1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4681 OF 2009
Employees State Insurance Corporation & Anr. ..Appellants
Versus
Mangalam Publications (I) Private Limited ..Respondent
J U D G M E N T
MOHAN M. SHANTANAGOUDAR, J.
1. The judgment dated 28.02.2007 passed in Insurance
Appeal No. 2 of 2004 by the High Court of Kerala at Ernakulam is
called in question in this appeal. By the impugned judgment, the
High Court allowed the appeal filed by the respondent herein and
set aside the order dated 13.10.2003 passed by the ESI Court,
Idukki, Kerala.
2
2. Brief facts leading to this appeal are as follows:
The respondent is an establishment covered by the
provisions of Employees State Insurance Act, 1948 (hereinafter
referred to as the ‘ESI Act’). It is a private limited company engaged
in the business of printing and publishing of a daily Malayalam
newspaper called “Mangalam”; the respondent has more than 250
employees including working and non-working journalists. In order
to have a uniform formula regarding the wages payable to the
employees of newspaper companies like the respondent, the Central
Government appointed Wage Boards from time to time to study and
submit reports from time to time. Earlier, the Wage Board headed
by Justice Bachawat, known as ‘Bachawat Wage Board’ was
constituted and the Board submitted its recommendations.
Thereafter, the Government of India appointed a new Wage Board,
headed by Justice Manisana which was called as ‘Manisana Wage
Board’. As per the recommendations of ‘Manisana Wage Board’, the
Government of India issued a notification dated 24.09.1996 fixing
interim rates of wages in respect of working journalists,
non-working journalists and newspaper agency employees at the
3
rate of twenty per cent of the basic wages and an additional amount
of Rs.100/- per month, with effect from 20.04.1996. As per the
said notification, the respondent started paying interim relief to its
employees, and paid such interim relief from 01.04.1996 to
31.03.2000. However, the respondent did not pay the statutory
contribution under the ESI Act for the period during which it paid
interim wages to its employees. The ESI contribution due on
interim wages paid by the respondent from 01.04.1996 to
31.03.2000 worked out to Rs.2,53,272/- (however, as per demand
notice dated 02.11.2000, the figure is Rs.2,58,061.50).
Subsequently, another office memorandum was issued
by the Government of India, Department of Public Enterprises,
Ministry of Industry, providing for the grant of interim relief to the
employees of Central Public Sector Enterprises (PSES). The said
office memorandum was subject to the following conditions:
a) These instructions are applicable to the
employees of Central PSES following IDA
pattern.
b) The amount paid as interim relief would
be fully adjusted and …. in the final pay
revision package.
4
c) xxx xxx xxx
d) xxx xxx xxx
e) xxx xxx xxx
f) xxx xxx xxx
g) The amount of interim relief will be….viz.
it will neither be termed as ‘pay’ nor
‘allowances’ nor ‘wages’. Accordingly, this
amount would not count for any service benefit
i.e. computation of house rent allowance,
compensatory allowance, overtime allowance,
cash compensation, encashment of leave, pay
fixation, pension or gratuity etc.
The afore-mentioned office memorandum dated 19.08.1998 of the
Ministry of Industry had nothing to do with the notification dated
20.04.1996 providing for interim relief to the employees of
newspaper agencies. The office memorandum dated 19.08.1998
makes itself clear that the same was applicable to employees of the
Central PSES, and consequently it had no application to employees
of private sector undertakings like that of the respondent company.
3. The premises of the respondent-company was inspected
by the Insurance Inspector of the appellant-Corporation on
13.06.2000, wherein it was found that the respondent had not paid
any contribution on the interim wages paid by it to its employees
5
during the period from 01.04.1996 to 31.03.2000. The contention
of the respondent was that it was not required to pay any
contribution on the interim relief paid by it to its employees in view
of office memorandum dated 19.08.1998. Since the contribution
was not paid by the respondent, as mentioned supra, a notice dated
18.07.2000 was issued by the appellant to the respondent to pay
contribution of the afore-mentioned amount for the afore-mentioned
period. The notice of demand dated 02.11.2000 was also served on
the respondent demanding an amount of Rs.2,58,061.50 with
interest thereon.
4. Feeling aggrieved by the afore-mentioned notices, the
respondent moved the Employees Insurance Court, Idukki, Kerala,
by filing a petition under Section 75 of the ESI Act, which came to
be numbered as Insurance Case No. 19/2000. In the said petition
also, the respondent relied upon the office memorandum dated
19.08.1998 and a clarificatory letter dated 20.12.1996 of the Indian
Newspaper Society. The said petition was opposed by the appellant
contending that the office memorandum dated 19.08.1998 was not
applicable to the respondent, and that the clarification given by the
6
Indian Newspaper Society has no legal validity; the effect of the Act
of Parliament i.e., ESI Act cannot be superseded by the office
memorandum issued by the department; that under Section 2(22)
of the ESI Act, all remuneration is wages except the categories
mentioned in clauses (a) to (d) of Section 2(22) of the ESI Act, and
that interim relief does not come within the excluded parts of
clauses (a) to (d). After consideration of the material on record, the
ESI Court dismissed the application filed by the respondent holding
that the interim relief paid by the respondent to the employees was
“wages” as defined under Section 2(22) of the ESI Act, and hence
the respondent was liable to pay contribution for the interim relief
paid. It was observed by the ESI Court that the respondent paid
interim relief to its employees as per the direction contained in the
notification dated 20.04.1996 and the provisions of the notification
became a part of the contract of employment of the employees of the
respondent company. It was also observed that the office
memorandum dated 19.08.1998 was only applicable to the
employees of the Central PSES, and it does not anywhere say that
the interim relief is not “wages” as defined under Section 2(22) of
7
the ESI Act or that contribution need not be paid on the payment of
interim relief.
