Important Point
Production bonus paid to workmen, cannot be excluded from ‘basic wages’ u/s 2(b) of the P.F. Act unless it is proved that payment is under genuine scheme towards extra work of workmen.

Headnote:Employees Provident Funds and Miscellaneous Provisions Act, 1952 -Section 2(b)(ii)-Production bonus-Condition precedent to exclude from basic wages-It must be shown that scheme seeks to offer production bonus to workmen concerned who put in extra output-Payment of bonus cannot be of a fixed or proven nature having no nexus with quantity of extra output-Test to determine genuinenss of production bonus.
       Held : In order to become a genuine Production Bonus scheme payment to be made to meritorious workmen who put in extra output, has to have a direct nexus and linkage with the amount of extra output produced by the eligible workmen so that the scheme can work as a real incentive scheme equally to them to make extra efforts. Such a scheme may have sliding scales of bonus amount based to total extra quantity of production for which all workmen can uniformly be paid bonus on the basis of their co-operative efforts. More the extra production more the available surplus of bonus to be divided amongst all eligible workmen uniformly. Other type of incentive bonus scheme may be made available to an individual meritorious workman extra payment for extra work having direct linkage with the extra production out-turned by him. In neither case such distributable bonus can be a static figure. In order to become a genuine Production Bonus scheme so as to get covered by exception (ii) to the definition of “basic wages” as found under Section 2(b) of the Act, it must be shown that the scheme in question seeks to offer production bonus to the workmen concerned who put in extra output wherein either collectively bonus be fixed to all of them on the basis of total extra output on a sliding scale or may be paid individually to a given number of workmen who by their own efforts earn such bonus. Thus in each case payment of bonus cannot be of a fixed or proven nature having no nexus with the quantity of extra output produced by them. (Paras 13 & 15)
       In the instant case scheme provided “Production Bonus is paid for the following reasons :-
        1. Less than the normal number of people doing the normal work of a working shift, in which case the Production Bonus is paid according to the deficiency in the numerical strength of the staff.
        2. Extra output given by any workman in any shift. Output of compositors and distributors is measured in terms of column inches of type, that of machine men in terms of the speed of the machines and of the process section in terms of plates and negatives. Allowance is made for delays caused by factors beyond the control of the workmen.
       Production Bonus is 1-1/2 times the normal daily wage. It may be reduced or increased on account of special reasons at the discretion of the management. It is variable from month to month and is apart from the basic wage of the workman”. (Para 10)
       Held : A mere look at the aforesaid scheme, which is styled as Production Bonus Scheme, shows that so far as the first category of cases envisaged by the Scheme is concerned, it contemplates a situation where at a given point of time the required number of staff may not be available with the likelihood that the production for the day might fall and in order to ensure maintenance of the same level of production other workmen available in the given shift may be required to carry on the extra work than what is normally required to be done by them. In such cases, an extra amount is contemplated to be offered to the remaining employees who are present and who take extra load of work which otherwise would have been discharged by their absentee colleagues. The category of cases contemplated by the first part of the Scheme necessarily indicates that any extra effort undertaken by the workmen discharging extra load of work over and above the usual work expected of them normally is to ensure maintenance of the requisite normal level of production. This situation is entirely different from the one wherein more than normally expected out-turn of work is being made available by the workmen who would get Production Bonus by way of incentive to yield total production beyond its normal level. Consequently, the first category of cases contemplated by the Scheme cannot be said to be introducing any Production Bonus scheme in the real sense of the term. It is substance is a scheme of insurance against shortfall in normal production per shift due to shortage of available staff at a given point of time. While we turn to the second category of cases, it is true that it envisages extra payment as an incentive to any workman in any shift who puts in extra output by his own efforts. How the extra output for the concerned workman is to be ascertained for being eligible for the extra payment by way of an incentive is laid down by this clause. So far as compositors and distributors are concerned, their output will be measured in terms of column inches of type, and if their output goes beyond the normal output expected of them under the contract of service, then they would be eligible for getting the benefit of the Production Bonus Scheme envisaged by category 2. Similarly, for machine men to the extent speed of the machines handled by them per shift is beyond the normally expected speed of machine handled by machine men would show the eligibility of the machine men for such extra payment and so far as the workers working in the processing section are concerned their eligibility for earning extra payment would depend upon the additional work which they would be said to have put in per shift in terms of the plates and negatives normally to be handled by them. It is, therefore, obvious, that the extra output given by the concerned workmen in any shift will depend upon the basic norm fixed for the output which will have to be given by the concerned workmen during the shift and if it is found that any extra output is put up by them beyond the requisite norms of work-load then only the same would make them eligible to get benefit of the Production Bonus as envisaged by category 2. It becomes at once clear that before the situation envisaged by category 2 can be said to have got attracted in a given case it must be shown that the workmen concerned had put in extra work in a shift beyond what was normally required by them. Unless that basic data is available, it would be impossible to work out the extra output put up by him in a given shift on a particular day. It is easy to visualise that if the workman was paid an amount for the output given by him in a shift which is up to the norms prescribed for his output, it would obviously remain in the realm of “basic wages”. In order that the amount goes beyond the “basic wage” it has to be shown that the workman concerned had become eligible to get this extra amount for the work beyond the normal work which he was otherwise required to put in. There is no data available on record to show what were the norms of work prescribed for these workmen during the relevant period. It is, therefore, not possible to ascertain whether extra amounts paid to these workmen were in fact paid for the extra work which had exceeded the normal output prescribed for the workmen working in any given shift at the relevant time. As the appellants did not furnish such relevant data, the authorities were justified in holding that the disputed amounts cannot be said to be forming part of a genuine Production Bonus Scheme. But, even apart from that, the last part of category 2 of the Scheme makes a very interesting and curious reading. Even assuming that the workmen concerned had become eligible under the first part of category 2 of the scheme to get bonus for the extra output, the amount of Production Bonus which was to be available to such eligible workmen would be 1-1/2 times their normal “daily wage”. It is true that it may be reduced or increased on account of special reasons but the increase or decrease for special reasons by the management would be a uniform deduction or increase in the amount of Production Bonus available in the said category of cases. It would not depend upon individual cases of the workmen concerned to serve as a real incentive bonus. Thus the scheme of Production Bonus envisaged by category 2 of the scheme in substance has no nexus or connection with the extra production effort by the workman. (Para 10)
       It only carves out a category of more efficient workmen or more enthusiastic workmen for being given a flat rate of extra remuneration for discharging their duties more efficiently under the contract of employment. It offers in substance an instantaneous superior daily wage scheme for more efficient workmen. Consequently the definition of the term “basic wages” as found in first part of Section 2(b) will squarely get attracted as 1-1/2 times of normal wages which will be given to workmen under category 2 of the scheme will be excess emoluments earned by them while on duty in accordance with the terms of the contract of employment. This amount uniformly paid to them having no direct nexus with the amount of the extra output put up by them, strictly speaking, is not a Production Bonus. Thus excepted category (ii) as envisaged by definition Section 2(b) would not be available for being invoked by the appellants. (Para 10)
       On the facts of the present case, as seen earlier, unfortunately for the appellants the scheme on which they relied does not fulfil the aforesaid legal logistic for becoming a genuine Production Bonus scheme. It is not a scheme of sliding scale bonus having real nexus with the amount of extra output furnished by the concerned workmen either individually or collectively. As seen earlier, once they crossed even slightly the norm of work expected of them in a given shift, they all fall in the same category of eligible workmen entitled to get on uniform basis extra amount of 1-1/2 times the basic daily wage. Thus, this scheme of paying extra remuneration to more eligible and efficient workmen is a scheme of super wage fixation and is not a genuine scheme of incentive bonus which has to be earned by the workmen by showing their capabilities for earning such extra bonus linked up with the quantity of extra production. (Para 13)

