Narayan, J.

1. The scope and ambit of the definition of 'wages' as defined in section 2(22) of the Employees' State Insurance Act, 1948 ('the Act' for short) arises for out consideration in this Appeal.

2. The facts giving rise to this Appeal, briefly stated, are as under:

The 1st respondent is a Private Limited Company registered under the Companies Act of 1956. It is a small scale industry situated at industrial Estate, Shimoga. This company is covered by the provisions of the E.S.I. Act. The Management has been paying production incentive to its employees since 1982. It has paid a total production incentive of Rs. 3,21,691-25.

3. On 22-12-1987, one M.P. Court-Accounts Officer, E.S.I. Corporation, visited the respondent - Factory and conducted a test inspection. He noticed that the Management has paid a sum of Rs. 3,21,691-25 as production incentive to its employees. Hence, he prepared a report as per EX.R1 and submitted the same to the Corporation. The Corporation issued a show cause notice dated 13-6-1988 to respondent No. 1. The respondent wrote a letter dated 22-8-1988 stating that the so called incentive payments were paid as extra payments and they were not made regularly every month and that it was paid at the discretion of the Management and not as wages as per employment service condition. However, the appellant passed the impugned order dated 27-2-1989 under Section 45-A of the Act holding the respondent liable to pay contribution of Rs. 23,323/-. The Management challenged the said order by filing an application before the Employees' Insurance Court, Hubli, under Section 75 of the Act. Both the parties have let in oral and documentary evidence before the Court below. On consideration of the rival contentions, the learned Judge of the Employees' Insurance Court held that the production incentive was paid to the employees pursuant to the Agreement between the Workmen and the Management once in 3 months or 4 months at the discretion of the Management and the payment of production incentive is not part of the contract of the employment. It further held, since the production incentive is paid beyond the period of 2 months, it does not fall under the definition of 'wages' as defined in Section 2(22) of the Act.

4. The ESI Corporation has questioned the correctness of this order.

5. Shri R. Gururajan - learned Counsel for the appellant contended that the view taken by the Insurance Court is contrary to the ratio laid down by the Full Bench of this Court in N.G.E.F. v. Deputy Regional Director, ESIC., Bangalore 1980 Lab.I.C. 431: ILR (Kar) 1979 (1) 463 M/s. Harihar Polyfibres v. The Regional Director, E.S.I. Corporation : (1984)IILLJ475SC and the unreported Decision of the Division Bench of this Court in The Employees' State Insurance Corporation v. The Mysore Kirloskar Ltd. MFA No. 419 of 1977. (Second Kirloskar's case) which is affirmed by the Supreme Court in C.A. No. 2545 of 1982. He further submits that the payment received under the incentive scheme and declared unilaterally by the Management forms part of wages. As such, the same is liable for contribution.

6. He has further contended that though the payment is made on quarterly basis, it is only postponement of payment. The incentive so paid is an additional remuneration for the work done and therefore payment of incentive once in 2 or 3 months cannot be a ground to avoid contribution.

7. Rebutting these contentions, the learned Counsel for the 1st respondent contended that the production incentive unilaterally declared/granted by the Management is an extra payment and does not form part of wages as defined in Section 2(22) of the Act. Further it is contended that the production incentive granted is discretionary and is liable for withdrawal without notice. This production incentive is not granted under contract of employment or under any agreement between the parties. More over, payment made once in 3 months does not form part of wages within the second part of Section 2(22) of the Act and thus made an attempt to justify the order of the order of the ESI Court.

8. Therefore, the question for consideration in this appeal is whether the payment made to workmen as production incentive could be termed as wages within the definition of Section 2(22) of the Act.

9. Section 2(22) defines 'wages' as thus:

'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 authorised 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.'

10. The learned Counsel for the respondent has not disputed that the Management and the Union of the employees entered into a Memorandum of Agreement dated 10-6-1982. The said Agreement is marked by the ESI Court at Ex. A6. It is no doubt true that the said Agreement was not signed before the Labour Commissioner or before the Conciliation Officer. A copy of Ex. A6 is produced by the Counsel for the appellant for our perusal. Perusal of this document discloses that the employees placed certain demands on 19-5-1982. After mutual negotiations discussions and talks between the Management and the representatives of the Association in this regard, they arrived at a settlement which is incorporated in the Memorandum of Agreement Ex. A6. Clause 18 of the Memorandum of Agreement refers to the production incentive. The relevant clause reads as follows:

'(18) PRODUCTION INCENTIVE:

The existing facility/amenity of payment production incentive calculated and fixed by the management, at their own discretion, shall be continued to be paid to all the regular workmen only at the rates more fully described in Schedule 'A' appended to this Agreement.