The respondent filed Insurance Appeal No. 2/2000 before
the High Court of Kerala under Section 82 of the ESI Act,
challenging the order passed by the ESI Court on 13.10.2003. The
appeal came to be allowed by the impugned judgment, holding that
the appellant herein is not entitled to collect any contribution in
respect of interim relief paid by the respondent to its employees.
While concluding so, the High Court has held that the amount paid
as interim relief cannot be treated as “wages” or “part of wages” and
can only be treated as “ex-gratia payment”. Hence, this appeal.
5. The only question to be considered and decided in this
appeal is as to whether the interim relief paid by the respondent to
its employees, during the period from 01.04.1996 to 31.03.2000, is
to be treated as “wages” as defined under Section 2(22) of the ESI
Act, and if so, whether the respondent is liable to pay the ESI
contribution?
6. There cannot be any dispute that if the interim relief paid
by the respondent is held by this Court as “wages” as defined under
8
Section 2(22) of the ESI Act, then the respondent is necessarily
liable to pay ESI contribution on the amount of interim relief paid to
its employees.
7. Before proceeding further, it would be relevant to note
the definition of wages, as defined under Section 2(22) of the ESI
Act. The same is extracted hereunder:
“Section 2 (22) of the Employees' State
Insurance Act, 1948 defines Wages. It reads as
follows:-
“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 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 travelling allowance or the value of any
travelling 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.”
9
A plain reading of the afore-mentioned definition of Section
2(22) of the ESI Act makes it amply clear that “wages” means all
remuneration paid or payable in cash to an employee, if the terms
of the contract of the employment, expressed or implied, were
fulfilled and includes other additional remuneration, if any, paid at
intervals not exceeding two months. But payments made on certain
contingencies under Clauses (a) to (d) of Section 2(22) of the ESI
Act, do not fall within the definition of “wages”. The interim relief
paid to the employees of the respondent in the matter on hand, as
mentioned supra, will definitely not fall within the excluded part of
clauses (a) to (d) of Section 2(22) of the ESI Act, inasmuch as such
payment is not travelling allowance or the value of any travelling
concession, contribution paid by the employer to any pension fund
or provident fund; sum paid to an employee to defray special
expenses entailed on him by the nature of his employment; or any
gratuity payable on discharge.
8. The Employees’ State Insurance Act is a welfare
legislation. It has been enacted to protect and safeguard the rights
of the working class. Its preamble states that it is meant to “provide
10
for certain benefits to employees in case of sickness, maternity and
‘employment injury’ and to make provision for certain other matters
in relation thereto”. The Employees’ State Insurance Fund set up
under this Act survives primarily on contributions paid to the
Employees’ State Insurance Corporation (the appellant). All
employees insured in accordance with this Act are entitled to
benefits under the Act. Undoubtedly, the literal meaning of
statutory provisions cannot be ignored. However, in cases where
there may be two or more ways to interpret a statutory provision,
the spirit of this legislation warrants a construction that benefits
the working class. The inclusive part and exclusive portion of the
definition of “wages” clearly indicate that the expression “wages”
has been given wider meaning. As mentioned supra, under the
definition, firstly whatever remuneration is paid or payable to an
employee under the terms of the contract of the employment,
expressed or implied, is “wages”. Secondly, whatever payment is
made to an employee in respect of any period of authorized leave,
lock-out etc. is “wages”. Thirdly, other additional remuneration, if
any, paid at intervals not exceeding two months is also “wages”.
Any ambiguous expression, according to us, should be given a
11
beneficent construction in favour of employees by the Court. If the
definition of “wages” is read in its entirety including the inclusive
part as well as the exclusive portion, it appears that inclusive
portion is not intended to be limited only of items mentioned
therein, particularly, having regard to the objects and reasons for
which the Employees’ State Insurance Act is enacted. The Act has
to be necessarily so construed as to serve its purpose and objects.
This Court in the case of M/s Harihar Polyfibres vs. Regional
Director, ESI Corporation, (1984) 4 SCC 324 has held that the
definition of “wages” contained in Section 2(22) of the ESI Act is
wide enough to include House Rent Allowance, Night Shift
Allowance, Incentive Allowance and Heat, Gas and Dust Allowance.
