Common Oral Judgment:
1. The appellant, the Regional Director-Employees State Insurance Corporation (hereinafter referred to as 'the Corporation' for the sake of brevity) has filed the present appeal under Section 82 of the Employees State Insurance Act of 1948 (hereinafter referred to as 'the ESI Act' for short) against the order dated 27.07.2001 rendered by ESI Court, Bhavnagar, in ESI Application No.(22/1993old) (40/1996new). (hereinafter referred to as ESI Application No.40 of 1996).
2. Heard learned advocate Mr.Mayur S. Barot for the appellant. Though served, respondent has not filed appearance. Matter is adjourned from time to time. However, the appeal is of the year 2002 and therefore, the same is taken up for final hearing in absence of the respondent.
3. Learned advocate Mr.Barot appearing for the appellant mainly submitted that the present respondent unit was working as one of the units of National Dairy Development Board and was carrying on manufacturing activity in connection with vegetables. The said unit was registered under Section 38 of the ESI Act. It is the case of the unit-original applicant that the said unit was regularly paying their contribution under the ESI Act. It is further the case of the unit that the Corporation was considering washing allowance and medical allowance as wages within the meaning of Section 2(22) of the ESI Act. However, if the said allowances are added in the salary of an employee and if the monthly salary of the employees exceeded Rs.1600/, the concerned employee is required to be exempted. However, the Corporation is not permitting for the same. Thus, the Corporation issued notices on 14.08.1992 and 03.09.1992 and informed the unit to pay the contribution of such an employee. The Corporation thereafter issued the notice on 22.02.1993 in printed form C18, to which the unit gave reply. However, thereafter recovery notice dated 28/3071993 was issued by the Corporation for recovery of an amount of Rs.33,839/. Thus, the unit preferred ESI Application No.40 of 1996.
4. Learned advocate Mr.Barot thereafter referred to the reply filed by the Corporation which is filed vide Exh6. Learned advocate contended that in the said reply, the Corporation has specifically pointed out that the allowances like medical allowance, washing allowance etc. are not considered to be wages, but the applicant has skillfully included such allowances with the salary of his certain employees and thereby brought their salary beyond Rs.1600/. Thus, the unit has thereby wrongly considered such employees as exempted employees. The unit has therefore not paid contribution for such employees. Therefore, the Corporation issued C18/C19 notices to the unit. Hence, the Corporation requested the ESI Court to dismiss the said application.
5. Learned advocate submitted that the ESI Court by impugned order, allowed the application of the present respondent unit and thereby quashed the order dated 22.02.1993 passed by the Corporation as well as the notice dated 28/30071993 issued by the Corporation. The present appeal is therefore filed, challenging the said order. Learned advocate Mr.Barot contended that impugned order passed by the ESI Court is bad, illegal and perverse and therefore this Court may quash and set aside the same.
6. Learned advocate Mr.Barot thereafter contended that washing allowance and medical allowance are not part of the wages and are fringe benefits payable by the employer, which is covered by Clause-C of Section 2(22) of the ESI Act and therefore the impugned order be quashed and set aside. He further contended that the Court below has wrongly placed reliance upon the decision rendered by the Hon'ble Supreme Court in the case of M/s Harihar Polyfibers v. Regional Director, ESI Corporation, reported in 1984 (4) SCC 324. He submitted that the said decision is with regard to house rent allowances, night shift allowances, heat, gas and dust allowances and incentive allowances. In spite of that, the Court below has applied the said decision to the medical allowance and the washing allowance. Said allowances are different than house rent allowance, night shift allowance etc. Thus, on this ground, the impugned order be quashed and set aside.
7. Learned advocate Mr.Barot thereafter contended that the Corporation has demanded certain record from the unit. However, the unit has not produced the same before the Corporation or before the Court below. Lastly, he has contended that the unit has started making payment of washing allowance and medical allowance in furtherance to an agreement with the Union as per the case of the unit. However, the same has not been proved beyond doubt that the said agreement was genuine. Even assuming that the said agreement is genuine, even then, if the washing and medical allowances are included in the wages of the employee, the wages of the employee would be increased and therefore, unit would not pay the contribution for such employees. If such an interpretation is made, it would be against the object of the welfare legislation and therefore the impugned order be quashed and set aside.
