Judgment :-

Koshy, J.

The question involved in this case is whether incentive payments voluntarily paid by the employer at three months’ interval is wages as defined under section 2 (22) of the Employees’ State Insurance Act, 1948 (hereinafter referred to as ‘the Act’). The period for which the demand was raised is 1-10-1989 to 31-3-1992. The employees’ Insurance court held that the above payments are not wages under section 2 (22) of the Act and the demands were set aside. ESI Corporation questions the same in this appeal. Wages are defined under section 2 (22) of the Act as follows:

“(22) ‘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 land includes any payment to an employee in respect of any period of authorized leave, lock-out, strike which is not illegal or lay-off and other additional remuneration, if any, paid at intervals not exceeding two months, but does not include—

(a) any contribution paid by the employer to any pension fund or provident fund, or under this Act,

(b) any traveling allowance or the value of any traveling concession;

(c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or

(d) any gratuity payable on discharge;”

2. According to the ESI Corporation, agreement was executed by the management and the workman on 20-8-1992 for payment of incentive. Therefore, it is wages under the first part of the definition of ‘wages’ as it is remuneration paid in cash to an employee in terms of the contract of employment. In such cases, ESI contribution is liable to be paid as held by this Court in Carborundum Universal Ltd. v. ESIC (1976 1 LLJ 17). The Apex Court also held that production bonus paid as per settlement is ‘wages’ (Modella Woollens Ltd v. Employees’ State Insurance Corporation and another (1994 Supp. (3) SCC 580) and Wellman (India) Pvt. Ltd. v. Employees’ State Insurance corporation 1994 1 LLJ 545). By agreement dated 20-8-1992, the workman and management agreed to pay incentive payments on the basis of production subject to special exclusion of the same for taking it as wages for the purpose of ESI Act and similar labour legislation. In M/s. Braithwaite and Co. (India) Ltd. v. ESIC (AIR 1968 SC 413), the Apex court held that the employer and employee can enter into such agreements and they are not wages under the first part of the definition of ‘wages’ as first part covers only wages as per the terms of the contract. The above decision was followed by the Madras High court in ESIC v. EID Parry (India) Ltd. (1984) Lab. IC 122). Here, decision of the Corporation relaters to periods before settlement. At that time, it was voluntary payment by the company. Even in such cases, it will be ‘wages’ in view of second part of definition as additional remuneration if it is paid at intervals not exceeding two months as held by the Bombay High Court in Mahalaxmi Glass Works Private Limited Ltd. v. ESIC (1976) II LLJ 238). Even if incentive paid can be considered as additional remuneration it can be considered as wages for the purpose of section 2 (22) if it is paid at intervals not exceeding two months. Admittedly, here, incentive is paid voluntarily during the period in question at the interval of three months. According to the Corporation, in United Breweries Ltd. v. ESI Corporation (2003) (1) KLT 158) it was held by this Court that if incentive payments are made on the basis of agreement, it is wages for the purpose of ESI Act. There was also no specific exclusion in that agreement as in Ext.D1. The court observed as follows:

“If the payment is arising out of contract of employment the periodicity of payment is irrelevant. On the other hand if the payment is made as an additional remuneration necessarily the periodicity has some relevance, to consider whether it forms part of wages.”

3. What is the effect of exclusion clause in Ext.D1 agreement is not to be cons