To come to the aforesaid conclusion, this Court observed thus:
“2. The Employees’ State Insurance Act is a
welfare legislation and the definition of ‘wages’
is designedly wide. Any ambiguous expression
is, of course, bound to receive a beneficent
construction at our hands too. Now, under the
definition, first, whatever remuneration is paid
or payable to an employee under the terms of
the contract of the employment, express or
implied is wages; thus if remuneration is paid
in terms of the original contract of employment
or in terms of a settlement arrived at between
the employer and the employees which by
12
necessary implication becomes part of the
contract of employment it is wages ; second,
whatever payment is made to an employee in
respect of any period of authorised leave,
lock-out, strike which is not illegal or lay-off is
wages; and third, other additional
remuneration, if any, paid at intervals not
exceeding two months is also wages; this is
unqualified by any requirement that it should
be pursuant to any term of the contract of
employment, express or implied. However,
'wages' does not include any contribution paid
by the employer to any pension fund or
provident fund, or under the Act, any
travelling allowance or the value of any
travelling concession any sum paid to the
person employed to defray special expenses
entailed on him by the nature of his
employment and any gratuity payable on
discharge. Therefore wages as defined includes
remuneration paid or payable under the terms
of the contract of employment, express or
implied but further extends to other additional
remuneration, if any, paid at intervals not
exceeding two months, though outside the
terms of employment. Thus remuneration paid
under the terms of the contract of the
employment (express or implied) or otherwise if
paid at intervals not exceeding two months is
wages. The interposition of the clause “and
includes any payment to an employee in
respect of any period of authorised leave,
lock-out, strike which is not illegal or lay-off”
between the first clause, “all remuneration
paid or payable in cash to an employee, if the
terms of the contract of employment, express
or implied, was fulfilled” and the third clause,
"other additional remuneration, if any, paid at
intervals not exceeding two months,” makes it
13
abundantly clear that while ‘remuneration’
under the first clause has to be under a
contract of employment, express or implied,
‘remuneration’ under the third clause need not
be under the contract of employment but may
be any ‘additional remuneration' outside the
contract of employment. So, there appears to
our mind no reason to exclude ‘House Rent
Allowance', ‘Night Shift Allowance', ‘Incentive
Allowance’ and ‘Heat, Gas and Dust Allowance'
from the definition of 'wages’. A Full Bench of
the Karnataka High Court in N.G.E.F. Ltd. v.
Deputy Regional Director, E.S.l.C. considering
the question at some length held that the
amount paid by way of incentive under the
scheme of settlement entered into between the
Management and its workmen was wages
within the meaning of Section 2(22) of the
Employees’ State Insurance Act. It was
observed by the Full Bench of the Karnataka
High Court as follows:
It is true that the word ‘remuneration’ is found
both in the first and second parts of the
definition. But the condition attached to such
payment in the first part cannot legitimately be
extended to the second part. The other
‘additional remuneration’ referred to in the
second part of the definition is only qualified
by condition attached thereto (that is, paid at
intervals not exceeding two months). That was
also the view taken by a Full Bench of the
Andhra Pradesh High Court in E.S.I. Corpn.,
Hyderabad vs A.P Paper Mills Ltd., and also the
Bombay High Court in Mahalaxmi Glass Works
Pvt. Ltd. v. E.S.I. But this aspect of the matter
has been completely overlooked by this Court
in Kirloskar case (1974) 1 Kant LJ 358.
14
Justice Amarendra Nath Sen, concurred with the
aforementioned observations of Justice O. Chinnappa Reddy
and supplemented as under:
“8. I entirely agree that on true interpretation
of the word ‘wages’ defined in Section 2(22) of
the Employees’ State Insurance Act, ‘wages’
must necessarily include ‘House Rent
Allowance, Night Shift Allowance, Heat, Gas
and Dust Allowance and Incentive Allowance’.
9. The definition of ‘wages’ has been set out in
the judgment of my learned brother. The
inclusive part and the exclusive portion in the
definition clearly indicate, to my mind, that the
expression “wages” has been given a very wide
meaning. The inclusive part of the definition
read with exclusive part in the definition
clearly shows, to my mind, that the inclusive
portion it not intended to be limited only to the
items mentioned therein. Taking into
consideration the excluding part in the
definition and reading the definition as a whole
the inclusive part, to my mind, is only
illustrative and tends to express the wide
meaning and import of the word 'wages' used in
the Employees’ State Insurance Act.
10. The Employees’ State Insurance Act is a piece of
social welfare legislation enacted for the benefit
of the employees. The Act has to be necessarily
so construed as will serve its purpose and
objects.
11. I entirely agree with my learned brother that on
a proper interpretation of the term ‘wages’ the
legislative intent is made manifestly clear that
15
the term ‘wages’ as used in the Act will include
House Rent Allowance, Night Shift Allowance,
Heat, Gas and Dust Allowance, Night Shift
Allowance, Heat, Gas and Dust Allowance and
Incentive Allowance. The definition, to my mind,
on its plain reading is clear and unambiguous.