8. I have considered the submissions advanced on behalf of learned advocate of the appellant “ Corporation. I have also gone through the record and proceedings. From the record, it is revealed that before the ESI Court, the original applicant “ unit has examined witness Rajguru Pankaj Dalpatram at Exh.23 and one Manubhai Ambalal Raval was examined by the Corporation whose deposition is recorded vide Exh.34. The unit has produced documentary evidence before the Court below. It is revealed that notice Exh.14 was issued on 03.09.1992, C18 notice dated 22.02.1993 as well as C19 notice dated 22.07.1993 were issued by the Corporation. The unit gave the reply dated 2930/03/1993, which is produced vide Exh.17. It is clear from the reply given by the unit that the unit has specifically informed to the Corporation that they have deducted contribution under the Act on the wages of employees whose salary is upto Rs.1600/per month. However, for the wages more than Rs.1601/, they are out of the purview of the ESI Act and therefore, they are not suppose to make any contribution. It was also pointed out that washing allowance does fall under definition of wages given in Section 2(22) of the ESI Act. The unit has also placed reliance upon the decision rendered by the Hon'ble Supreme Court as well as Full Bench of Andhra Pradesh High Court. The unit has also placed on record the settlement arrived at between the management of the unit and the workers vide Exh.19. If the said document is seen, it is clear that settlement pursis was given on 02.04.1984 by the unit before the Industrial Court in IT Cases Nos.118 of 1983 and 119 of 1983. By way of the said settlement, it was agreed between the management and the employees that management will give Rs.10 as washing allowance. Minutes of the meeting held on 15.01.1991 was also placed on record vide Exh.24. In the said meeting, representatives of the union, General Manager, Executive (Personnel) and others remained present, wherein, it was decided to give the medical allowance to the employees. Thus, from the record, it has emerged that the settlement was arrived at between the union and the management of the unit, whereby, the unit has given washing allowance as well as medical allowance to its employees. Thus, this Court is of the opinion that the settlement arrived at between themanagement and the employees is genuine settlement.
9. Thus, in the aforesaid facts, the questions which are required to be considered by this Court are i) whether washing allowance can be said to be 'wages' within the meaning of Section 2(22) of the ESI Act or not and; ii) if the washing allowance is considered to be wages and is included in the monthly salary of the employee, and if it exceeds Rs.1600/, whether the unit is exempted from making payment of contribution of such employees to the Corporation.
10. For deciding the aforesaid questions, provision of the ESI Act and certain decisions rendered by the Hon'ble Supreme Court as well as the other High Courts are required to be considered by this Court. Section 2(22) of the ESI Act provides for the definition of 'wages', which reads as under:
(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 and includes a [any payment to an employee in respect of any period of authorized leave, lockout, strike which is not illegal or layoff and] other additional remuneration, if any, b [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;
11. The Hon'ble Supreme Court in the case of M/s Harihar Polyfibers (supra) has held and observed as under:
5. We express our respectful agreement with what has been said by the Full Bench of the Andhra Pradesh High Court in the above extracted passage and their dissent from the view expressed by the learned Single Judge of the Calcutta High Court. The Full Bench further held that 'House Rent Allowance' paid by an employer to his workmen would constitute wages within the meaning of the s. 2(22) of the Act.
6. Our attention was also invited to the case of Braithwaite and Co. (India) Ltd. v. The Employees' State Insurance Corporation (V. Bhargava and C.A. Vaidialingam, JJ). The case arose prior to the amendment of the Employees' State Insurance Act in 1966 when the explanation to s. 41 was bodily lifted from s. 41 into the definition of 'wages' in s.2(22). The case related to the payment of an exgratia reward styled as an 'Inam' (a bounty) which was admittedly not claimed to be 'additional remuneration, if any, paid at intervals not exceeding two months' but claimed to be 'remuneration paid or payable to in cash to an employee if the terms of the contract of employment, express or implied was fulfilled' which the Court found it was not. The case has been sufficiently explained by the Full Bench of the Andhra Pradesh High Court in E.S.I. Corpn., Hyderabad v. A.P. Paper Mills Ltd. (supra) and by the Full Bench of the Karnataka High Court in N.G.E.F. Bangalore v. Deputy Regional Director, E.S.I.C., Bangalore. We do not think that it is necessary to say anything further in this matter. In this view, the special leave petition is dismissed.
AMARENDRA NATH SEN, J. (supplementing)
I have read the judgment of my learned brother O. Chinnappa Reddy, J.
8. I entirely agree that on true interpretation of the word 'wages' defined in S.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'. ?
12. High Court of Madras has in the case of Regional Director, (Tamilnadu) Employees State Insurance Corporation v. Mercury Travels Limited, reported in 2007 (2) LLJ 734 observed and held as under:
8. The learned Counsel appearing for the appellant has cited a decision reported in 2005 LLR page 905 (Employees' State Insurance Corporation v. Gnanambigail Mills Limited). The Hon'ble Apex Court while dealing with Section 2(22) of the said Act has said that any remuneration paid or payable in cash to the employee in terms of the contract of the employment shall be considered as wages. But, in the case on hand as already discussed above, the amount towards coffee charges and washing allowance are not in terms of contract and hence, the said judgment will not be applicable to the case on hand. The other judgment that has been cited by the learned Counsel for the appellant is reported in 2001 I LLJ page 37 (Ratna Cafe v. E.S.I. Corporation). There the consideration was the food allowance and service charges paid to the employees. Since it was a term of contract of employment for providing food allowance, service charges etc, it was considered as wages as per Section 2(22) of the said Act. But, in the case on hand, it has been clearly stated by the respondent that the said payments are only exgratia payments and not a term of contract of employment express or implied. Hence, the decision will not be of any use to the appellant. ?
