Section 2(22) of the said Act define the expression "wages". The same reads thus :
2(22) "wages" means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express of implied, were fulfilled and includes[any payment to an employee in respect of any period of authorized leave, lockout, strike which is not illegal or layoff 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
(d) any gratuity payable on discharge;
The aforesaid definition is inclusive in nature and means remuneration of all kinds paid or payable to an employee if the terms of the contract of employment, express or implied are fulfilled. Travelling allowance or value of any travelling concession has been excluded from the definition of the term "wages".
7. In Management of Oriental Hotels Limited, Chennai (supra), it was held by the Madras High Court that conveyance allowance even if it forms part of wages payable in terms of the contract of employment, payment of that amount would fall within the ambit of "additional remuneration". However the amount of conveyance allowance would have to be excluded in view of the specific exclusion ::: Uploaded on - 20/04/2019 ::: Downloaded on - 20/04/2019 23:08:11 ::: 7 FA702.07(J) of travelling allowance or the value of any travelling concession. It was held that as conveyance allowance paid was in the nature of travelling allowance so as to enable the employee to reach his place of work and to defray a part of the cost incurred on travelling, it was of the same character as travelling allowance and therefore it had to be regarded as travelling allowance for the purposes of Section 2(22) of the said Act.
The High Court of Karnataka in MFA No. 2827/1999 had on the other hand held that transport allowance could be treated as wages as it flowed out of wage settlement and was therefore liable to be considered as wages under Section 2(22) of the said Act.
Considering the aforesaid decisions, the Corporation on 21.11.2001 proceeded to accept the latter decision of the Karnataka High Court and rationale behind it. It was accordingly decided that fixed conveyance allowance flowing out of a wage settlement could be treated as wages for all purposes. However the amount of expenses given for specific duty related to journey, reimbursement of actual cost of conveyance on production of proof of actual expenditure, payment of amounts for maintenance of vehicles and fixed conveyance allowance paid at an interval exceeding two months was not to be treated as wages.
8. In the light of the aforesaid Circular 21.11.2001 and pursuant to the visit of the Inspector to the premises of the Company, the demand for contribution on the amount of conveyance allowance came to be made.
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8 FA702.07(J)
9. The Division Bench of Karnataka High Court in Rajashree Cement Limited (supra) considered a similar question as to whether conveyance allowance paid by the management to its employees could be treated as wages within the meaning of Section 2(22) of the said Act. The Circular dated 21.11.2001 was brought to the notice of the Court and in the light of that Circular the said question was answered by holding that the payment of conveyance allowance on a uniform basis regardless whether the employee concerned had or had not incurred any expenditure on his journey to the place of his work was not synonymous to travelling allowance as envisaged under Clause (b) of Section 2(22) of the said Act. In view of the fact that such payment was made to all employees and regardless whether they were using any conveyance or type of conveyance, it was held that conveyance allowance would form part of wages. In I. T. Solutions (India) Private Limited (supra) a similar view was taken by a learned Single Judge of the Karnataka High Court. The distinction between conveyance allowance and travelling allowance was noticed and it was held that conveyance allowance would form part and parcel of wages under the said Act.
10. Reference can also be made to the observations of the Hon'ble Supreme Court in Harihar Polyfibers (supra), wherein it has been held that every remuneration paid in terms of the contract of employment or in terms of a settlement between the employer and the employee it would become part of the contract of employment and thus wages. It has been further observed that the provisions of the said Act being a piece of social welfare legislation enacted for the ::: Uploaded on - 20/04/2019 ::: Downloaded on - 20/04/2019 23:08:11 ::: 9 FA702.07(J) benefit of employees, it is construed in such a manner that would serve its purpose and objects. In case of any ambiguity the said expression must be given a liberal interpretation which would be beneficial to the interests of the employees for whose benefit the said Act has been passed. The ratio in the aforesaid decisions therefore lead to the conclusion that conveyance allowance when distinct from travelling allowance forms part of wages under Section 2(22) of the said Act.
Reference also deserves to be made to the judgment of the Division Bench of this Court in Mahalaxmi Glass Works Private Limited Vs. Employees' State Insurance Corporation, 1976 Mh. L. J. 447. While referring to the words "and other additional remuneration, if any, paid at intervals not exceeding two months", it was observed that the expression "additional remuneration" in the latter part of the definition does not deal with the contractual aspect of the employment while the first part does. The word "remuneration" was preceded by the word "additional" indicating that it was remuneration not payable under the terms of contract with which the first part of the definition deals with.
Thus, payment of any remuneration de hors the terms of the contract paid at intervals not exceeding two months is also included to form wages indicating the wide sweep of the term "wages" under Section 2(22) of the said Act.
11. As regards the decisions relied upon by the Company, the view taken therein is on the premise that as conveyance allowance is in the nature of travelling allowance or a value of any travelling concession, it does not form part ::: Uploaded on - 20/04/2019 ::: Downloaded on - 20/04/2019 23:08:11 ::: 10 FA702.07(J) of wages. In UNO Security Services (supra), the Division Bench of Kerala High Court referred to various earlier decisions of the different High Courts and observed that the question as to whether various allowances paid by the employer every month being payments to employees to defray expenses incurred by them can form a part of wages. It was found in the facts of the said case that there was no sufficient material on record to record a finding in that regard. Hence, the proceedings were remanded with a view to grant an opportunity to the establishment to produce its statutory registers and other records in support of its claim for exclusion. In Omega Zips (supra), the learned Single of the Madras High Court has followed the view of the earlier judgment of the Division Bench in Management of Oriental Hotels Ltd., Chennai (supra).
12. On considering all the aforesaid decisions, I am inclined to adopt the view as taken by the Division Bench of the Karnataka High Court in Rajashree Cement Limited (supra). After considering the Circular dated 21.11.2001, the Division Bench proceeded to conclude that conveyance allowance when distinct from travelling allowance would be part of wages under Section 2(22) of the said Act. The aforesaid Circular has not been challenged by the Company and there is no reason to exclude its consideration. Moreover, the provisions of Section 97(3) of the said Act relates to regulations made by the Corporation and the Circular dated 21.11.2001 cannot be treated as a regulation for that purpose. I find that the view as taken in Rajashree Cement Ltd (supra) is in tune with the observations of the Hon'ble Supreme Court in Harihar Polyfibers (supra). The learned Judge of ::: Uploaded on - 20/04/2019 ::: Downloaded on - 20/04/2019 23:08:11 ::: 11 FA702.07(J) the Employees State Insurance Court did not give much importance to the said Circular and proceeded on the basis that the payment of conveyance allowance was similar to payment of travelling allowance and hence it was not part of wages. The distinction between conveyance allowance and travelling allowance is clear in the sense that conveyance allowance is paid to each employee every month irrespective of actual travel undertaken while travelling allowance is only for meeting expenses of specific travel on furnishing some material in that regard. In that view of the matter, the substantial question of law as framed is answered by holding that the amount of conveyance allowance paid by the Company to its employees would be part of wages under Section 2(22) of the said Act. The demand of contribution as made on that basis by the Corporation is therefore justified.
13. As a result of aforesaid discussion the judgment of the Employees State Insurance Court, Nagpur, dated 12.02.2007 is set aside. The demand as made under Section 45-A of the said Act on 31.05.2004 is upheld. The First Appeal is allowed in aforesaid terms. The parties shall bear their own costs.
JUDGE Andurkar..
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