Even If any ambiguity could have been
suggested, the expression must be given a liberal
interpretation beneficial to the interest of the
employees for whose benefit the Employees’ State
Insurance Act has been passed.”
9. This Court, in the case of Whirlpool of India Ltd. vs
Employees’ State Insurance Corporation, (2000) 3 SCC 185, has
succinctly described the intention of the legislature in passing the
E.S.I. Act, and the same reads as thus,
“5. The Act is a social legislation enacted to
provide benefits to employees in case of
sickness, maternity and employment injury
and to make a provision for certain other
matters in relation thereto. Broadly this is the
purpose for which the Corporation has been
established under Section 3 of the Act. The
main source of the Employees' State Insurance
Fund is the contributions paid to the
Corporation (Section 26). The benefits to be
provided to insured persons and others are as
provided in Chapter V, in particular, Section
46 thereof. The words and expressions used
but not defined in the Act and defined in the
Industrial Disputes Act, 1947, are to have the
meanings respectively assigned to them in the
Industrial Disputes Act, Undoubtedly, any
provision of which two interpretations may be
16
possible would deserve such construction as
would be beneficial to the working class but, at
the same time, we cannot give a go-by to the
plain language of a provision.”
10. As mentioned supra, the High Court while allowing the
appeal filed by the respondent has mainly relied upon the office
memorandum dated 19.08.1998 issued by the Department of Public
Enterprises, Ministry of Industry, New Delhi, which is not
applicable to the facts of this case. The said notification makes it
abundantly clear that the instructions contained in the said office
memorandum are applicable to Central Public Sector Enterprises
(PSES) only. Admittedly, the respondent is a private limited
company and hence the instructions contained in office
memorandum dated 19.08.1998 are not applicable to the
respondent company. In the matter on hand, the appellant claimed
ESI contribution only on the amount paid by the respondent as
interim relief to its employees, treating the same as “wages” as per
Section 2(22) of the ESI Act. The amount paid as interim relief by
the respondent to its employees definitely falls within the definition
of “wages” as per Section 2(22) of the ESI Act. On the other hand,
17
the High Court has strangely observed that the interim relief paid
for the period from 01.04.1996 to 31.03.2000 can only be treated as
“ex-gratia payment” paid by the employer to its employees and
cannot be treated as “wages” for the purpose of ESI contribution.
In our considered opinion, the High Court has ignored to appreciate
that the effect of ESI Act enacted by the Parliament cannot be
circumvented by the department office memorandum. The High
Court has also failed to appreciate that the payment of interim
relief/wages emanates from the provisions contained in terms of the
settlement, which forms part of the contract of employment and
forms the ingredients of “wages” as defined under Section 2(22) of
the ESI Act and that the respondent paid interim relief, as per a
scheme voluntarily promulgated by it as per the notification dated
20.04.1996, issued by the Government of India, in view of the
recommendations of “Manisana’ Wage Board, pending revision of
rates of wages. It was not an ex-gratia payment. In this context, it
is beneficial to note the observations of this Court in the case of
Employees State Insurance Corporation vs. Gnanambigai Mills
Limited, (2005) 6 SCC 67, which read thus:
18
“6. In our view the High Court has gone
completely wrong in concluding that by virtue
of the award it ceases to be wages. As stated
above, the Tribunal has not applied its mind
as to whether or not the payments were wages.
All that the Tribunal did was to give its
imprimatur to a compromise between the
parties. Merely because the parties in their
compromise chose to term the payments as “ex
gratia payments” does not mean that those
payments cease to be wages if they were
otherwise wages. As stated above, they were
wages at the time that they were paid. They
did not cease to be wages after the award
merely because the terms of compromise
termed them as “ex gratia payments”. We are
therefore unable to accept the reasoning of the
judgments of the High Court. The judgment of
the Division Bench as well as that of the Single
Judge accordingly stands set aside. It is held
that the amounts paid are wages and
contribution will have to be made on those
amounts also. We, however, make it clear that
payments of the interest will be as per the
statutory provisions.”
11. The interim relief paid by the respondent to its employees
is not a “gift” or “inam”, but is a part of wages, as defined under
Section 2(22) of the ESI Act. In view of the above, we hold that the
payment made by way of interim relief to the employees by the
respondent for the period from 1.04.1996 to 31.03.2000 comes
19
within the definition of “wages”, as contained in Section 2(22) of the
ESI Act, and hence the respondent is liable to pay ESI contribution.
12. Accordingly, the instant appeal is allowed, the impugned
judgment of the High Court is set aside, and that of the ESI Court is
restored. The appellant is held to be entitled to recover the ESI
contribution from the respondent for the period from 01.04.1996 to
31.03.2000 as per demand notice dated 02.11.2000. No order as to
costs.
……………………………………J.
[ARUN MISHRA]
……………………………………J.
