Lay-off compensation paid to employees under Section 25C of the Industrial Disputes Act, 1947, is not wages as defined in the Employees State Insurance Act, 1948, because the relationship of master and servant is suspended during the lay-off period.

Headnote:
EMPLOYEES STATE INSURANCE ACT - SPECIAL CONTRIBUTION - LAY-OFF COMPENSATION - WAGES - DEFINITION - RELATIONSHIP OF MASTER AND SERVANT - SUSPENSION DURING LAY-OFF - INDUSTRIAL DISPUTES ACT, 1947, SEC. 25C, 25D, 25E, 25J.
Fact of the Case:

The issue arose due to a dispute between the Nutan Mills and the Employees State Insurance Corporation (ESIC) over the liability of the Mills to pay special contribution on compensation paid to employees laid off under the Industrial Disputes Act, 1947. The Mills paid special contribution on lay-off compensation in two quarters, but later claimed a refund, arguing that such compensation did not constitute wages as defined under the Employees State Insurance Act.
Finding of the Court:

The Court held that lay-off compensation paid to employees under Section 25C of the Industrial Disputes Act is not wages as defined in the Employees State Insurance Act, 1948. The Court found that during the period of lay-off, the relationship of master and servant between the employer and employee is suspended, and there is no present duty upon the employees to work for their master. Therefore, the payment made to employees during lay-off is compensation and not wages.
Issues: 1. Whether lay-off compensation paid to employees under Section 25C of the Industrial Disputes Act, 1947, constitutes wages as defined in the Employees State Insurance Act, 1948? 2. Whether the relationship of master and servant continues during the period of lay-off?
Ratio Decidendi: 1. The definition of "wages" under the Employees State Insurance Act requires that the payment be made as a result of the terms of the contract being fulfilled, and if the payment is made when the terms of the contract are not fulfilled, it does not satisfy the definition. 2. The standing orders between the employer and employee provide that the employer has the right to lay-off employees and is not liable to pay any wages or compensation during the period of lay-off. Therefore, the relationship of master and servant is suspended during the lay-off period. 3. The Industrial Disputes Act imposes a liability upon the employer to pay compensation to employees who are laid off, but this compensation is not wages as defined in the Employees State Insurance Act.
Final Decision: The Court answered the question submitted to it in the negative, holding that lay-off compensation paid to an employee under Section 25C of the Industrial Disputes Act is not wages as defined in the Employees State Insurance Act, 1948.

Judgment

1. A rather interesting and important question arises under the Employees State Insurance Act (34 of 1948) as to the liability of the employer to pay special contribution on the compensation payable by the employer to his employees who have been laid-off under the provisions of the Industrial Disputes Act, 1947.

2. The few facts which are necessary to be considered in order to dispose of this reference are that in the last quarter of 1953 the Nutan Mills became liable to pay compensation for layoff in the sum of Rs. 1,312-15-0 and on this amount it paid to the Employees State Insurance Corporation incorporated under the Act a sum of Rs. 9-13-6 as special contribution under Section 73A, Employees State Insurance Act.

In the first quarter of 1954 the Mills became liable to pay lay-off compensation in the sum of Rs. 521-11-9 and on this amount it paid a sum of Rs. 3-15-0 as special contribution. On 12-5-1954 the Mills called upon the Corporation to refund these two amounts as according to them they were not liable to pay special contribution on the lay-off compensation.

As the amount was not refunded, the Mills applied to the Authority appointed under the Employees State Insurance Act. The Authority has made a reference to us under Section 81 of the Act and in making the reference he has expressed the opinion that the Mills were liable to pay the special contribution.

3. In Section 73A the nature of the special contribution which the employer has to pay Is set out and Sub-section (3) provides:--

"The employers special contribution shall consist of such percentage and exceeding five per cent, of the total wage bill of the employer, as the Central Government may, by notification in the official Gazette, specify from time to time".

Therefore, the special contribution is payable on the wages paid by the employer to its employees, and the short question that arises for our determination is whether payment of compensation for lay-off constitutes wages as defined by the Act. The definition of "wages" is to be found in Section 2(22) of the Act and the definition is:--

"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 other additional remuneration, if any, paid at intervals not exceeding two months, but does not include....."

and then follow four sub-clauses with which we are not concerned. Therefore, the liability of the employer to pay special contribution only arises in respect of remuneration which is paid or payable, if the terms of the contract of employment express or implied were fulfilled.

The view taken by the Authority under the Employees State Insurance Act is that as a result of the lay-off the contract of employment between the employer and the employee is not suspended but is subsisting, and therefore what the employer pays to the employee although described as compensation under the Industrial Disputes Act, is in reality wages and therefore that payment would fall within the ambit of the definition of "wages" contained in Section 2(22), Employees State Insurance Act.

4. In order to appreciate this argument, we must look at the scheme of the Industrial Disputes Act with regard to lay-off. The whole Chap. V-A, which deals with lay-off and retrenchment, was introduced in the Industrial Disputes Act by Act XIV of 1947.

"Lay-off" is defined as meaning the failure, refusal or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the break-down of machinery or for any other reason to give employment to a workman whose name is borne on the muster rolls of the Industrial establishment and who has not been retrenched. There is an explanation to this definition and that is:--

"Every workman whose name is borne on the muster rolls of the industrial establishment and who presents himself for work at the establishment at the time appointed for the purpose during normal work

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