Andhra HC (Pre-Telangana)
Vijayawada Bottlling Company Limited vs Employee Insurance Court And Chairman, ... on 3 February, 2004
Equivalent citations: 2004(3)ALD742, [2004(102)FLR406], (2004)IIILLJ245AP, (2004)IIILLJ245SC
Author: Elipe Dharma Rao
Bench: Elipe Dharma Rao
JUDGMENT Elipe Dharma Rao, J.
1. The appellant filed this appeal against the Order dated 19.11.1998, passed in E.I. Case No. 42 of 1997 on the file of the Employees Insurance Court and Chairman, Industrial Tribunal-I, at Hyderabad, wherein the learned Chairman dismissed the application, which was filed under Section 75(1)(g) of the Employees' State Insurance Act, 1948, (for brevity the Act) praying to set aside the demand notice dated 9-6-1997.
2. The brief facts of the case are that the appellant is a Company registered under the provisions of Companies Act. It has entrusted with the work of manufacturing of soft drinks and aerated water i.e., Thums up, Gold Spot etc., and accordingly, it engaged 120 workmen including casual and piece rate employees for the said purpose. It is submitted that for each shift the petitioner is able to produce 3,000 crates, as against the installed capacity of 6,000 crates. To encourage more production, the petitioner has introduced the payment known as 'Inani', which will be paid to the workers whenever production exceeds 3,000/- crates per shift. It is stated that the said Inam is not a wage as defined under Section 2(22) of the Employees State Insurance Act (for short "the Act"). It is further submitted that if the said Inam was added to the wage payable to the workers, most of the workers would not come under the purview of the Act. Hence, according to the petitioner it is not liable to pay any contribution on the said payment of Inam. Therefore, he made a representation dated 19-4-1997, requesting the respondent authorities to provide an opportunity of personal hearing. However, without giving any opportunity to the petitioner, the respondent authorities passed the order dated 9-6-1997, demanding to pay an amount of Rs. 1,65,184/- towards ESI contribution on the omitted wages for the period from July, 1995 to September, 1996. Hence, this civil miscellaneous appeal.
3. The Court below, on considering the material available on record and the evidence adduced by both the parties, dismissed the petition holding that the petitioner failed to pay contribution on omitted wages even though it has brought to its notice during inspection.
4. Learned Counsel for the petitioner contends that the learned Chairman failed to appreciate that there was no obligation on the part of the workers' to produce 3,000 crates per shift and that the payment of the Inam can be withdrawn at any time at the discretion of the petitioner and in such an event the workers cannot protest nor direct the petitioner to implement the scheme. Further, any remuneration payable by virtue of a term in the contract of employment, which could also be the implied one, would alone fall under the definition of wages as defined under Section 2(22) of the Act and that the 'Inam' is not an additional remuneration.
5. To appreciate the contentions raised by the learned Counsel for the appellant, let us have a glance at the definition of Section 2(22) of the ESI Act, which defines Wages as under:
"...Wages means all remuneration paid or payable, in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized leave, lock out, strike, which is not illegal or lay-offs 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 the discharge..."
A plain reading of this provision makes it clear that all remuneration paid or payable in cash to any employee, in the event the terms of the contract of employment either express or implied were fulfilled and any other additional remuneration, if any, paid at intervals not exceeding two months are wages, but exclude any contribution made by the employer to any pension fund or provident fund, travelling allowance or travelling concession, any sum paid in connection with defray of special expenses in view of his nature of employment or any gratuity payable on discharge. Thus the meaning of wages fall within limited scope to mean all remuneration paid or payable in cash to an employee on fulfillment of the contract of employment and other additional remuneration, if any, paid at intervals not exceeding two months. Therefore, in the facts and circumstances of the case, let us examine whether the amounts paid as inam by the employer-appellant falls within the meaning of word wages.
