Holding

Airfreight Ltd. is a "shop" and "commercial establishment" and the Notification applies; where the employer pays a total sum exceeding the minimum wage (including VDA), no separate VDA payment is required.

Summary

Airfreight Ltd., a cargo forwarding and travel services company, was directed by the Karnataka Labour Officer to pay its employees Variable Dearness Allowance (VDA) under a 1987 State Notification issued under the Minimum Wages Act, 1948 for "shops and commercial establishments". The company contended it was not a shop or commercial establishment and that because it already paid a total wage package exceeding the prescribed minimum, VDA need not be paid separately. The High Court upheld the notification's applicability and the order for VDA. On appeal, the Supreme Court held that the company’s systematic commercial activities with a profit motive qualify it as both a "shop" and a "commercial establishment" under the Mysore Shops and Commercial Establishments Act, 1961, and that the notification applies to all such establishments irrespective of the wage level. The Court clarified that minimum wage under the Act is a single, all‑inclusive package; when an employer pays a sum higher than the prescribed minimum (including VDA), there is no separate liability to pay VDA. The appeal was allowed in part and the matter remanded to the competent authority for fresh determination.

Issues considered

The applicability of the term "shop" and "commercial establishment" to Airfreight Ltd. under the Mysore Shops and Commercial Establishments Act, 1961.
Whether the 1987 Karnataka Notification under the Minimum Wages Act applies to an employer that already pays a total wage package above the prescribed minimum rates.
Whether Variable Dearness Allowance must be paid as a separate component when the employer’s total remuneration exceeds the minimum wage.

Legislation cited

Minimum Wages Act, 1948s. 20(2), s. 20(3), s. 27, s. 2(h), s. 3, s. 4, s. 5

Subjects

Minimum Wages ActVariable Dearness AllowanceShop definitionCommercial establishmentWage calculationSection 2(h) wagesLabour lawKarnataka

Judgment

;;
A AIRFREIGHT LTD.
v.
STATE OF KARNATAKA AND ORS.

AUGUST 4, 1999

B [D.P. WADHWA AND M.B. SHAH, JJ.]

Labour Law:
"''

c
Minimum Wages Act, 1948:

Sections 3, 4 and 5-Commercial establishment and shops-Payment
·-
of basic wages and dearness allowance to employees-Appellant-company
engaged in forwarding of cargo, travel, tourism, courier services etc.-Having
offices in various places-Paying a total pay packet ofmore than the prescribed
minimum wages-Employees claiming variable dearness allowance as per
D Notification dated 28.8.1987 issued by the State of the Karnataka-The
Competent Authority directed payment of VDA-High Court upheld the
order-On appeal-Held, Appellant is covered by the expression 'shop and
commercial establishment'-Notification is applicable to all shops and
commercial establishments, whether they are paying more than prescribed
E minimum wages or not, including the appellant-Where employer is paying
a total sum which is higher than the minimum rates of wages prescribed, he
is not required to pay VDA separately-Matter remanded to competent
authority to decide afresh.

Section 2(h): "Wages"-Minimum wages are to be calculated as per
F Section 2(h)-Value of items specified therein is to be excluded.
'-
Mysore Shops and Commercial Establishments Act, 1961 :

Section 2(e) & 2(u)-"Commercial establishment" and "shop"-
Company engaged in import and exports clearances, cargo forwarding,
G courier services, taurism and travel-Having offices in various places-Held,
Company carries out various systematic commercial activities and sells services
on retail basis-ls a 'commercial establishment' and 'shop' under the Act and
as understood in common parlance.

The appellant-company was engaged in import and exports clearance, ....
H 22

'
AIRFREIGHT LTD. v. STATE 23
;, forwarding of cargo, courier, travel, tourism and related services. It had A
, several offices in various places. The respondent-employees sought variable
dearness allowance (VDA) on the basis of Notification issued by the State
Government on 19.8.87 under the Minimum Wages Act, 1948, fixing minimum
rates of wages payable to employees of "shops and commercial
establishments". The Competent Authority allowed the claim of the employees B
and also directed the appellant-company to pay compensation under the Act.
The company challenged the order in a Writ Petition before the High Court
contending that the notification was not applicable to it since it was not a
,,,. • "shop or commercial establishment". Single Judge of the High Court
~ismissed the writ petition and a Division bench confirmed the order. However,
that part of the order that directed payment of compensation was set aside. C