NOTE:

1. The production incentive is paid at the discretion of the Management and the employees/workmen have no right to claim the same as a matter of right at any time.

2. This production incentive shall also not be considered as wages/salaries under any circumstances for the purpose of calculating P.F. contributions, annual leave, annual bonus, gratuity, retrenchment compensation, service compensation, O.T. if any, notice pay, suspension wages, subsistence allowance or any other allowances/payments which are not specifically mentioned herein, including for calculating ESI contribution.

3. This production incentive can be reduced and varied/withheld/withdrawn for any period to any one or all workers at the discretion of the Management without assigning any reason or without giving any notice whatsoever, for which the workers shall not have any objection.

4. Production, incentive is linked with regular attendance, efficient work, devotion to duty, efficient utilisation of raw materials packing materials, fuel, power and maintenance of quality of finished products etc.

5. The Management is entitled to deduct the proportionate value of actual wastage, damages, rejection caused by an individual workman due to negligence every month at the discretion of the Management besides taking disciplinary action.

6. If an eligible employee remains absent even for a day in a month without prior sanction of leave, he shall not be entitled for the production incentive for that entire month.'

Clause 5 of the Agreement provides that payment of wages/salaries to the employees/workmen shall be made on or before the 10th day of every succeeding month as per the provisions of the Payment of Wages Act. This agreement was for a period of five years beginning from 10-6-1982 till 9-6-1987. A copy of this agreement was also forwarded to the Labour Officer and to the Assistant Labour Commissioner by both the parties. Roughly two years thereafter, the Employees' Union addressed a letter dated 23-4-1984 to the Management requesting them to pay the production incentive, as agreed upon once in a quarter and to amend Clause 18 of the Memorandum of Settlement dated 10-6-1982. Accordingly, the Management agreed to pay the production incentive one in a quarter as per amended Clause 18 of the Memorandum of Settlement. The reasons assigned are that 'the E.S.I. contribution was collected from their members taking production incentive into account and on account of the members' contribution towards E.S.I. is on a higher rate' and have further pleaded to the Management that 'any amount paid at intervals exceeding 2 months does not form part of wages and that would enable the members to save some money.'

11. The trouble started when Sri M.P. Chouti - Accounts Officer, E.S.I. Corporation visited the respondent - Factory and conducted the test inspection on 22-12-1987 and submitted a report to the Corporation.

12. The Management tried to explain its defence through the evidence of AW1 Sri N.K. Vaidyanathan before the ESI Court. His cross-examination disclosed that production incentive has been paid to each worker for the number of days for which he worked and the said worker would not get any production incentive for the days for which he remained absent and that the production incentive is earned by the worker for each day of his work. The Secretary of the Employees' Union Sri Krishnappa who is examined as AW.2 tried to put forth a plea that the Management pays production incentive voluntarily and that the Union passed a resolution and placed before the Management requesting them to pay the production incentive once in 3 months.

13. Thus the stand taken by the Management and Employees' Union appears to be the same. Both the Management and the Employees' Union tried to avoid ESI contribution on the ground that the unilaterally declared production incentive does not form part of wages.

14. The main contention of the Counsel for the respondent is that (1) in all the cases cited/relied on by the Counsel for the appellant is that the incentive was granted/paid either as Inam or bounty or as extra and (2) that the incentive was paid to the workers within two months, whereas, in the case on hand, the production incentive is paid once in a quarter and therefore the ratio laid down by the Full Bench of this Court in N.G.E.F's case (supra) and Division Bench of this Court Second Kirloskar case (supra) is distinguishable.