6. The learned Counsel for the appellant submits that payment of inam was neither incorporated in the original contract of employment nor can it be inferred by any terms of contract of employment. He further submits that when neither the production of 3000 crates per shift was compulsory or obligatory on the part of the workmen nor the appellant initiated any disciplinary action against the workmen for not producing such quantity, the amount paid ( as inam on production of more than 3000 crates per shift, cannot be brought under the purview of wages. He further submits that the inam can be withdrawn at any time and it is the sole discretion of the appellant and in such an event the workmen will have no right to protest or agitate to implement the scheme of payment of inam, inasmuch as there is no such term in the contract of employment for such payment, either express or implied. He further submits that such a payment cannot be termed as overtime wages, as the payment of overtime wages, under the Factories Act, is confined to double the earning rate, but whereas, in this case, inam is paid to encourage production exceeding 3000 crates, per shift, within the shift timings. Contending so, the learned Counsel for the appellant placed reliance upon a decision of the Apex Court in Braithwaite and Company v. E.S. Corporation, , wherein it was held thus:
"The payment of Inam, though remuneration, could not be said to have become a term of the contract of employment within the meaning of the definition of'wages' as given in Section 2(22).
If the Inam had become an implied condition of the contract of employment the employer could not withdraw that right at its discretion without assigning any reason nor could the employer vary its conditions without agreement from the employers.
The exemption from payment of the Inams on grounds for which the employees could not be blamed and possibly for which the Company itself might be responsible clearly showed that the payment of the Inam was not enforceable as one of the terms of the contract of employment whether implied or express.
The High Court committed an error in extending the legal fiction stated in Section 41 Explanation to the definition of 'wages' when dealing with the question of payment in the nature of inam under the scheme. The explanation to Section 41 is not to be utilized for interpreting the general definition of "wages" given in Section 2(22) of the Act and is to be taken into account only when the word "wages" requires interpretation for purposes of Sections 40 and 41 of the Act. It cannot, therefore, be held that remuneration payable under a scheme is to be covered by the word "wages", if the terms of contract of employment are taken to have been fulfilled. What is really required by the definition is that the terms of the contract of employment must actually be fulfilled. It is, therefore, not correct to hold that because payments made to an employee for no service rendered during the period of lock-out, or during the period of legal strike, would be wages Inam paid under that scheme must also be deemed to be wages.
The mere fact that a reward for good work offered by the employer was accepted by the employee after he had successfully satisfied the requirement laid down by the employer for earning reward could not mean that this payment became a part of contract of employment. In fact, in the case, there was no question of offer by the appellant and acceptance by the employees as a condition of their service. The employees were already working in accordance with the terms of their contract of employment when the employer decided to make this extra payment if the employees did successfully what they were already expected to do under that contract. It cannot, therefore, be held that this payment of Inam ever became even an implied term of the contract of employment of the employees of the appellant."
7. This principle was laid down by the Supreme Court having regard to the ratio laid down in Bala Subrahmanyan Rajaram v. B.C. Patial, , wherein the meaning of word "wages" was interpreted as defined in the Payment of Wages Act to mean as remuneration which would be payable if the terms of the contract of employment, express or implied, were fulfilled. In Bala Subrahmanyan's case (supra), the Apex Court held thus:
"...Now the question is whether the kind of bonus contemplated by this definition must be a bonus that is payable as a clause of the contract of employment. We think it is, and for this reason. Therefore, the Court proceeded to examine whether bonus was, in fact, payable as a clause of the contract of employment. The word "wages" in the Act, having been defined in similar terms, a remuneration paid to an employee can only be covered by the definition of wages, if it is payable under a clause of the contract of employment. As we have indicated earlier, there was no express clause in the contract of employment of the employees of the appellant laying down the payment of Inam, and the scheme when brought into force, expressly excluded it from the contract of employment. The terms on which the Inam was payable were also not consistent with the scheme having become a part of the contract of employment..."
8. The learned Counsel for the appellant further relied on yet another decision of the Apex Court in Whirlpool of India Ltd., v. Employees State Insurance Corporation, , to contend that any amounts paid under incentive scheme for more production, does not fall within the scope and ambit of the word "wages" as defined under Section 2(22) of the Act. In relation to the said contention, the Apex Court held thus:
"...Payment towards production incentive made by the appellant to its workers under the "Production Incentive Scheme" does not fall within the scope and ambit of wages as defined in Section 2(22) of the Act.
