Annual leave with wages, including leave encashment, should not be considered as part of basic wages under the Employees Provident Funds and Miscellaneous Provisions Act, 1952.

1. In all these Writ Petitions, the short question that arises for consideration is whether the contribution for leave encashment expenditure is covered within the definition of basic wages under Sec.2(b) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (for short "PF Act").

2. Section2(b) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 reads as follows:

"2.Definitions - In this Act, unless the context otherwise requires-

(Sub-sections (a) and (aa) are omitted)

(b) "basic wages" means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-

(i) the cash value of any food concession;

(ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;

(iii) any presents made by the employer."

3. It is the stand of the respondent/PF Department that the leave encashment given to the workman is covered by the term of basic wages. In support of their stand, they were relying upon the judgment of the Bombay High Court as well as the Karnataka High Court. Therefore, all the petitioners/managements herein are bound to make contribution in terms of the leave encashment given to the workman as part of the basic wages. This was given pursuant to the letter written by the petitioner in W.P.(MD)No.8075 of 2005. Therefore, the petitioners have come forward with these Writ Petitions seeking to challenge the various summons issued by the Department for producing their leave encashment register for making appropriate calculation of PF dues to be paid to the Department.

4. A preliminary objection was raised by the respondent by stating that there is an alternative remedy under Section 7 (i) of the Act to Appellate Tribunal and therefore, the Writ Petitions are not maintainable and the same should be dismissed.

5. The respondent/PF department has taken a definite stand that the liability of PF will have to be paid even on leave encashment, for which, they relied upon the judgment of the Bombay High Court and Karnataka High Court and that there will be very little scope for the Tribunal to take any independent stand and they are bound by the judgments of the various High Courts. Therefore, this objection is over-ruled.

6. It is brought to the notice of this Court that the Regional Provident Fund Commissioner II (Exem), Chennai giving clarification in the matter of implementation of leave encashment issued a circular dated 22.9.2005, which reads as follows:

"Please refer to this Office letter of even number dated 18.7.2005 and 22.7.2005 wherein all the establishments were directed to enforce the recovery of PF contribution on leave encashment paid on or after 1.10.1994. Consequently, clarification has since been received from the Head Office intimating to enforce the recovery of PF contribution on leave encashment paid on or after 1.5.2005 and the compliance in respect of recovery upto 30.4.2005 has been kept in abeyance for the present."

7. The learned counsel for the petitioners submitted that the petitioners are all involved in the manufacturing process and their units come within the purview of the Factories Act 1948 and they have registered their units. Under Chapter VIII of the Factories Act, 1948, Annual Leave with Wages are provided to the workman. The relevant portion of Section 79 (3) to (5) reads as follows:

"79. Annual leave with wages-

(Sub-sections 1 and 2 are omitted)

* * *

(3) If a worker is discharged or dismissed from service or quits his employment or is superannuated or dies while in service, during the course of the calenda