In appeal before this Court it was contended by the appellant-company

- that it was not covered by the term "shops and commercial establishments"
and hence, the notification fixing minimum wages was not applicable to it.
It was also contended that since the appellant was paying a total pay packet
that is more than the minimum wages, though the wages were not being D
bifurcated into basic wages and dearness allowance, the notification was not
' applicable to it. The respondent, on the other hand, contended that the
notification fixed minimum wages in two parts, separately, one basic wages
and the other VDA and hence, the company was liable to pay VDA in addition
to the wages being paid. E

Partly allowing the appeal and remanding the matter to the Competent
Authority, this Court

HELD: 1.1; The appellant-company is covered by the expression "shops
and commercial establishments", as understood in the ordinary common F
parlance. It is carrying out various systematic commercial activities with
profit motive and hence, is a commercial establishment. It can also be termed
as a shop since services are sold on retail basis. It is a "commercial
establishment" and also a "shop" under Section 2(e) and 2(u), respectively,
of the Mysore Shops and Commercial Establishments Act, 1961. G
(26-F-G; 27-E-F)

Hindu Jea Band v. Regional Director, ES!C, (1987) 2 SCC 101;
International Ore and FeNilizers (India) Pvt. Ltd. v. ESIC, (1987) 3 SCC
203; Cochin Shipping Co. v. ES/ Corporation, (1992), 4 SCC 245 and ESIC
v. RK Swamy and Ors., (1994) 1 SCC 445, relied on. H
24 SUPREME COURT REPORTS [1999] SUPP. I S.C.R.

A 1.2. The notification dated 19.8.87 issued under the Act is applicable ._
to all kinds of 'shops and commercial establishments', whether big or small,
and whether they are paying more than the prescribed minimum wages or
not. Itis also applicable to the appellant. [37-G)

Kamani Metals & Alloys Ltd. v. Their Workmen, (1967) 2 SCR 463,
B relied upon; Bhikusu Yamasa Kshatriya & Anr. v. Sangamner Ako/a Taluka
Bidi Kamgar Union & Ors., AIR (1963) SC 806, referred to.

Municipal Council, Hatta v. Bhagat Singh & Ors., (1998) 2 SCC 443,
distinguished.

C 2.1. Where the employer is paying a total sum, which is higher than
the minimum rates of wages prescribed, including the VDA, he is not
required to pay VDA separately. (36-G-H)

2.2. The State Government Notification dated 19.8.87 does not fix
minimum wages in two parts, i.e. basic wages and dearness allowance. It is /
D clear from the Notification that the total of both basic wages and dearness /
allowance constitutes the minimum wage that is required to be paid under
the notification. Thereafter, to take care of future increase in cost of living,
the notification provides for variable dearness allowance (VDA), which is
linked with the .cost of living index. It is also clear from the scheme and ('

E object of the Act, and the relevant provisions, that minimum wage is one unit
of fixed amount that is to be paid to the employees covered by the Schedule
to the Act. (32-C-H; 36-D-E; 38-C)

2.3. For determining whether an industry or establishment is paying
higher wages than the minimum wages prescribed, 'wages' are to be calculated
F as per the definition in Section 2(h) of the Act. The value of the items
specifically excluded under Section 2(h) of the Act is not to be taken into
consideration. (38-A)

U. Unichoji v. State of Kera/a, AIR (1962) SC 12, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4259of1999.
G
From the Judgment and Order dated 16.10.98 of the Karnataka High
Court in W.A. No. 2502 of 1998. .I

J.P. Cama, Tripurari Ray and Vishwajit Singh for the Appellant.

H N. Ganpathy, K. Kiran, S.R. Bhat, Subramanaya and Hetu Shanna for the
AIRFREIGHT LTD. v. STATE (SHAH, J.] 25
Respondents. A
The Judgment of the Court was delivered by

SHAH, J. Leave granted.

This appeal by special leave is filed against the judgment and order B
dated 16th October, 1998 passed by the Division Bench of the High Court of
Kamataka at Bangalore in Appeal Nu. 2502 of 1998 dismissing the appeals

- filed by the appellant-company and confirming the order passed by the
learned Single Judge in Writ Petition No. 23096 of 1997.

Writ Petition was filed in the High Court of Karnataka for a declaration C
that the Notification dated 19th August, 1987 issued by the State Government
in exercise of the power under Section 27 of the Minimum Wages Act
(hereinafter referred to as "the Act") fixing the minimum rates of wages
payable to the categories of employees as specified in the said Notification
for Item No. 28, namely, "shops and commercial establishments" under the D
Act, was not applicable to the appellant-industry and also for setting aside
the order-dated 3 I" July, I 997 passed by the Labour Officer (the Competent
Authority) under the Minimum Wages Act.