The amount in question was not paid or was not payable on fulfillment of terms of contract of employment. The payment under the scheme cannot be termed as payment under settlement as contemplated by Section 2(p) of the Industrial Disputes Act. It also cannot be held that the payment in question under the scheme would amount to a condition of service requiring compliance of Section 9A of the Industrial Disputes Act for effecting any change in the conditions of service. The payment thus does not fall within the first part of definition of 'wages'. It is evident that the additional remuneration to become wages has to be "paid" at intervals not exceeding two months as distinguished from being payable. Thus under the last part there has to be actual payment. Even if that there is possibility of misuse by employers by making the payment at a period exceeding two months and thus circumventing the provisions of the Act. When in the last part of Section 2(22), the words used is "paid", Court cannot add the word "payable" or other similar expression thereto..."
9. To bring any remuneration within the meaning of "wages" as defined under Section 2 (22) of the Act, one has to satisfy that the remuneration paid or payable in cash to an employee, was after fulfillment of terms of the contract of employment, express or implied and any other additional remuneration, if any, paid at the intervals not exceeding two months. Admittedly, the remuneration paid under the nomenclature of inam is not on the fulfillment of any terms of contract of employment but it was in the form of an incentive for producing more than 3000 crates per shift. It is a settled position of law that any payment towards production incentive made by the appellant to the workmen under any such scheme does not fall within the scope and ambit of "wages" as defined under Section 2(22) of the Act. The payment of such amount cannot also be brought under the purview of overtime wage under the Factories Act, the payment of overtime wages, since under the Factories Act overtime wage is confined to double the earning rate, and such payment is neither made under a contract of employment nor on fulfillment of any terms of contract of employment and if it is additional remuneration, it has to be paid at intervals not exceeding two months. Admittedly, the I appellant herein is engaged in manufacturing of soft drinks and aerated water i.e. Thumps Up, Gold Spot, etc., and it is a factory for the purpose of ESI Act and started functioning in the year 1967 and the production depends on various factors namely, line changing, etc., and it manufactures number of products of different tastes which consumes 1 to 2 hours. The manufacturing activity is not a continuous process and in such production unit, the appellant could produce only 3000 crates as against the installed capacity of 6000 and in such circumstances, to increase the production, the appellant introduced additional payment known as inam, wherever the production exceeds 3000 crates per shift. Admittedly, the additional remuneration is not paid at regular intervals not exceeding two months, but it is paid whenever the production exceeds 3000 crates per shift. It is nobody's case that the scheme was introduced pursuant to any settlement or negotiations, but the appellant itself voluntarily introduced the scheme to boost production. There is no offer, as such, by the appellant for such a scheme or the workmen have accepted the offer. Over and above, the appellant is vested with the powers to withdraw the scheme and the workmen have no legal right to agitate over the withdrawal of such a scheme. Thus the payment cannot also be brought within the purview of settlement as defined under the Industrial Disputes Act
10. It is contended by the learned Counsel for the respondent that the workmen would be covered even if the total wages exceeds the ceiling limit as per Section 2(9) of the Act and the demand of Rs. 1,63,704/- on the said inam is justified. It is further submitted that though opportunity was given to the appellant herein, they failed to avail the same and directly approached the Court and therefore, the impugned order does not suffer from any infirmity.
11. It is seen from the decisions of the Apex Court, though the respondent claimed that additional remuneration was paid, to bring within the purview of Section 2(22) of the Act, whether the additional remuneration was paid at intervals, not exceeding two months, no material is placed for perusal of this Court. On the other hand, it is asserted by the appellant that the amount was not paid at regular intervals. Such an amount, as stated earlier, cannot be brought within the purview of the overtime, as defined under the Factories' Act, inasmuch as overtime is confined to double the earning rate, whereas the remuneration paid herein is for the production beyond 3000 crates per shift.
12. For the foregoing reasons, I hold that the remuneration paid to the workers fobr production of crates beyond 3000 as against the installed capacity of 6000 crates, does not come within the meaning of "wages" as defined under Section 2(22) of the Act. Therefore, the order passed on 19-11-1998 by the second respondent is set aside and consequently, the demand notice dated 9-6-1997 is also set aside. The civil miscellaneous appeal is accordingly allowed.