important point
The service charge collected through bills and distributed to the employees of the hotel equally on quarterly basis, does not constitute wages.

JUDGMENT

Dr. ARIJIT PASAYAT, J.—

1.Challenge in this appeal is to the judgment of the learned Single Judge of the Karnataka High Court dismissing the appeal filed by the appellant. Challenge was to the order of the Employees’ State Insurance Court (in short ‘ESI Court’) in ESI application No.123/89. The appeal was filed under Section 82(2) of the Employees’ State Insurance Act, 1948 (in short the ‘Act’). Order passed by the ESI Court was on the petition filed under Section 75 of the Act.

2.Background facts are as follows :

“A show-cause notice was issued by the respondent on the report of the ESI Inspector on 9.1.1981 calling upon the appellant to contribute premium for the period November, 1986 to November, 1987 in respect of service charges collected by it. Not being satisfied with the explanation offered, order was passed under Section 45-A of the Act determining amount of contribution payable. The order was challenged by the appellant by an application under Section 75 of the Act. This application was contested by the respondent and the ESI Court on consideration of the evidence brought before it and it came to hold that the order under Section 45-A of the Act suffered from no infirmity.”

3.According to the appellant, the basic question was whether the service charge collected by the hotel management from the customers and distributed amongst the employees amounted to “wages” within the meaning of Section 2(22) of the Act. According to the appellant this did not constitute wages. The respondent contended that the appellant runs a three-star hotel and the establishment is covered under the Act. Undisputedly, 10% of the total bill amount is compulsorily collected as services charges and is included in the bills. The service charges so collected are distributed amongst the employees of the appellant quarterly. The collection of service charges is essentially what is called as “tips” and paid at the option of customers. The ESI Court held that looking at the nature of the service charges, these are not directly paid by the customers to the employees but form part of the bills which the customers are obliged to pay without any option and this amount so collected is paid or distributed to the employees equally once in three months. According to the ESI Court the appellant had total control and power of distribution of the amount and this is distinguishable from “tips”. This was treated in any event covered by the expression “additional reimbursement”. The High Court in appeal upheld the view.

4.Learned counsel for the appellant submitted that the payments were distributed equally amongst all the employees periodically, once in three months. It was submitted that by a circular it was clarified that service charges were outside the scope of wage as defined. Reference was made to a decision of this Court in The Rambagh Palace Hotel, Jaipur v. The Rajasthan Hotel Workers’ Union, Jaipur1, (1976 (4) SCC 817). The High Court distinguished the same holding that it related to “tips” and there was no consideration of the aspect whether it was covered by the expression “reimbursement”.

5.It was pointed out that the judgment of the High Court was delivered on 29.7.1999. Subsequently, the memorandum was issued by the Corporation bearing No.P-1/13/97-Ins. IV dated 6.11.2002 clearly stating that service charges of the nature involved in the present dispute do not form part of the wages. It is also pointed out that the Madras High Court in a decision in Sathianathan N. & Sons Pvt. Ltd. and Ors. v. E.S.I. Corporation and Anr.2, (2002-II LLJ 1002) on 6.2.2002 took a different view.

6.Learned counsel for the respondent on the other hand supported orders of the ESI Court and the High Court.

7.Section 2(22) defines wages as :

“Wages means all remuneration paid or payable, in cash to an employees or 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)