Judgment

S.B. Majmudar, J.-Both these appeals for special leave to appeal under Article 136 of the Constitution of India have brought in challenge two orders of the Division Bench of the High Court of Punjab & Haryana at Chandigarh dismissing two Letters Patent Appeals arising out of the decision of the learned Single Judge of the High Court who has considered identical questions of law. Consequently, both these appeals were heard together. Learned counsel for the respective parties were heard in support of their cases and thereafter both these appeals are being disposed of by this common judgment.

2. The common question which falls for consideration of this Court in these appeals is as to whether the appellants which are carrying on the business of printing and publishing newspapers in the State of Punjab at Jallandhar are liable to remit contributions under Section 6 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (for short the ‘Act’) to the authorities functioning under the Act along with the matching contributions from their respective employees, so far as the amounts paid by the appellants to their employees under identical schemes of Production Bonus are concerned. The learned Single Judge of the High Court in his impugned Judgment has taken the view that the said statutory liability is foisted on the appellants. By summarily dismissing the Letters Patent Appeals against the said decision of the learned Single Judge, the Division Bench has confirmed the said view and that is how the appellants are before us in these proceedings. A few relevant introductory facts deserve to be noted to appreciate the common grievance of the appellants.

Background Facts:

3. The appellants were carrying on the business of printing of the newspapers in the city of Jallandhar in the State of Punjab and circulating the same to their customers. They were alleged to have not remitted their contributions along with the share of their concerned employees to the extent of the amounts paid by them for the period from August, 1975 to March, 1976 by way of Production Bonus. The contention of the appellants was that as the disputed amounts were paid to the concerned employees under the relevant Production Bonus Schemes they were not liable to remit contributions for the same as per Section 6 of the Act. On the basis of the said contention, they filed writ petitions earlier against the aforesaid demand of the authorities before the High Court. In the said writ petitions filed in the year 1976, the then learned Advocate General for the State of Haryana appearing for the authorities, conceded before the High Court that the appellants were not required to deposit the provident fund on the Production Bonus and the appellants may deposit provident fund only on “wages” as defined in the Act from August, 1975 and with regard to the refund of the amount deposited in respect of Production Bonus, the appellants may apply to the respondent authorities, who, after giving them hearing, would decide the matter within three months. The said decision of the High Court in both these writ petitions moved by the appellants were rendered on 19th July, 1976. Thereafter the respondent authorities gave hearing to the appellants and ultimately took the view that the disputed amounts for which contributions were asked for under Section 6 of the Act from the appellants were part of the “basic wages” and no such Production Bonus Scheme was existing in the appellants’ concerns. Consequently, the claim of the appellants for non-application of Section 6 of the Act of these disputed amounts was rejected. Under these circumstances, the appellants once again carried the matters in writ petitions before the High Court. Those writ petitions were dismissed by the learned Single Judge by the impugned order which came in their turn to be confirmed by the Division Bench in the Letters Patent Appeals as noted earlier.

Rival Contentions:

4. Shri Ranjit Kumar, learn

Click Here to Read the rest of this document

1998 Supreme(SC) 1097

Important PointProduction bonus paid to workmen, cannot be excluded from ‘basic wages’ u/s 2(b) of the P.F. Act unless it is proved that payment is under genuine scheme towards extra work of workmen.

Cases Referred (5)

Important Point
Production bonus paid to workmen, cannot be excluded from ‘basic wages’ u/s 2(b) of the P.F. Act unless it is proved that payment is under genuine scheme towards extra work of workmen.