1. Dispute over whether compensatory allowances like HRA, TA, CWA, and SFA constitute ordinary rate of wages for calculation of overtime wages under the Factories Act, 1948. (Para 1 , 2 )
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2026 Supreme(SC) 81
SUPREME COURT OF INDIA
RAJESH BINDAL, MANMOHAN, JJ.
Union of India and Others – Appellants
Versus
Heavy Vehicles Factory Employees’ Union and Another – Respondents
Civil Appeal Nos. 5185-5192 of 2016
Decided On : 20-01-2026
Advocates appeared:
For the Appellant(s) : Mr. Vikramjeet Banarjee, A.S.G. Mr. Nachiketa Joshi, Sr. Adv. Mr. Mukesh Kumar Maroria, AOR Ms. Alka Agarwal, Adv. Mr. Bimal Roy Jad, Adv. Mr. Om Prakash Sharma, Adv. Mr. Raghav Sharma, Adv.
For the Respondent(s): Mr. Gagan Gupta, Sr. Adv. Mr. B Ragunath, Adv. Mrs. N.C Kavitha, Adv. Ms. Nimisha Thomas, Adv. Mr. Vijay Kumar, AOR Ms. Shobha Ramamoorthy, AOR Mr. Shilp Vinod, Adv. Mr. Gokulakrisnan, Adv.
For the Appellant(s) : Mr. Vikramjeet Banarjee, A.S.G. Mr. Nachiketa Joshi, Sr. Adv. Mr. Mukesh Kumar Maroria, AOR Ms. Alka Agarwal, Adv. Mr. Bimal Roy Jad, Adv. Mr. Om Prakash Sharma, Adv. Mr. Raghav Sharma, Adv.
For the Respondent(s): Mr. Gagan Gupta, Sr. Adv. Mr. B Ragunath, Adv. Mrs. N.C Kavitha, Adv. Ms. Nimisha Thomas, Adv. Mr. Vijay Kumar, AOR Ms. Shobha Ramamoorthy, AOR Mr. Shilp Vinod, Adv. Mr. Gokulakrisnan, Adv.
Compensatory allowances cannot be excluded from calculating overtime wages under section 59(2) of the Factories Act, as executive directives cannot alter statutory provisions.
Headnote:(A) Factories Act, 1948 - Section 59(2) - Interpretation of 'ordinary rate of wages' for calculating overtime wages - Compensatory allowances (HRA, TA, CWA, SFA) excluded from overtime calculations as per various government directives - High Court correctly interpreted statutory exclusions - Sudden exclusion lacks legal authority. (Paras 2, 15, 17)
(B) Judicial Principles - Statutory construction mandates that Executive cannot add exclusions not contemplated by the Legislature. (Paras 15, 17)
Facts of the case:
The Union of India appealed against a High Court judgment that set aside a CAT order, addressing whether compensatory allowances should be included in the calculation of overtime wages under Section 59(2) of the Factories Act. (Paras 1-3)
Findings of Court:
The High Court's interpretation was upheld; it correctly identified that other allowances cannot be excluded from wage calculations based on non-statutory directives. (Paras 16-17)
Issues: Whether compensatory allowances are part of the 'ordinary rate of wages' for calculating overtime under the Factories Act and the validity of ministerial directives excluding them. (Paras 2, 15)
Ratio Decidendi: The legislative intent of Section 59(2) prohibits exclusions of specified allowances beyond the stated exceptions, reaffirming that executively issued memorandums cannot alter statutory requirements. (Paras 15-17)
Result: Appeals dismissed.
Act Referred
Judgement Key Points
The petitioner argues that the statutory provisions under Section 59(2) of the Factories Act, 1948, clearly define the "ordinary rate of wages" as including basic wages and such allowances to which the worker is entitled, explicitly excluding bonus and wages for overtime work. They contend that the legislative intent was to ensure that all wages, including allowances like HRA, TA, CWA, and SFA, should be included in the calculation of overtime wages, unless specifically excluded by the statute itself (!) (!) .
Furthermore, the petitioner emphasizes that the power to interpret and implement these provisions resides solely with the legislature and the relevant statutory authorities, and that executive directives or memorandums cannot alter or add to the exclusions contemplated by the law (!) (!) . They argue that the sudden exclusion of compensatory allowances through executive memorandums lacks legal authority and is contrary to the plain language and intent of the statute, which aims to protect workers from exploitation by ensuring they are fairly compensated for overtime work (!) (!) .
The petitioner also highlights that the law is beneficial in nature and should be construed liberally in favor of the workers, reinforcing that exclusions not explicitly provided for in the statute cannot be introduced through executive action (!) (!) . They contend that allowing such executive directives to override the statutory provisions would undermine the protective purpose of the Act and lead to an unjust financial burden on workers.
Finally, the petitioner points out that different ministries issuing conflicting instructions create ambiguity and undermine the rule of law, as no ministry has the statutory authority to interpret or modify the law through non-statutory directives. Therefore, the inclusion of allowances like HRA, TA, CWA, and SFA in the calculation of overtime wages should be upheld as per the clear language of the statute, and executive memorandums excluding them should be deemed invalid.
