MANIPAL ACADEMY OF HIGHER EDUCATION v. PROVIDENT FUND COMMISSIONER

Citation: [2008] 4 S.C.R. 772

Court: Supreme Court of India

Bench: ARIJIT PASAYAT, P. SATHASIVAM

Case summary

MANIPAL ACADEMY OF HIGHER EDUCATION v. PROVIDENT FUND COMMISSIONER.pdf

Judgment text

I T ~ ~t [2008] 4 S. C. R 772 r· ~ ·~ p; · MANIPAL ACADEMY OF HIGHER EDUCATION ~ v. j-· PROVIDENT FUND COMMISSIONER f' ). (Civil Appea! No. 1832 of 2004) MARCH 12, 2008 : (DR. ARIJIT PASAYAT AND P. SATHASIVAM, JJ. ) LabowLaw: ~ Employees' Provident Fund and Miscellaneous t Provisions Act, 1952: s. 2(b) - 'Basic. Wage' - 'Leave encashment' - HELD: Amount received by encashing earned leave is not a part of "basic wage" under s. 2(b) requiring pro rata contribution by employer. 0 In the instant appeals filed by the employer, the question for consideration before the Court was: whether the amount received by encashing the earned' leave is a part of "basic wage" under Section 2(b) of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 requiring pro rata employer's contribution? Allowing the appeals, the Court HELD: 1. 1 It is to be noted that any amount of contribution cannot be based on contingencies and uncertainties. The test is one of universality.

In the case •j of encashment of leave the option may be available to all r ! the employees but some may avail and some may not :· avail. That does not satisfy the test of universality. [para 11] [781-G, H; 782-A] Bridge & Roof Co. (India) Ltd. v. Union of India 1963 (2) SCR 978; Jay Engineering Works Ltd. and Ors. v. Union of India and Ors. 1963 (3) SCR 995; Tl Cycles of India, Ambattur ').. v. M. K. Gurumani and Ors. 2001 (7) sec 204; Daily Partap V. PROVIDENT FUND COMMISSIONER '' Regional Provident Fund Commissioner 1998 (8) SCC 90 - -\' relied on. Hindustan Lever Employees' Union v. Regional Provident Fund Commissioner and Anr. 1995 (2) LLJ. 279 distinguished. 1.

2 The term 'basic wage', which includes all emoluments earned by an employee while on duty or on leave or on holidays with wages in accordance with the terms of the contract of employment, can, for the purpos~s of emoluments earned while on leave, only mean basic wages for weekly holidays, national holidays and festival holidays etc. In many cases the employees do not take leave and encash it at the time of retirement or same is encashed after his death which can be said to be uncertainties and contingencies. Though pr_ovisions have been made for the employer for such contingencies unless the contingency of encashing the leave is there, " the question of actual payment to the workman does - pro rata employer's contribution. In each case the Regional )- Provident Fund Commissioner (in short the 'Commissioner') held that the amount received on encashment of earned leave I has to be reckoned for the purpose of Section 2(b) of the_Act. • Accordingly, demands were raised.

Appeal was preferred before the Employees Provident Fund Appellate Tribunal (in short the 'Tr_ibunal') which held that it is not a part of basic wages. r However, it was observed that a different view was taken by the Bombay High Court and, therefore, the respondent in the )I appeals i. e. the Commissioner should take up the matter before .. the Kam- wages; dearness allowance and retaining allowance (if any). We must therefore try to discover some basis for the exclusion in clause (ii) as also the inclusion of dearness allowance and retaining allowance (for any) in s. 6. It seems that the basis of inclusion in s. 6 and exclusion in clause ( (ii) is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose, of contribution under s. 6, but whatever is not payable by )I. .. all concerns O( may not be earned by all employees of a concern is excluded for the purpose of contribution.

Dearness allowance (for examples is payable in all concerns either as an addition to basic wages or as a part of consolidated wages where a concern does not \' have separate dearness allowance and basic wages. Similar! y: retaining allowance is payable to all permanent employees in· all seasonal facfories like sugar factories arid is tf1. erefore included in s. 6; but house-rent allowance is not p~ld in many concerns and sometimes in the same - concern it is paid to some employees but not to others, for the theory is that house-rent is included in the payment of basic wages plus dearness allowance or consolidated wages. Therefore, house-rent allowance which may not be payable to all employees of a concern and which is certainly not paid by all concern is taken out of the definition s of "basic wages", even though the basis of payment of house-rent allowance where it is paid is the contract of employment.