[MOHAN M. SHANTANAGOUDAR]
NEW DELHI;
SEPTEMBER 21, 2017.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4681 OF 2009
Employees State Insurance Corporation & Anr. ..Appellants
Versus
Mangalam Publications (I) Private Limited ..Respondent
J U D G M E N T
MOHAN M. SHANTANAGOUDAR, J.
1. The judgment dated 28.02.2007 passed in Insurance
Appeal No. 2 of 2004 by the High Court of Kerala at Ernakulam is
called in question in this appeal. By the impugned judgment, the
High Court allowed the appeal filed by the respondent herein and
set aside the order dated 13.10.2003 passed by the ESI Court,
Idukki, Kerala.
2
2. Brief facts leading to this appeal are as follows:
The respondent is an establishment covered by the
provisions of Employees State Insurance Act, 1948 (hereinafter
referred to as the ‘ESI Act’). It is a private limited company engaged
in the business of printing and publishing of a daily Malayalam
newspaper called “Mangalam”; the respondent has more than 250
employees including working and non-working journalists. In order
to have a uniform formula regarding the wages payable to the
employees of newspaper companies like the respondent, the Central
Government appointed Wage Boards from time to time to study and
submit reports from time to time. Earlier, the Wage Board headed
by Justice Bachawat, known as ‘Bachawat Wage Board’ was
constituted and the Board submitted its recommendations.
Thereafter, the Government of India appointed a new Wage Board,
headed by Justice Manisana which was called as ‘Manisana Wage
Board’. As per the recommendations of ‘Manisana Wage Board’, the
Government of India issued a notification dated 24.09.1996 fixing
interim rates of wages in respect of working journalists,
non-working journalists and newspaper agency employees at the
3
rate of twenty per cent of the basic wages and an additional amount
of Rs.100/- per month, with effect from 20.04.1996. As per the
said notification, the respondent started paying interim relief to its
employees, and paid such interim relief from 01.04.1996 to
31.03.2000. However, the respondent did not pay the statutory
contribution under the ESI Act for the period during which it paid
interim wages to its employees. The ESI contribution due on
interim wages paid by the respondent from 01.04.1996 to
31.03.2000 worked out to Rs.2,53,272/- (however, as per demand
notice dated 02.11.2000, the figure is Rs.2,58,061.50).
Subsequently, another office memorandum was issued
by the Government of India, Department of Public Enterprises,
Ministry of Industry, providing for the grant of interim relief to the
employees of Central Public Sector Enterprises (PSES). The said
office memorandum was subject to the following conditions:
a) These instructions are applicable to the
employees of Central PSES following IDA
pattern.
b) The amount paid as interim relief would
be fully adjusted and …. in the final pay
revision package.
4
c) xxx xxx xxx
d) xxx xxx xxx
e) xxx xxx xxx
f) xxx xxx xxx
g) The amount of interim relief will be….viz.
it will neither be termed as ‘pay’ nor
‘allowances’ nor ‘wages’. Accordingly, this
amount would not count for any service benefit
i.e. computation of house rent allowance,
compensatory allowance, overtime allowance,
cash compensation, encashment of leave, pay
fixation, pension or gratuity etc.
The afore-mentioned office memorandum dated 19.08.1998 of the
Ministry of Industry had nothing to do with the notification dated
20.04.1996 providing for interim relief to the employees of
newspaper agencies. The office memorandum dated 19.08.1998
makes itself clear that the same was applicable to employees of the
Central PSES, and consequently it had no application to employees
of private sector undertakings like that of the respondent company.
3. The premises of the respondent-company was inspected
by the Insurance Inspector of the appellant-Corporation on
13.06.2000, wherein it was found that the respondent had not paid
any contribution on the interim wages paid by it to its employees
5
during the period from 01.04.1996 to 31.03.2000. The contention
of the respondent was that it was not required to pay any
contribution on the interim relief paid by it to its employees in view
of office memorandum dated 19.08.1998. Since the contribution
was not paid by the respondent, as mentioned supra, a notice dated
18.07.2000 was issued by the appellant to the respondent to pay
contribution of the afore-mentioned amount for the afore-mentioned
period. The notice of demand dated 02.11.2000 was also served on
the respondent demanding an amount of Rs.2,58,061.50 with
interest thereon.
4. Feeling aggrieved by the afore-mentioned notices, the
respondent moved the Employees Insurance Court, Idukki, Kerala,
by filing a petition under Section 75 of the ESI Act, which came to
be numbered as Insurance Case No. 19/2000. In the said petition
also, the respondent relied upon the office memorandum dated
19.08.1998 and a clarificatory letter dated 20.12.1996 of the Indian
Newspaper Society. The said petition was opposed by the appellant
contending that the office memorandum dated 19.08.1998 was not
applicable to the respondent, and that the clarification given by the
6
Indian Newspaper Society has no legal validity; the effect of the Act
of Parliament i.e., ESI Act cannot be superseded by the office
memorandum issued by the department; that under Section 2(22)
of the ESI Act, all remuneration is wages except the categories
mentioned in clauses (a) to (d) of Section 2(22) of the ESI Act, and
that interim relief does not come within the excluded parts of
clauses (a) to (d). After consideration of the material on record, the
ESI Court dismissed the application filed by the respondent holding
that the interim relief paid by the respondent to the employees was
“wages” as defined under Section 2(22) of the ESI Act, and hence
the respondent was liable to pay contribution for the interim relief
paid. It was observed by the ESI Court that the respondent paid
interim relief to its employees as per the direction contained in the
notification dated 20.04.1996 and the provisions of the notification
became a part of the contract of employment of the employees of the
respondent company. It was also observed that the office
memorandum dated 19.08.1998 was only applicable to the
employees of the Central PSES, and it does not anywhere say that
the interim relief is not “wages” as defined under Section 2(22) of
7
the ESI Act or that contribution need not be paid on the payment of
interim relief.