Respondent-employees contended that appellant was required to pay
variable dearness allowance on the basis of the Notification issued under E
Section 3 read with Section 5 of the Act. Applications under Section 20(2) of
the Act were filed as the employer failed to pay the said amount. The Labour
Officer directed that each employee was entitled to the difference of minimum
wages to the extent of Rs. 8,740 by way of variable dearness allowance in
tenns of the Notification. The competent authority also directed the employer
to pay compensation under Sec,tion 20(3) of the Act. However, that part of F
/ the order directing employer to pay compensation is set aside by the High
Court.

At the time of hearing of this appeal, Mr. Cama, learned counsel for the
appellant, submitted that:- G

(a) the appellant company does not come under the categories of
"shops and commercial establishments" as defined under the provisions of
the Karnataka Shops and Commercial Establishment Act, 1961, and, therefore,
the Notification under the Minimum Wages Act which applies to shops and
~ commercial establishments would not be applicable to the appellant-company. H
26 SUPREME COURT REPORTS [1999] SUPP. 1 S.C.R.

A (b) the learned counsel contended that the appellant-company is paying
total pay packet which is more than minimum wages prescribed under the
Notification anq, therefore, (i) the Notification is not applicable and (ii) in any
case, there is no violation of the said Notification. He clarified that appellant-
company is paying more than the minimum wages, but the Company is not
B bifurcating the basic wages and dearness allowance. He submitted that under
the Act it is not required to divide minimum wages into two parts, one as
basic wages and other as dearness allowance.

In our view the contention that the appellant-company is not covered
by the expression "shops and commercial establishments" has no merit. It is
C admitted by the appellant-company ,before the competent authority (Labour
Officer) that the appellant-company is engaged in import and export-clearance
and forwarding of cargo, travel and tourism, import, consolidate and courier
services and is having several offices situated at various places including
New Delhi, Bombay, Calcutta, Madras, Ahmedabad, Bangalore, etc. It is also
admitted that it is registered as a commercial establishment which is engaged
D in courier, cargo, travel and related services. In the petition filed before the·
High Court, it was submitted by the appellant that the main activity of cargo
division is handling incoming and outgoing shipment by ajr concerning clearing
and forwarding; the type of services rendered are processing of custom
clearance and export formalities; booking of space of air shipment; consolidation
E of inward air cargo international/domestic door to door express delivery of
documents, parcels and packages; clearing and forwarding of goods entrusted
to it for safe delivery by way of personal services and such other activities.
For this purpose, the High Court has appreciated the evidence that was
placed before the Labour Officer and we do not find any error that would
call for interference. The High Court has also rightly referred to the common
F parlance meaning of the expression "shops and commercial establishment" on
the ground that Item 28 is added in the Central Act where the said expression
is not defined. In our view, the activities which are carried out by the appellant,
leave no doubt that it would be covered by the expression "shops" and/O'r
"commercial establishment" as understood in the ordinary common parlance.
G What the appellant-establishment is doing is purely a commercial activity with
profit motive, hence, commercial establishment. It can also be termed as a
shop where services are sold on retail basis. For this purpose, it is not ·
necessary to refer to various decisions of this Court in detail which deal with ·-
the meaning of the expression "shops and/or commercial establishment". In
Hindu Jea Bandv. Regional Director, ESIC [1987] 2 SCC 101 a shop was held
H to be "a place where services are sold on retail basis" and, therefore, making
AIRFREIGHT LTD. v. STATE [SHAH, J.] 27
available on payment of a stipulated price the services of musicians employed A
by the petitioner on wages made the petitioner's establishment a 'shop'. ln
International Ore and Fertilizers (India) Pvt.. Ltd. v. Employees State
Insurance-Corporation, [ 1987] 3 SCC 203 the petitioner carried on activities

- facilitating the sale of goods by its foreign principals to the State Trading
Corporation or the Minerals and Metals Corporation; it arranged for the
unloading of such goods and, their survey; upon delivery it collected the
price payable and remitted to its foreign principals. These were considered to
B

be trading activities, although the goods imported were not actually brought
to the petitioner's premises but were delivered to the purchaser there and the
premises was held to be a shop. In the case of Cochin Shipping Co. v. E.S.I.
Corporation, [1992] 4 SOC 245 wherein the company was engaged in the C
business of clearing and forwarding at the Port of Cochin situated in Willingdon
Island the question was whether the establishment with the company is a

- 'shop' within the meaning of the expression as used in the Notification under
the E.S.I. Act? The Court held that company was rendering service to cater
to the needs of exporters and importers and others who want to carry the
goods further. Therefore, it is a shop carrying on systematic, economic or D
commercial activity. Further, in the case of Employees' State Insurance
Corporation v. R.K. Swamy and Others, [ 1994] 1 SCC 445 the Court held that
"the word 'shop' has acquired expanded meaning and means a place where
services are sold on retail basis". The Court further observed that the
Employees State Insurance Act, 1948 was a beneficial legislation and, therefore, E
it was reasonably possible so to construe the word 'shop' as to include the
activity of an advertising agency within it.