15. To appropriate the rival contentions, it is useful to refer to some of the important decisions on the point.

16. The question involved in Braithwaite and Co. (India) v. E.S.I. Corporation : (1968)ILLJ550SC , was inam or bounty paid to its employees and the scheme was known as 'Inam scheme'. After considering the terms of the scheme, the Supreme Court held that the scheme' was not among the original terms of contract of employment and could not form part of wages. The Supreme Court was considering the first part of the definition of wages and admittedly 'Inam' or 'bounty' was not claimed as additional remuneration and the decision has no reference to the second part of the definition. Therefore, the decision is no authority on the point.

17. In The Regional Director Employees' State Insurance Corporation and another v. Bata Shoe Company (Pvt) Ltd. 1985 II CLR 350, the Supreme Court has rejected the contention raised on behalf of ESI Corporation that the extra payment made as a gesture of goodwill also forms part of the wages. The observation is found at para 7 of the judgment as follows:

'It is plain from what has gone before that the bonus paid by the respondent to its employees is in the nature of extra payment or as has been described in one of the settlements, it is paid as a gesture of goodwill on the part of the respondent. It is nothing else. Indeed, learned Counsel for the parties were agreed before the High Court that the bonus in question was neither in the nature of production bonus nor incentive bonus nor customary bonus nor any statutory bonus. It cannot be regarded as part of the contract of employment. Although the provisions relating to it were included in the Standing Orders and Rules, they were subsequently excluded from them. In our opinion, therefore, the bonus paid or payable by the respondent to its employees under the successive settlements and agreements made between them cannot be regarded as remuneration paid or payable to the employees in fulfilment of the terms of the contract of employment.'

It is further observed at para 9 as under:

'The second category of remuneration defined within the expression 'wages' by sub-section (22) of Section 2 of the Act speaks of other additional remuneration paid at intervals not exceeding two months.

It cannot be disputed that the bonus under consideration here is not paid at intervals not exceeding two months. It is payable 'one month after the end of each quarter.'

18. The Full Bench of this Court in N.G.E.F.'s case (supra) after considering the ratio laid down in M/s. Braithwaite's case (supra), Bata Shoe Co. (supra) and Regional Director of ESIC v. Management of Mysore Kirloskar Ltd. 1974 (1) KLJ 358 (first Kirloskar's case) held as follows:

'It seems to us, that this Court in Kirloskar's case was wrong in taking a narrow view of the second part of the definition of wages. The second part of the definition is quite distinct and different from the first part. The second part declares that any payment to any employee in respect of any period of authorised leave, lockout, strike which is not illegal or lay-off and other additional remuneration, if any, paid at intervals not exceeding two months shall also be included in the definition of 'wages'. All these terms of payments apparently cannot have any reference to the terms of contract of employment of any employees. But nonetheless they are also termed as wages because they are included in that definition. In the State of Bombay v. Hospital Mazdoor Sabha : (1960)ILLJ251SC , the Supreme Court observed that the words used in an inclusive definition denote extension and cannot be treated as restricted in any sense.

It was also observed that when we are dealing with an inclusive definition it would be inappropriate to put a restrictive interpretation upon terms of wider denotation...'

Thereafter relying on the definition given in Stround's Judicial Dictionary as also the comments made in Craies on Statute Law, the Full Bench held:

Therefore, the clear implication of the second part of the definition is that any additional remuneration paid otherwise than under the terms of the contract should also be treated as wages for purposed of the Act provided that payment is made by way of remuneration i.e., a recompense for service rendered and not any extra payment and paid at periodical intervals not exceeding two months. If any additional remuneration paid satisfies these two conditions, Section 2(22) declares it to be 'wages' though paid de hors the terms of the contract.'

19. The very question cropped up again before the Supreme Court in M/s. Harihar Polyfibres case supra. The Supreme Court while approving the ratio laid down by the Full Bench of this Court in N.G.E.F.'s case (supra) the decision of the Bombay High Court in Mahalaxmi Glass Works Pvt. Ltd. v. Employees State Insurance Corporation 1976 Lab. I.C. 514 and the Full Bench decision of Andhra Pradesh High Court in Employees' State Insurance Corporation Hyderabad v. Andhra Pradesh Paper Mill Ltd. : (1978)ILLJ469AP held as under:

'The Employees' State Insurance Act is a welfare legislation and the definition of 'wages' is designedly wide. Any ambiguous expression is, of course, bounded 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 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.'