The respondent filed Insurance Appeal No. 2/2000 before
the High Court of Kerala under Section 82 of the ESI Act,
challenging the order passed by the ESI Court on 13.10.2003. The
appeal came to be allowed by the impugned judgment, holding that
the appellant herein is not entitled to collect any contribution in
respect of interim relief paid by the respondent to its employees.
While concluding so, the High Court has held that the amount paid
as interim relief cannot be treated as “wages” or “part of wages” and
can only be treated as “ex-gratia payment”. Hence, this appeal.
5. The only question to be considered and decided in this
appeal is as to whether the interim relief paid by the respondent to
its employees, during the period from 01.04.1996 to 31.03.2000, is
to be treated as “wages” as defined under Section 2(22) of the ESI
Act, and if so, whether the respondent is liable to pay the ESI
contribution?
6. There cannot be any dispute that if the interim relief paid
by the respondent is held by this Court as “wages” as defined under
8
Section 2(22) of the ESI Act, then the respondent is necessarily
liable to pay ESI contribution on the amount of interim relief paid to
its employees.
7. Before proceeding further, it would be relevant to note
the definition of wages, as defined under Section 2(22) of the ESI
Act. The same is extracted hereunder:
“Section 2 (22) of the Employees' State
Insurance Act, 1948 defines Wages. It reads as
follows:-
“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 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 travelling allowance or the value of any
travelling 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.”
9
A plain reading of the afore-mentioned definition of Section
2(22) of the ESI Act makes it amply clear that “wages” means all
remuneration paid or payable in cash to an employee, if the terms
of the contract of the employment, expressed or implied, were
fulfilled and includes other additional remuneration, if any, paid at
intervals not exceeding two months. But payments made on certain
contingencies under Clauses (a) to (d) of Section 2(22) of the ESI
Act, do not fall within the definition of “wages”. The interim relief
paid to the employees of the respondent in the matter on hand, as
mentioned supra, will definitely not fall within the excluded part of
clauses (a) to (d) of Section 2(22) of the ESI Act, inasmuch as such
payment is not travelling allowance or the value of any travelling
concession, contribution paid by the employer to any pension fund
or provident fund; sum paid to an employee to defray special
expenses entailed on him by the nature of his employment; or any
gratuity payable on discharge.
8. The Employees’ State Insurance Act is a welfare
legislation. It has been enacted to protect and safeguard the rights
of the working class. Its preamble states that it is meant to “provide
10
for certain benefits to employees in case of sickness, maternity and
‘employment injury’ and to make provision for certain other matters
in relation thereto”. The Employees’ State Insurance Fund set up
under this Act survives primarily on contributions paid to the
Employees’ State Insurance Corporation (the appellant). All
employees insured in accordance with this Act are entitled to
benefits under the Act. Undoubtedly, the literal meaning of
statutory provisions cannot be ignored. However, in cases where
there may be two or more ways to interpret a statutory provision,
the spirit of this legislation warrants a construction that benefits
the working class. The inclusive part and exclusive portion of the
definition of “wages” clearly indicate that the expression “wages”
has been given wider meaning. As mentioned supra, under the
definition, firstly whatever remuneration is paid or payable to an
employee under the terms of the contract of the employment,
expressed or implied, is “wages”. Secondly, whatever payment is
made to an employee in respect of any period of authorized leave,
lock-out etc. is “wages”. Thirdly, other additional remuneration, if
any, paid at intervals not exceeding two months is also “wages”.
Any ambiguous expression, according to us, should be given a
11
beneficent construction in favour of employees by the Court. If the
definition of “wages” is read in its entirety including the inclusive
part as well as the exclusive portion, it appears that inclusive
portion is not intended to be limited only of items mentioned
therein, particularly, having regard to the objects and reasons for
which the Employees’ State Insurance Act is enacted. The Act has
to be necessarily so construed as to serve its purpose and objects.
This Court in the case of M/s Harihar Polyfibres vs. Regional
Director, ESI Corporation, (1984) 4 SCC 324 has held that the
definition of “wages” contained in Section 2(22) of the ESI Act is
wide enough to include House Rent Allowance, Night Shift
Allowance, Incentive Allowance and Heat, Gas and Dust Allowance.