Further even taking into consideration the meaning given to the
expression "commercial establishment" and the word "shop" under Section
2(e) and 2(u) respectively of the Mysore Shops and Commercial Establishments F
Act, 1961, it is apparent that the appellant-company is a 'commercial
establishment' and also a 'shop'. Section 2(e) and 2(u) read as under:-

"2(e) - "Commercial Establishment" means a commercial or trading
or banking or insurance establishment, an establishment or G
administrative service in which persons employed or mainly engaged
in office work, a hotel, restaurant, boarding or eating house, a cafe or
any other refreshment house, a theatre or an~ other place of public
amusement or entertainment and includes such establishments as the
State Government by Notification declare to be a commercial
establishment for the purposes of this Act" H
28 SUPREME COURT REPORTS [1999) SUPJ>. l S.C.R.

A "2(u) - "Shop" means any pn:mises where any trade or business
is carried on or where services are rendered to customers, and includes
officers, storerooms, godowns, or warehouses, whether in the same
premises or otherwise, used in connection with such trade or business,
but does not include a commercial establishment or a shop attached
to a factory where the persons employed in the shop fall within the
B scope of the Factories Act, 1948".

The activities stated above carried on by the appellant-company would
be covered by the definition of the word "shop" which inter alia means any
· premises where trade or business is carried on or where the services are
C rendered to customers. It would also be commercial establishment and/or
trading establishment. Hence, the contention of the appellant that it would
not be covered by the said definition has no substance.

Learned counsel for the appellant submitted that appellant-company is
paying more than minimum wages and, therefore, the Notification issued by
D the State Government would not be applicable to the appellant. He submitted
that in any case before issuing the said Notification, the State Government
was required to verify and ascertain whether the appellant-company was
paying more or less than minimum wages to its employees and if so, to
exclude or include it from the operation of the Notification. He relied upon{~
following observation of this Court in the case of Mis. Bhikusa Yamasa
E K~hatriya and another v. Sangamner Ako/a Ta!uka Bidi Kamgar Union and
others, AIR (I 963) SC 806, in support of his contention:-

"The object and policy of the Legislature appear on the face of the
Act. The object of the Act is to prevent exploitation of the workers,
and for that purpose it aims at fixation of minimum wages which the
F employers must pay. The Legislature undoubtedly intended to apply
the Act to those industries or localities in which by reason of causes
such as unorganised labour or absence of machinery for regulation of
wages, the wages paid to workers were, in the light of the general
level of wages, and subsistence level, inadequate. Conditions of labour
G vary in different industries and from locality to locality, and the
expediency of fixing minimum wages, and the rates thereof depends
largely upon diverse factors which in their very nature are variable ,_
and can properly be ascertained by the Government which is incharge '
of the administration of the State".

H These observations are made while dealing with the contention that the
AIRFREIGHT LTD. v. STATE [SHAH, J.] 29
Legislature abducted itself of its authority by empowering the State Government A
to add to either part of the Schedule any employment in respect of which it
is of the opinion that minimum rates of wages should be fixed under the Act
and in that context, it is held that the Legislature has not stripped itself of
its essential legislative power but has entrusted what is an incidental function
of making a distinction having regard to the special circumstances in different B
localities in the matter of fixation of rates of minimum wages. In our view,
reliance placed upon the aforesaid observation has no bearing to the
contention raised by the learned counsel of the appellant. This would not
mean that if some employer of the shop or establishment is paying more than
minimum wages, it should be specifically excluded from its operation of the
Act. At any point of time, if it pays less than minimum wages, the said C
employer would be liable to be dealt with in accordance with law and would
be compelled to pay the same. The process of making the Act applicable to
certain industries or establishments situated in particular localities does not
require that the State Government should make distinction with each and
every shop and establishment by actual verification whether they were paying
minimum wages or not. The Notification is made applicable to all shops and D
commercial establishments in the State of Karnataka where the State has
found that the labour was unorganised or that wages paid to the workers were
below minimum wages. At this stage we would refer to the decision in Kamani
Metals & Alloys ltd. v. Their Workmen, [1967] 2 SCR463 wherein the Court
ob!'erved as under:- E
"Broadly speaking the first principle is that there is a minimum wage
which, in any event, must be paid, irrespective of the extent of profits,
the financial condition of the establishment or the availability of
workmen on lower wages. This minimum wage is independent of the
kind of industry and applies to all alike big or small. It sets the lowest F
limit below which wages cannot be allowed to sink in all humanity".