Similarly, overtime allowance though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment; but because it may not be earned by all employees of a concern it is excluded from "basic wages". Similarly, commission or any other similar allowance is excluded from the definition of "basic wages" for commission and other allowances 0 are not necessarily to be found in all concerns; nor are they necessarily earned by all employees of the same concern, though where they exist they are earned in accordance with the terms of the contract of employment. It seems therefore that the basis for the exclusion in clause (ii) of the exceptions ins. 2(b) is that all that is not earned in all concerns or by all employees of concern is excluded from basic wages. To this the exclusion of dearness allowance in clause (ii) is an exception.

But that exception has been corrected by including dearness allowance in s. 6 for the purpose of contribution. Dearness allowance ( which is an exception in the definition of "basic wages", is included for the propose of contribution by s. 6 and the real exceptions therefore in clause (ii) are the other exceptions beside dearness allowance, which has been included through s. 6. 7. Similarly in Jay Engineering's case (supra) it was •t observed as follows: "9. Finally, it was urged that even if the payment for production between the quota and the norm is not production bonus which can be taken out of definition of -+ basic wages in the Act, it should be treated as payment in the nature of "other similar allowance" appearing in s. 2(b)(ii). We are of opinion that this payment for work done between the quota and the norm cannot be treated as any "other similar allowance".

The allowances mentioned in 8 the relevant clause are dearness allowance, house-rent allowance, overtime allowance, bonus, and commission. Any "other similar allowance", must be of the same kind. ~ ' The payment in this case for production between the quota ~ and the norm has nothing of the nature of an allowance, it is a straight payment for the daily work and. must be included in the words defining basic wage i. e. , "all emoluments which are earned by an employee while on duty or on leave with wages in accordance with terms of the contract of employment". 10. In the view we have taken of the scheme in this case, )... ) the petition succeeds partly.

We direct that the petition of "' the payment which is made by the petitioner for production above the "norm" would be production bonus and would be covered by the judgment of this Court in Bridge and Roof Company, but that portion of the payment which is made by petitioner for production up to the quota as well as production between the "quota" and the "norm" is basic wage within the meaning of that term in the Act. The petition is therefore partially allowed as indicated above. In the )J Circumstances we pass no order as to costs. " ~ r .. , 8. It is to be noted that in the case before. the Bombay High Court the factual scenario was somewhat peculiar. There the employer was including the amount of leave encashment as emoluments for the purpose of calculating provident fund dues from the employer as well as employee's contribL! tion.

When the Employees' Union took up the issue to the Commissioner it k was informed that the provision does not provide for deduction of provident fund on leave encashment. " • 9. On the strength of the letter dated 3. 7. 1991 of the Commissioner, Hindustan Lever Ltd. decided to make provision for deduction. It was this direction of the department which was challenged by the Union. In this context the High Court has held that the Commissioner's letter/circular was illegal and leave encashment dues should be included for provident fund contribution. In fact it was the understanding of the parties over the period that leave encashment will be included in the wages. 10. The basic principles as laid down in Bridge Roof's case (supra) on a combined reading of Sections 2(b) and 6 are as follows: (a) Where the wage is universally, necessarily and ordinarily paid to all across the board such emoluments are basic wages.

(b) Where the payment is available to be specially paid to those who avail of the opportunity is not basic • wages. By way of example it was held that overtime .... allowance, though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment but because it may not be earned by all employees of a concern, it is excluded from basic wages. (c) Conversely, any payment by way of a special incentive = :,,. or work is not basic wages. -1 11. In Tl Cycles of India, Ambattur v. M. K. Gurumani and Ors. (2001 (7) SCC 204) it was held that incentive wages paid in respect of extra work done is to be excluded from the basic wage as they have a direct nexus and linkage with the amount of extra output It is to be noted that any amount of contribution cannot be based on different contingencies and uncertainties. The test is one of universality. In the case of encashment of leave ....

, the option may be available to all the employees but some may avail and some may not avail. That does not satisfy the test of universality. As observed in Daily Partap v. Regional Provident -+ Fund Commissioner (1998 (8) SCC 90) the test is uniform treatment or nexus under- dependent on individual work. 12. The term 'basic wage' which includes all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in accordance with the terms of the contract of employment can only mean weekly holidays, natior:ial holidays and festival holidays etc. In many cases the employees do not take leave and en cash it at the time of retirement or same is encashed after his death which can be said to be uncertainties and contingencies. Though provisions have been made for the employer for such contingencies unless the contingency of encashing the leave is there, the question of actual payment to the workman does not take place.

In view of the decision of this Court in Bridge Roof's case (supra) and Tl Cycles's case (supra) the inevitable conclusion is that basic wage was never intended to include amounts received for leave encashment. ... ,. 13. Though the statute in question is a beneficial one, the concept of beneficial legislation becomes relevant only when two views are possible. 14. The appeals deserve to be allowed which we direct. But if any payment has already been made it can be adjusted for future liabilities and there shall not be any refund claim since the fund is running one. There will be no order as to costs. R. P. Appeals allowed. '-,I r