Legal Category Hierarchy
Table of Contents
2. Appellants contend various Ministry letters exclude compensatory allowances from overtime calculation, while respondents argue the Act defines wages broadly and executive manuals cannot override statutory language. (Para 3 , 4 , 5 , 6 )
3. The Court analyzed Section 59(2) of the Act, finding that executive memoranda cannot restrict statutory benefits by creating additional exclusions not contemplated by the Legislature. (Para 8 , 9 , 10 , 15 )
4. Executive instructions cannot override statutory provisions; unless specified, compensatory allowances are part of ordinary wages for overtime calculation under the Factories Act. (Para 9 , 12 , 14 , 15 )
5. The court dismissed the appeals, thereby confirming that compensatory allowances must be included in the calculation of overtime wages. (Para 17 )
6. Do executive circulars or Office Memorandums have the authority to amend the definition of ordinary rate of wages under the Factories Act, 1948?
No. The Court held that in the absence of power delegated under the Act, executive instructions cannot override the statutory provisions or read additional exclusions into the definition of ordinary rate of wages. (Para 9 , 10 , 15 )
7. What is included in the 'ordinary rate of wages' for the purpose of calculating overtime under Section 59(2) of the Factories Act?
The ordinary rate of wages includes basic wages plus all allowances the worker is entitled to, excluding only bonus and wages for overtime work. Cash equivalents for concessional foodgrains are also included. (Para 8 )
8. Can compensatory allowances like HRA and TA be excluded from overtime wage calculations for specific establishments via executive notification?
No, because the Act does not permit varying interpretations by different Ministries. The statute must have uniform application, and compensatory allowances are not among the permitted statutory exclusions. (Para 6 , 14 , 15 )
JUDGMENT :
RAJESH BINDAL, J.
1. Aggrieved against the order passed by the Division Bench of the High Court 1 [High Court of Judicature at Madras] dated 30.11.2011, the present appeals have been filed by the Union of India. Vide the aforesaid judgment, the order passed by the Central Administrative Tribunal2 [Central Administrative Tribunal, Madras Bench (Hereinafter “CAT”)] dated 24.12.2010 passed in a bunch of applications filed by the respondents, was set aside.
2. Briefly, the issue is as to whether compensatory allowances, such as House Rent Allowance3 [Hereinafter “HRA”] Transport Allowance4 [Hereinafter “TA”] Clothing and Washing Allowance5 [Hereinafter, “CWA”] and Small Family Allowance6 [Hereinafter “SFA”] would fall within the term “ordinary rate of wages” for calculation of overtime wages in terms of Section 59(2) of the FACTORIES ACT , 1948.7 [Hereinafter “the 1948 Act”]
3. Learned counsel appearing for the appellants, taking us through the historical background, has drawn our attention to various letters issued by different Ministries, in terms of which the respondents will not be entitled to add various components of compensatory allowances for the purpose of calculation of overtime wages.
3.1 The learned counsel referred to a letter dated 01.09.1959 from the Government of India, Ministry of Defence, addressed to all the factories, clarifying that wages payable for overtime to the civilian employees for work in excess of normal working hours and up to 9 hours on any day or 48 hours in a week, overtime will be payable on basic pay and dearness allowance only. For any period in excess of that, the overtime shall be calculated on total wages including various allowances.
3.2 Further, reference was made to a letter dated 12.06.2000 issued by the Ministry of Labour, Government of India which provided that travelling allowance should be added in the basic rate of wage for calculation of overtime wages in terms of Section 59(2) of the 1948 Act.
3.3 Further, reference was made to an Office Memorandum dated 14.11.2002 issued by the Ministry of Finance, Government of India which provided that wages as provided under Section 59(2) of the 1948 Act for the purpose of calculation of overtime will only include basic pay and dearness allowance/additional dearness allowance and any other allowances, which are uniformly applicable to all the government employees. It was specifically mentioned therein that HRA, TA, and CWA are excluded therefrom.
3.4 Thereafter, reference was made to an Office Memorandum dated 19.11.2007 issued by the Ministry of Labour and Employment, Government of India. It referred to an earlier Office Memorandum dated 16.03.2007 issued by the Ministry of Defence, clarifying that the TA being compensatory in nature, may not be taken into consideration for calculating overtime wages under the 1948 Act. With reference to the aforesaid Office Memorandum, the Government of India, Ministry of Defence issued another Office Memorandum on 26.03.2008 taking the same position.
3.5 The aforesaid Office Memorandum was followed by another Office Memorandum dated 27.05.2009 issued by the Ministry of Labour and Employment, Government of India clarifying that allowances of compensatory nature including HRA, TA, SFA, etc., may be excluded for the purpose of computing overtime wages under the 1948 Act. The same was endorsed by the Government of India, Ministry of Defence vide Office Memorandum dated 26.06.2009.
4. Aggrieved against the aforesaid interpretation made by the appellants, multiple Original Applications8 [O.A. Nos. 1143, 1144, 1132, 1157, 1170, 1214 and 1266 of 2009; O.A. Nos. 631, 1113, 1114 and 1115 of 2010] were filed before the Tribunal by employee unions of various factories engaged in production of defence equipments controlled by the Ministry of Defence. It was submitted by the learned counsel for the appellants that the CAT rightly appreciated the contentions raised by the parties and dismissed the applications vide order