Hence, the submission of the learned counsel that as the appellant
company is paying more than minimum wages (as alleged), the Notification
under the Act would not be applicable to it, has no substance.
G
Mr. Cama, learned counsel for the appellant relied upon the decision in
the case of Municipal Council, Hatta v. Bhagat Singh and Ors., [1998] 2 SCC
443 for contending that where employees are getting better wages under the f.-

contract, the provisions of the Minimum Wages Act would not be applicable.
In our view, the aforesaid decision is based upon the interpretation of Section H
30 SUPREME COURT REPORTS [!999) SUPP. I S.C.R.

A 14 of the Act wherein the Court has observed that overtime under Section
14 is payable to those employees who are getting minimum rate of wage as
prescribed under the Minimum Wages Act and does not apply to those

B
getting better wages under other statutory rules. Payment of wages at the
minimum rates is the lowest limit and to pay the same is a statutory obligation.
But, it does not prevent employer in paying 'fair' or 'living' wages. It would
-
also depend upon other statutory or contractual obligations. In view of the
aforesaid discussion, in our view, the contention of the learned counsel for
the appellant that the Notification dated l 9'h August, 1987 would not be
applicable to the appellant-company is without any substance.

C The next contention of the learned counsel for the appellant is that
appellant is paying wages more than prescribed minimum wages and that
wages paid by the appellant include basic wages plus dearness allowance,
therefore, the direction issued by the Labour Officer to pay additional V.D.A.
to respondents (employees) is illegal. It is also pointed out that in addition
to wages, appellant is paying various allowances such as house rent allowance,
D education allowance, leave travel allowance, reimbursement of medical
expenses, conveyance allowance, tiffin allowance, city compensatory allowance --··
and attire allowance. Therefore, the direction issued by the Labour Officer to
pay 'Variable Dearness Allowance' on the basis of the Notification issued by
the State Government on 19th August, 1987 is illegal and apparently erroneous
E because he has not taken into consideration that the wages paid by the
appellant include V.D.A. and are more than total of wages prescribed as
minimum wages. As against this, it is the contention of the learned counsel
for the respondent that workmen are entitled for payment of minimum wages
and Variable Dearness Allowance (VOA) in accordance with the Notification
dated l 91h August, 1987 issued under Section 3 read with Section 5 of the Act.
F Under the said Notification, minimum rates of wages consist of two components
- one basic and the other, VDA. It is the mandatory requirement of the Act
that the appellant must pay wages separately under both these different
categories. Therefore, the appellant should pay contractual wages as paid by
them and in addition to that V.D.A. is required to be paid separately as per
G the Notification.

For considering this contention, we would first refer to the Notifications
issued by the State Government. By Notification dated 27-28 January, 1971,
the Karnataka State Government in exercise of powers conferred by Section
27 of the Minimum Wages Act directed that in Part I of the Schedule to the •- ;
H said Act, after item No. 27, following item shall be added, namely:-
AIRFREIGHT LTD. v. STATE [SHAH, J.] 31
"28. Employment In shops and commercial establishments". A

Thereafter, in exercise of the powers conferred by sub-section (I) of
Section 3 and sub-section (I) of Section 5 of the Act, the State Government
has fixed the rates of minimum wages payable to the categories of employees
who are employed in any kind of work throughout the State of Kamataka
in any of the shops and commercial establishments as specified iri the B
Schedule. The Notification also provides for payment of V.D.A. at the rate
..- specified therein. The Schedule is divided as under:-

SCHEDULE
c
SI. No. Classification Minimum Rates of Wages per month

- of work Zones

2 3
Zones

4
Zones

5
Zones

6
D
Thereafter, various groups are mentioned. For illustration, Group No. 3 Item
No. 12 reads as under:

2 3 4 5 6

Skilled worker for E
establishing Opto. 495-45 482-50 469-70 450-25

It further provides as under:-

"The rates shown in this Notification are inclusive of the rates of F
dearness allowance as per the State's Average Consumer Price Index 1960+ I 00
which is payable over and above 700 points. For every increase of points over
and above 700 in the cost of Price Index number on the basis of State A vera~e
the following dearness allowance is payable:-

Classification of Employees Rates of Cost of Living Allowance
G

I.