To come to the aforesaid conclusion, this Court observed thus:
“2. The Employees’ State Insurance Act is a
welfare legislation and the definition of ‘wages’
is designedly wide. Any ambiguous expression
is, of course, bound to receive a beneficent
construction at our hands too. Now, under the
definition, first, whatever remuneration is paid
or payable to an employee under the terms of
the contract of the employment, express or
implied is wages; thus if remuneration is paid
in terms of the original contract of employment
or in terms of a settlement arrived at between
the employer and the employees which by
12
necessary implication becomes part of the
contract of employment it is wages ; second,
whatever payment is made to an employee in
respect of any period of authorised leave,
lock-out, strike which is not illegal or lay-off is
wages; and third, other additional
remuneration, if any, paid at intervals not
exceeding two months is also wages; this is
unqualified by any requirement that it should
be pursuant to any term of the contract of
employment, express or implied. However,
'wages' does not include any contribution paid
by the employer to any pension fund or
provident fund, or under the Act, any
travelling allowance or the value of any
travelling concession any sum paid to the
person employed to defray special expenses
entailed on him by the nature of his
employment and any gratuity payable on
discharge. Therefore wages as defined includes
remuneration paid or payable under the terms
of the contract of employment, express or
implied but further extends to other additional
remuneration, if any, paid at intervals not
exceeding two months, though outside the
terms of employment. Thus remuneration paid
under the terms of the contract of the
employment (express or implied) or otherwise if
paid at intervals not exceeding two months is
wages. The interposition of the clause “and
includes any payment to an employee in
respect of any period of authorised leave,
lock-out, strike which is not illegal or lay-off”
between the first clause, “all remuneration
paid or payable in cash to an employee, if the
terms of the contract of employment, express
or implied, was fulfilled” and the third clause,
"other additional remuneration, if any, paid at
intervals not exceeding two months,” makes it
13
abundantly clear that while ‘remuneration’
under the first clause has to be under a
contract of employment, express or implied,
‘remuneration’ under the third clause need not
be under the contract of employment but may
be any ‘additional remuneration' outside the
contract of employment. So, there appears to
our mind no reason to exclude ‘House Rent
Allowance', ‘Night Shift Allowance', ‘Incentive
Allowance’ and ‘Heat, Gas and Dust Allowance'
from the definition of 'wages’. A Full Bench of
the Karnataka High Court in N.G.E.F. Ltd. v.
Deputy Regional Director, E.S.l.C. considering
the question at some length held that the
amount paid by way of incentive under the
scheme of settlement entered into between the
Management and its workmen was wages
within the meaning of Section 2(22) of the
Employees’ State Insurance Act. It was
observed by the Full Bench of the Karnataka
High Court as follows:
It is true that the word ‘remuneration’ is found
both in the first and second parts of the
definition. But the condition attached to such
payment in the first part cannot legitimately be
extended to the second part. The other
‘additional remuneration’ referred to in the
second part of the definition is only qualified
by condition attached thereto (that is, paid at
intervals not exceeding two months). That was
also the view taken by a Full Bench of the
Andhra Pradesh High Court in E.S.I. Corpn.,
Hyderabad vs A.P Paper Mills Ltd., and also the
Bombay High Court in Mahalaxmi Glass Works
Pvt. Ltd. v. E.S.I. But this aspect of the matter
has been completely overlooked by this Court
in Kirloskar case (1974) 1 Kant LJ 358.
14
Justice Amarendra Nath Sen, concurred with the
aforementioned observations of Justice O. Chinnappa Reddy
and supplemented as under:
“8. I entirely agree that on true interpretation
of the word ‘wages’ defined in Section 2(22) of
the Employees’ State Insurance Act, ‘wages’
must necessarily include ‘House Rent
Allowance, Night Shift Allowance, Heat, Gas
and Dust Allowance and Incentive Allowance’.
9. The definition of ‘wages’ has been set out in
the judgment of my learned brother. The
inclusive part and the exclusive portion in the
definition clearly indicate, to my mind, that the
expression “wages” has been given a very wide
meaning. The inclusive part of the definition
read with exclusive part in the definition
clearly shows, to my mind, that the inclusive
portion it not intended to be limited only to the
items mentioned therein. Taking into
consideration the excluding part in the
definition and reading the definition as a whole
the inclusive part, to my mind, is only
illustrative and tends to express the wide
meaning and import of the word 'wages' used in
the Employees’ State Insurance Act.
10. The Employees’ State Insurance Act is a piece of
social welfare legislation enacted for the benefit
of the employees. The Act has to be necessarily
so construed as will serve its purpose and
objects.
11. I entirely agree with my learned brother that on
a proper interpretation of the term ‘wages’ the
legislative intent is made manifestly clear that
15
the term ‘wages’ as used in the Act will include
House Rent Allowance, Night Shift Allowance,
Heat, Gas and Dust Allowance, Night Shift
Allowance, Heat, Gas and Dust Allowance and
Incentive Allowance. The definition, to my mind,
on its plain reading is clear and unambiguous.