13. The High Court of Andhra Pradesh in case of The Dy Director, EIS Corporation v. Amrutanjan Limited REP by its Dy General Manager K S Ananatanarayanan, reported in 2009 (4) LLJ, the question was;
Whether conveyance allowance and washing allowance would fall within the expression wages defined in Section 2(22) of the Act? ?
The High Court of Andhra Pradesh after considering various provisions of ESI Act and various decisions, observed in paragraph No.24 as under:
24. If the conveyance allowance and washing allowance to be taken as forming part and parcel of the definition of wagesexcluding the same and demanding contribution of such 40 employees also by adopting that method is not in accordance with law. Regulation 40 of ESI Act 1950 reads as hereunder.
1. Any contribution paid by a person under the erroneous belief that the contributions were payable by that person under that Act may be refunded without interest by the Corporation to that person, if application to that effect is made in writing before the commencement of the benefit period corresponding to the contribution period in which such contribution was paid.
2. Where any contribution has been paid by a person at a rate higher than that at which it was payable the excess of the amount so paid over the amount payable may be refunded without interest by the corporation to that person, if application to that effect is made before the commencement of the benefit period corresponding to the contribution period in which such contribution was paid.
3. In calculating the amount of any refund to be made under this regulation there may be deducted the amount, if any, paid to any person by way of benefit on the basis of the contribution erroneously paid and for the refund of which the application is made. ?
14. From the record, it has emerged that conditions of settlement was produced before the labour Court by the management and the union in I.T.Case No.118 of 1983 and 119 of 1983 as observed herein above. As per the said settlement, the management decided to give washing allowance of Rs.10 to the worker from 01.01.1984. However, so far as medical allowance is concerned, from Exh.24. minutes of the meeting, it is clear that the said medical allowance was decided to be given to the workers whose salary is more than Rs.1600/and who are not covered under ESI Scheme. Thus, in the facts of the present case, this Court is required to consider the question whether washing allowance is covered within the definition of wages given in Section 2(22) of ESI Act or not.
15. The Hon'ble Supreme Court discussed the decision rendered by Full Bench of Andhra Pradesh High Court and the Full Bench decision of Karnataka High Court. The Hon'ble Supreme Court has considered that the amount paid by way of incentive under the scheme of settlement entered into between the management and its workers is 'wages' within the meaning of Section 2(22) of ESI Act. A Full Bench of the Karnataka High Court in the case of N.G.E.F. Ltd. v. Deputy Regional Director, E.S.I.C., reported in 1980 Lab IC 431, observed that It is true that the word 'remuneration' is found in both 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' rendered to in the second part of the definition is only qualified by the condition attached thereto (that is, paid at intervals not exceeding two months). ?
16. Thus, the Hon'ble Supreme Court in the said case held that the word 'wages' defined in Section 2(22) of the ESI Act must necessarily include House Rent Allowance, Night Shift Allowance, Heat, Gas and Dust Allowance and Incentive allowance.
17. I have also gone through the impugned decision rendered by the ESI Court, from which it is revealed that C18 notice was issued by the corporation to the unit. However, thereafter order under Section 45A of ESI Act determining the liability of the unit has not been passed by the Corporation and directly the recovery notice was issued. It is further revealed that on one hand the Corporation has submitted that washing allowance and medical allowance are covered within the definition of the term wages, however, on the other hand, if the said allowance are included in the monthly salary of the workman and the same exceeds Rs.1600/, in spite of that, the corporation has insisted that the unit is required to pay the contribution for such an employee also. Thus, the ESI Court has rightly quashed the order dated 22.02.1993 as well as the notice dated 28/30071993. Thus, this Court is of the opinion that no illegality is committed by the Court below while passing the impugned order. Thus, the question No.I referred in this judgment in paragraph No.9 is answered in affirmative and it is held that wages defined under Section 2(22) of ESI Act includes washing allowance. In the present case, if washing allowance is added in the monthly salary of the workers and if it exceeds Rs.1600/, unit is exempted from making payment of contribution of such employee to the Corporation.
18. In view of the aforesaid discussion, this appeal fails and accordingly the same is dismissed.
19. In view of the order passed in present First Appeal No.431 of 2002, Civil Application No. 1558 of 2002 does not survive and hence the same is disposed of. Rule is discharged.