,.. 2
3. Employees getting more H
32 SUPREME COURT REPORTS [1999] SUPP. I S,.C.R.
0

A than Rs. 15 per day and per day &
above Rs. 450 per month. per point 3 ps.

The Dearness Allowance shall be calculated every year on the Ist of
Apdl on the basis of the average of the indices preceding 12 months i.e.
January to December. In addition the Dearness Allowance will be calculated
B on a sliding basis going higher or lower depending on the Cost of Living."

Other relevant clause (3) provides as under:-

"Wherever the prevailing rates of wages are higher, the higher rates
C of wages shall be continued to be paid".

The aforesaid Notification specifically states that it has fixed the
minimum wages of various classes of employees working in shops and
commercial establishments in the State of Karnataka. The rates of minimum
wages mentioned in the Notification were inclusive of the rates of dearness· ·
D allowance as per the State Average Consumer Price Index 1960 added 100
which was payable over and above 700 points. So the Notification makes it
clear that it has taken into consideration cost of living allowance which is
mentioned as the dearness allowance till the date of the Notification and for
the future increase, it is linked with the rate of cost of living allowance.
E However, what is fixed by the State Government by the said Notification is
the minimum 'wages' which includes dearness allowance. Hence from the
aforesaid Notification itself, it can be stated that the contention of the learned
counsel for the respondent employees is without any substance because the
Notification fixes minimum wages which includes dearness allowance.
Thereafter for taking care of future increase in cost of living, dearness allowance
F is to be paid as prescribed in the said Notification. However, if tl}ere is no
increase in cost of living, then there is no question of paying dearness
allowance and minimum wages would be paid as stated therein. For the
purpose of illustration, we have mentioned group no. 3 skilled worker where
prescribed minimum wage is Rs. 495.45 for zone no. 3. The said rate of
G minimum wage includes dearness allowance till the date of the Notification
and is not bifurcated. To contend that by the said Notification, minimum wage
is fixed into two parts, namely, basic wages and other dearness allowance, is
without any basis as the total of both items constitutes the minimum wage
which is required to be paid under the Notification. Further, as quoted above,
the Notification specifically saves the rights of the employees who are getting
....
-H more than minimum wages from their employer by providing a clause that
AIRFREIGHT LTD. v. STATE [SHAH, J.) 33
• 'wherever the prevailing rates of wages are higher, the higher rates of wages
shall be continued to be paid;~t does not provide that in such cases in
A

,addition to 'higher wages' payable by the employer, VOA should also be
paid. It is, therefore, rightly submitted by the learned counsel for the appellant
that appellant falls in this category and as the company is paying higher rates
of wages prescribed by the said Notification, there is no.question of payment B
wages plus V.D.A.

This would be further clear from the scheme and object of the Act and
the relevant provisions. In the case of U Unichoyi v. State of Kera/a, AIR
( 1962) SC 12 (17) after referring to earlier decisions, this Court stated the
purpose of the Act thus:- C
"The Act purports to achieve is to prevent exploitation of labour
and for that purpose authorises the appropriate Government to take
steps to pre~cribe minimum rates of wages in the scheduled industries.
In an under-developed country which faces the problem of
unemployment on a very large scale it is not unlikely that labour may D
offer to work even on starvation wages. The policy of the Act is to
prevent the employment of such sweated labour in the interest of
general public and so in prescribing the minimum wage rates the
capacity of the employer need not be considered. What is being
prescribed is minimum wage rates whic~ a welfare state assumes every
employer must pay before he employt:es labour". E
The Court further considered what are the components of minimum
wages in context of the Act and after considering the evidence led before the
Committee on Fair Wages observed as under:-

"The Committee came to the conclusion that a minimum wage F
must provide not merely for the bare subsistence of life but for the
preservation of the efficiency of the worker, and so it must also
provide for some measure of education, medical requirements and
amenities. The cvncept about the components of the minimum wage
thus enunciated by the Committee has been generally accepted by G
industrial adjudication in this country. Sometimes the minimum wage
is described as a bare minimum wage in order to distinguish it from
the wage structure which is 'subsistence plus' or fair wage, but too
much emphasis on the adjective "bare" in relation to the minimum
.r wage is apt to lead to the erroneous assumption that the maintenance
wage is a wage which enables the worker to cover his bare physical H
·-,.....
34 SUPREME COURT REPORTS [1999) SUPP. I S.C.R.