Even If any ambiguity could have been
suggested, the expression must be given a liberal
interpretation beneficial to the interest of the
employees for whose benefit the Employees’ State
Insurance Act has been passed.”
9. This Court, in the case of Whirlpool of India Ltd. vs
Employees’ State Insurance Corporation, (2000) 3 SCC 185, has
succinctly described the intention of the legislature in passing the
E.S.I. Act, and the same reads as thus,
“5. The Act is a social legislation enacted to
provide benefits to employees in case of
sickness, maternity and employment injury
and to make a provision for certain other
matters in relation thereto. Broadly this is the
purpose for which the Corporation has been
established under Section 3 of the Act. The
main source of the Employees' State Insurance
Fund is the contributions paid to the
Corporation (Section 26). The benefits to be
provided to insured persons and others are as
provided in Chapter V, in particular, Section
46 thereof. The words and expressions used
but not defined in the Act and defined in the
Industrial Disputes Act, 1947, are to have the
meanings respectively assigned to them in the
Industrial Disputes Act, Undoubtedly, any
provision of which two interpretations may be
16
possible would deserve such construction as
would be beneficial to the working class but, at
the same time, we cannot give a go-by to the
plain language of a provision.”
10. As mentioned supra, the High Court while allowing the
appeal filed by the respondent has mainly relied upon the office
memorandum dated 19.08.1998 issued by the Department of Public
Enterprises, Ministry of Industry, New Delhi, which is not
applicable to the facts of this case. The said notification makes it
abundantly clear that the instructions contained in the said office
memorandum are applicable to Central Public Sector Enterprises
(PSES) only. Admittedly, the respondent is a private limited
company and hence the instructions contained in office
memorandum dated 19.08.1998 are not applicable to the
respondent company. In the matter on hand, the appellant claimed
ESI contribution only on the amount paid by the respondent as
interim relief to its employees, treating the same as “wages” as per
Section 2(22) of the ESI Act. The amount paid as interim relief by
the respondent to its employees definitely falls within the definition
of “wages” as per Section 2(22) of the ESI Act. On the other hand,
17
the High Court has strangely observed that the interim relief paid
for the period from 01.04.1996 to 31.03.2000 can only be treated as
“ex-gratia payment” paid by the employer to its employees and
cannot be treated as “wages” for the purpose of ESI contribution.
In our considered opinion, the High Court has ignored to appreciate
that the effect of ESI Act enacted by the Parliament cannot be
circumvented by the department office memorandum. The High
Court has also failed to appreciate that the payment of interim
relief/wages emanates from the provisions contained in terms of the
settlement, which forms part of the contract of employment and
forms the ingredients of “wages” as defined under Section 2(22) of
the ESI Act and that the respondent paid interim relief, as per a
scheme voluntarily promulgated by it as per the notification dated
20.04.1996, issued by the Government of India, in view of the
recommendations of “Manisana’ Wage Board, pending revision of
rates of wages. It was not an ex-gratia payment. In this context, it
is beneficial to note the observations of this Court in the case of
Employees State Insurance Corporation vs. Gnanambigai Mills
Limited, (2005) 6 SCC 67, which read thus:
18
“6. In our view the High Court has gone
completely wrong in concluding that by virtue
of the award it ceases to be wages. As stated
above, the Tribunal has not applied its mind
as to whether or not the payments were wages.
All that the Tribunal did was to give its
imprimatur to a compromise between the
parties. Merely because the parties in their
compromise chose to term the payments as “ex
gratia payments” does not mean that those
payments cease to be wages if they were
otherwise wages. As stated above, they were
wages at the time that they were paid. They
did not cease to be wages after the award
merely because the terms of compromise
termed them as “ex gratia payments”. We are
therefore unable to accept the reasoning of the
judgments of the High Court. The judgment of
the Division Bench as well as that of the Single
Judge accordingly stands set aside. It is held
that the amounts paid are wages and
contribution will have to be made on those
amounts also. We, however, make it clear that
payments of the interest will be as per the
statutory provisions.”
11. The interim relief paid by the respondent to its employees
is not a “gift” or “inam”, but is a part of wages, as defined under
Section 2(22) of the ESI Act. In view of the above, we hold that the
payment made by way of interim relief to the employees by the
respondent for the period from 1.04.1996 to 31.03.2000 comes
19
within the definition of “wages”, as contained in Section 2(22) of the
ESI Act, and hence the respondent is liable to pay ESI contribution.
12. Accordingly, the instant appeal is allowed, the impugned
judgment of the High Court is set aside, and that of the ESI Court is
restored. The appellant is held to be entitled to recover the ESI
contribution from the respondent for the period from 01.04.1996 to
31.03.2000 as per demand notice dated 02.11.2000. No order as to
costs.
……………………………………J.
[ARUN MISHRA]
……………………………………J.
[MOHAN M. SHANTANAGOUDAR]
NEW DELHI;
SEPTEMBER 21, 2017.
