IMPORTANT POINT
Both the authorities and High Court have incorrectly understood the position in law and have wrongly held that the concept of "wages" under the Payment of Gratuity Act, 1972 would include bonus for calculation of gratuity. `Wages mean and include basic Wages and Dearness allowance and nothing else. Further Section 4(2) of the Act is not attracted in the case of present scheme with which Court is concerned.

Headnote:Payment of Gratuity Act, 1972-Sections 4(2) r/w 2(s)-Computation of gratuity on the basis of wages-Wages means basic Wage and Dearness allowance-Contention it includes bonus-Accepted by Authorities and High Court-Appeal against -Whether High Court was right? (No)-Appeals allowed with directions given therein-Case law referred-(Employees Provident Funds and Miscellaneous Provisions Act, 1952-Section 2(b)-Meaning of basic wage).
       Held : Referring 1977(1) LLJ 463 (SC) and 1962(II) LLJ 490 (SC) : These two decisions make it clear that bonus stands excluded from the purview of wages for the purpose of calculating the contribution to be made in the provident fund or the gratuity payable under the Act. These decisions could not have been brushed aside or explained away in the manner done by the High Court, one by stating that the decision has no bearing after the Act came into force and the other that the enactment is different. (Para 11)
       Held further : High Court has also proceeded to consider the fact that the gratuity payable under the Act would cover bonus paid in the present cases inasmuch as the same is only an incentive wage paid on piece rate work and not as bonus as such. (Para 12)
       But held : It is not that in respect of each piece any wages are paid but altogether if certain number of pieces are produced, additional incentive will not payable at a particular rate. Therefore, the authorities have completely missed scope of the scheme and have incorrectly interpreted the same. Inasmuch as both the High Court and the authorities have incorrectly understood the position in law and have wrongly held that the concept of wages under the Act would include bonus and that even on facts the scheme would attract Section 4(2) of the Act. Proviso to Section 4(2) of the Act is to the effect that in case of a piece-rated employee, daily wages shall be computed in a particular manner but that is not the rate at which the wages are paid in the present case at all. Therefore, Section 4(2) of the Act is not attracted in the case of the present scheme with which we are concerned. (Para 17)
       Held consequently : Hence this appeal is allowed setting aside the orders made by the authorities and the High Court. If the payments have already been made to the respective respondents in terms of the orders made by the authorities, we do not think, we should disturb the same in these proceedings which have been mainly filed for the purpose of interpreting the provisions of law and the scheme. Therefore, no recovery shall be effected in respect of payments that may have been made pursuant to the orders under appeal. Subject to the aforesaid directions, the appeal is allowed. No costs. (Paras 18 & 19)

JUDGMENT

Rajendra Babu, J.-C.A. No. 5682 2001 @ SLP (C) No. 11497/98

Leave granted.

2. Respondent Nos. 3 to 23 were workmen in the establishment of the appellant. They filed applications under the Payment of Gratuity Act, 1972 [hereinafter referred to as the Act ] for a direction to pay balance of gratuity by the appellant for a period of service rendered by them. Respondent Nos. 3 to 23 retired from the establishment of the appellant and they were paid gratuity calculating basic wages and dearness allowance only. They claimed that they were also paid incentive wages as per Section 4(2) of the Act. The appellant contended that they were governed by settlements and awards regarding wages and other service conditions, which had clearly set out that incentive earnings should not be reckoned as wages for the purpose of provident fund, bonus, gratuity, ESI, overtime etc. They also submitted that the incentive earnings would not partake the character of wages for the purpose of gratuity under the provisions of the Act and that the respondents had already received gratuity on the basis of last drawn basic wages and dearness allowance and, therefore, sought for dismissal of the applications.

3. The Controlling Authority held as follows :

"For the incentive payment, the norms fixed were in pieces, per jar, per unit, per truck per paid, per trap per cistern, per hands, etc. Therefore, incentive payment was made on the basis of pieces or number of items produced."

4. On that basis, the Controlling Authority concluded that Section 4(2) of the Act was attracted as it deals with the piece rate wages but wages paid for any overtime work should not be taken into account as wages and that the appellant had paid incentive wages to their workers on the basis of pieces produced by the workers. It was further held that the incentive wages were actually calculated on the basis of pieces and also the rate was fixed per piece or unit, etc. In those circumstances, the Controlling Authority held that incentive wages were actually paid piece rate wages. Although the Controlling Authority agreed with the contention that wages would mean basic wage and dearness allowance, he stated that the incentive wages paid on the basis of piece rates and amount fixed per piece have to be treated as piece rate wages in terms of Section 4(2) of the Act and, therefore, allowance the applications.

5. Appeal preferred against the same having failed, writ petition was filed. On dismissal of the writ petition further appeal was preferred before the High Court. The Division Bench of the High Court after referring to various decisions of this Court and of the High Court, held that the incentive payments in question would fall within the definition of wages for the purpose of the Act. The High Court found that there is a difference in the term wages employed under the Act and basic wages defined under the Employees Provident Funds & Miscellaneous Provisions Act, 1952 (for short PF Act ) . While the Act defines the term wages , the PF Act defines the term basic wages and, therefore, the term basic wages has got to be contra-distinguished from the term wages and that difference will have to be construed in the context of the enactment and the purpose thereof. Apart from that the High Court relied upon Section 4(2) of the Act as has been done by the Controlling Authority. The High Court, having dismissed the writ appeals, this appeal is preferred by special leave.

6. Shri Andhyarujina, learned Senior Advocate and Shri A.T.M. Sampath, learned counsel for the appellant, submitted that the definitions of the term basic wages in the PF Act and the term wages in the Act are para-materia and both cover all emoluments while on duty but exclude any bonus, commission, HRA, overtime wages and any other allowance. They also submitted that a perusal of the terms of settlements between the parties would make it clear that the incentive scheme introduced by them is not a piece rate

Click Here to Read the rest of this document

2001 Supreme(SC) 1160

Cases Referred (1)