A needs and keep himself just above starvation. That clearly is not
intended by the concept of minimum wage. On the other hand since
the capacity of the employer to pay is treated as irrelevant it is but
right that no addition should be made to the components of the
minimum wage which would take the minimum wage near the lower
level of the fair wage, but the contents of this concept must ensure
B for the employee not only his sustenance and that of his family but
must also preserve his efficiency as a worker. The Act contemplates
that minimum wage rates should be fixed in the scheduled industries
with the dual object of providing sustenance and maintenance of the
worker and his family and preserving his efficiency as a worker".
c Further the definition of word 'wages' and the manner prescribed under
Sections 3 and 4 of the Act fixmg the wages would make it clear that 'minimum
wage' is one unit of fixed amount and for fixing the same, the authority is "\
required to take into consideration various components of costs so that the
worker gets minimum remuneration which can provide for sustenance and
D maintenance of the worker and his family and preserve his efficiency.

Section 2 (h) defines 'wages' as under:-

"Wages" means all remuneration, capable of being expressed in terms
of money, which would, if the terms of the contract of employment,
E express or implied, were fulfilled, be payable to a person employed in
respect of his employment or of work done in such employment (and
includes house rent allowance), but does not include-

(i) the .value of-

F (a) any house, accommodation, supply of light, water, medical
attendance, or
(b) any other amenity or any service excluded by general or special
order of the appropriate government;
(ii) any contribution paid by the employer to any pension fund or
G provident fund or under any scheme of social insurance;
(iii) any travelling allowance or the value of any travelling concession;
(iv) any sum pai~ to the person employed to defray special expenses
entailed on him by the nature of his employment; or

H (v) any gratuity payable on discharge;"
AIRFREIGHT LTD. v. STATE [SHAH, J.) 35
Section 3, inter-alia, provides that appropriate Government shall :in the A
manner provided, fix the minimum rates of wages payable to the employees
employed in any employment specified in Part I or in Part II of the Schedule
and in an employment added to other party by the Notification under Section
27 and said minimum wages are required to be reviewed at such intervals as
the appropriate Government may think fit, but it is required to be reviewed
and revised within 5 years. Section 4 which provides that minimum wage may B
consist of basic rate of wages and special allowance reads as under:-

"4. Minimum rate of wages
(l) Any minimum rate of wages fixed or revised by the appropriate
government in respect of schedule employments under Section C
3 may consist of-

(i) a basic rate of wages and a special allowance at a rate to
be adjusted, at such intervals and in such manner as the
appropriate government may direct, to accord as nearly as
..... practicable with the variation in the cost of living index
number applicable to such workers (hereinafter referred to
D

as the "cost of living allowance"); or

(ii) a basic rate of wages with or without the cost of living
allowance, and the cash value of the concessions in respect
of suppliers of essential commodities at concession rates, E
where so authorised; or

(iii) an all-inclusive rate allowing for the basic rate, the cost of
living allowance and the cash value of the concessions, if
any.
F
(2) The cost of living allowance and the· cash value of the
concessions in respect of supplies of essential commodities at
concession rate shall be computed by the competent authority
at such intervals and in accordance with such directions as may
be specified or given by the appropriate government."
G
As stated above minimum wage must provide not merely for the bare
subsistence of life but for the preservation of the efficiency of the worker and
so it must also provide for some measure of education, medical requirements
and amenities of himself and his family. While fixing the minimum wages, the
capacity of the employer to pay is treated as irrelevant and the Act contemplates
that rates of minimum wage should be fixed in schedule industries with a dual H
36 SUPREME: COURT REPORTS [1999) SUPP. I S.C.R.