Supplementing his views, His Lordship Justice A.N. Sen, as he then was, has further observed thus:

'That 'wages' must necessarily include 'House Rent Allowance', Night Shift Allowance, Heat, Gas and Dust Allowance and incentive allowance' ..... The inclusive part and 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 is not intended to be limited only to the items mentioned therein.'

It is further observed that:

'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 interests of the employees for whose benefit the Employees' State Insurance Act has been passed.'

20. Similar question again came up for consideration before the Division Bench of this Court in MFA No. 419 of 1977 (supra) what is known as Second Kirloskar's case (The Employees' State Insurance Corporation v. M/s. The Mysore Kirloskar's Ltd.). The Management of Kirloskar factory refused to make ESI contribution on the incentive payment paid to its employees relying on the decision of this Court in First Kirloskar's case (supra). The Management filed an application under Section 45 of the Act before the ESI Court, which was allowed. It was contended before the Division Bench that the incentive scheme introduced by the Management was unilateral and it has reserved the right of withdrawal at any time and therefore, the ratio in NGEF's case has no application to the proposition. The Division Bench of this Court relying on NGEF's case held as follows:

'That the payment received under the incentive scheme, adopted even unilaterally by the Management, forms part of the wages and as such, the same is liable for contribution.'

21. The Management having questioned the decision in Civil Appeal No. 2545 of 1982 the Supreme Court has rejected the Appeal affirming the view of the Division Bench of this Court. The learned Counsel for the respondent attempted to suggest that the rejection of C.A. No. 2545 of 1982 by the Supreme Court without reasons amounts to per incuriam and is no authority on the question. We do not concede and accept such a proposition. We are afraid that such a proposition would create confusion instead of settling the law. Reliance is placed by the learned counsel for the respondent to the latest decision of the Supreme Court in Wellman (India) Pvt. Ltd. v. Employees' State Insurance Corporation : (1994)ILLJ545SC . That was a case where:

'The attendance bonus payable to the employees under the terms of the settlement reached in conciliation under Section 12(3) of Industrial Disputes Act 1947 becomes a part of the contract of employment. Hence, the said bonus will fall within the first part of the definition of 'wages' under Section 2(22) of the Act which covers all remuneration paid or payable in cash to an employee if the terms of contract of employment, express or implied, were fulfilled.'

Therefore, Wellman (India) Pvt. Ltd., is no authority on the question. Hence, we find there is no merit in the contention canvassed on behalf of the Management. We hold that the production incentive declared by the Management is not an 'Inam' or extra and the payment received under the incentive scheme adopted even unilaterally by the Management forms part of the wages.

22. That takes us to the very important and pertinent question raised by the learned Counsel for the respondent. It is canvassed by the learned Counsel for the respondent that payment made after a period of two months does not form part of the wages. It appears to us that this point was not at all urged in any one of the Cases cited supra. The decisions were given by the Full Bench and Division Bench of this Court in NGEF's case (supra) and Second Kirloskar's case (supra) and the decision rendered by the Supreme Court cited supra proceeded on the premise that the payment of additional remuneration was paid within two months.

23. The learned Counsel for the respondent submits that in the case on hand, the production incentive is paid once in a quarter and therefore does not form part of wages. We have also referred to Clause 5 of the Agreement wherein the Management has agreed to make payment of wages on the 10th of every next month. It is only on the request made by the Employees' Union to amend Clause 18 and to make payment of production incentive after two months in order to save some money to the workers, that the Management started paying the production incentive once in a quarter.

24. Argument of Sri Gururajan - learned Counsel for the appellant that such payment of production incentive after 3 months is only a postponement of payment for the work done cannot be accepted as the Statute clearly prohibits any such contribution if paid after 2 months. The Full Bench of this Court in NGEF's case has unequivocally laid down that:

'Payment made by way of remuneration i.e., recompense for service rendered and not any extra payment and paid at periodical intervals not exceeding two months.'

If any additional remuneration satisfies these two conditions. Section 2(22) declares it to be wages.

25. The fact narrated in the earlier part of the judgment makes it clear that the appellant and respondent No. 1 tried to evade their liability in accordance with the law laid down by the Supreme Court and this Court. In the circumstances, we hold that the 'production incentive' paid in this case forms part of the wages as defined under Section 2(22) of the Act.

26. In the result, we allow the appeal. We direct the Management to deposit the ESI contribution. No costs.