A object of providing sustenance and maintenance of the worker and his family
and preserving his efficiency as a worker. So it is required to take into
consideration cost of bare subsistence of life and preservation of efficiency
of the workers and for some measure of education, medical requirements and
amenities. This cost is likely to vary depending upon the cost prevailing in
B the market of various items. If there are inflationary conditions prevailing in
the country, then minimum wages fixed at a particular point of time would not
serve the purpose. Therefore, Section 4 contemplates that minimum wages
fixed at a particular point of time should be revised from time to time. Section ....
4 posLulates that minimum wages fixed or revised by the appropriate Government
under Section 3 may consist of basic rates of wages and special allowance
C at a rate to be adjusted at such intervals in such manner as the appropriate
Government may direct to accord as nearly as practicable with a variation in
the cost of living index number applicable to such workers; alternatively, it
permits the fixation of basic rate of wages with or without cost of living
allowance and the cash value of the concessions in respect of supplies of
essential commodities at concessional rates where so authorised; or in the '
D alternative, it permits an all inclusive rate allowing for the basic rate, the cost
of living allowance and the cash value of concessions, if any. The purpose
of Section 4 is to see that minimum wage can be linked with increase in cost
of living so that increase in cost of living can be neutralised or all indusive
-
rates of minimum wages can be fixed. But, from the aforesaid Sections 3 &
E 4, it is apparent that what is fixed is total remuneration which should be paid
to the employees covered by the Schedule and not for payment of costs of
different components which are taken into consideration for fixation of minimum
rates of wages. It is thus clear that the concept of minimum wages does take
in the factor of prevailing cost of essential commodities whenever such
minimum wage is to be fixed. The idea of fixing such wage in the light of cost
F of living at a particular juncture of time and of neutralising the rising prices
of essential commodities by linking up scales of minimum wages with the cost
of living index is provided for in Section 4 but V.D.A. is part and parcel of
wages. Once rates of minimum wages are prescribed under the Act, whether
as all inclusive under Section 4(1 )(iii) or by combining basic plus dearness
G allowance under Section 4(1 )(i) are not amenable to split up. It is one pay
package. Neither the scheme nor any provision of the Act provides that the
rates of minimum wages are to be split up on the basis of the cost of each
necessities taken into consideration for fixing the same. Hence, in cases where
employer is paying total sum which is higher than _minimum rates of wages -.
fixed under the Act including the cost of living index (VDA), he is not
H required to pay VDA separately. However, that higher wages should be
AIRFREIGHT LTD. v. STATE [SHAH, J.] 37
calculated as defined in Section 2(h) of the Act. Section 2(h) specifically A
provides that value of the following items are not required to be computed
for finding out whether employer pays minimum wages as prescribed under
the Act:-

- (i) the value of any house, accommodation, supply of light, water,
medical care, or any other amenity or any service excluded by
general or special order of the appropriate Government.
B

(ii) any pension fund or provident fund or under any scheme of
social insurance

(iii) any travelling allowance or the value of any travelling concession C
(iv) any sum paid to any person employed to defray special expenses
curtailed on him by the nature of his employment or

(v} any gratuities payable on discharge.
D
But while deciding the question of payment of minimum wages, the
competent authority is not required to bifurcate each component of the costs
of each item taken into consideration for fixing minimum wages, as lump sum
amount is determined for providing adequate remuneration to the workman so
that he can sustain and maintain himself and his family and also preserve his
efficiency as a worker. Dearness Allowance is part and parcel 'of cost of E
necessities. I In cases where the minimum rates of wages is linktil up with
V.D.A., it J..ould not mean that it is a separate component wh~ch ls required
. !. .
.to be paid separately where the employer pays a total pay packag~ which is
more than the prescribed minimum rate of wages. *
.,
j
F
In the result, it is held that:-

(I} The appellant-company would be covered by the e~pression
"shops" and/or "commercial establishment" as it is carrying out
various systematic commercial activities with profit motive and
also it sells services on retail basis. G
(2) The Notification issued under the Act prescribing minimum
,(. wages applies to all kinds of shops and commercial
establishments - big or small - and that payment of more than
prescribed minimum rates of wages is not relevant for deciding
its applicability. It cannot be stated that as they are paying more H
38 SUPREME COURT REPORTS [1999) SUPP. I S.C.R:

A than the prescribed minimum wages, the Act or the Notification
would not be applicable. For detennining whether they are paying
minimum rates of wages or not, the amount paid for the value
of items which are excluded under Section 2(h) of the Act is not
to be taken into consideration.

B (3) Minimum rate pf wages fixed under the Act is remuneration
payable to the worker as one package of fixed amount. In cases
where minimum wage is linked with the cost of living index, the
amount paid on the basis of dearness allowance is not to be
taken as an independent component of the minimum wages but
as part and parcel of the process of computing the rates of
c minimum wages which is to be detennined after taking into
consideration the cost of various necessities.

In this view of the matter, the order passed by the High Court holding
that the State Government has fixed two separate categories of minimum rates
D of wages to be paid to the employees - one basic and other 'other allowance',
that is, DA, is erroneous and is set aside. The matter is remanded to the
Labour Officer (the competent authority under the Minimum Wages Act) for
fresh decision in accordance with law. The appeal is allowed to the aforesaid
extent with no order as to costs.

S.K. Appeal allowed.