Holding

Arrears of wages resulting from a retrospective award are ‘basic wages for the time being payable’ and therefore attract Provident Fund contributions.

Summary

The Supreme Court examined whether arrears of wages payable to workmen as a result of an award under the Industrial Disputes Act, which revised pay‑scales retrospectively to 1 April 1980, fall within the definition of “basic wages” under Section 2(b) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The Board had deducted PF contributions from the first instalment of arrears but challenged the PF authority’s direction for subsequent instalments, arguing that the arrears were not “basic wages”. The High Court Division Bench had held otherwise, but the Supreme Court reversed that decision. It held that when an award revises wages with retrospective effect, the revised emoluments become the basic wages “for the time being payable”, and arrears represent wages earned while on duty. Consequently, PF contributions must be calculated on those arrears. The Court allowed the appeals, set aside the Division Bench judgment, dismissed the Board’s writ petition and awarded costs to the workmen.

Issues considered

Whether arrears of wages arising from a retrospective award under the Industrial Disputes Act constitute ‘basic wages’ under Section 2(b) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
Interpretation of ‘basic wages for the time being payable’ under Section 6 of the same Act in the context of wage revisions

Legislation cited

Subjects

Provident Fundbasic wagesarrears of wagesIndustrial Disputes Actcollective bargainingwage revisioncontract of employmentretrospective award

Judgment

PRANTIYA VIDHUT MANDAL MAZDOOR A
~ FEDERATION ETC. ETC.
~ v.
RAJASTHAN STATE ELECTRICITY BOARD
AND ORS. ETC. ETC.
B
APRIL 23, 1992

~~
[KULDIP SINGH AND YOGESHWAR DAYAL, JJ.)

Employees' Provident Funds and Miscellaneous Provisions Act, 1952
c
Sections 2(b) and 6-"Basic wages for the time being payable''-lnter-
I pretation of-Award under Industrial Disputes Act-Gives revised pay scales
to employees with retrospective effect-A"ears of wages paid to employees-
A.. Provident fund-Contribution-Employers liability to pay-Deduction from
wage a"ears of employees-Whether arises. D
A .dispute regarding wages and other conditions of service arose
between the State Electricity Board-Respondent. No.1, and its workmen.
The parties arrived at a settlement as a result of which the dispute was
referred to the arbitrators under the Industrial Disputes Act.
E
The arbitrators entered upon the reference and gave an award dated
May 20, 1980, according to which various categories of workmen were to
y-
be paid higher wages with effect from April 1, 1980. The arrears of pay and
other benefits accrued to the workmen were to be paid in four equal
instalments. The first instalment was payable on December 1, 1985 and the F
... remaining three at an interval of six months each .

The Provident Fund authorities issued directions that the provident
fund contributions be deducted from .the arrears paid to the workmen.
Accordingly, when the first instalment was disbursed, the Board deducted
the employees contribµtion and also mad~ its own contribution as required G
under the Provident Fund Act. However, at the time of the second instal-
ment, the Board filed a Writ Petition under Article 226 challenging the
directions of the Provident Fund authorities, contending that arrears
payable to the employees as a result of the award of the arbitrators were
.. ,,l. not the "basic wages" under section 2(b) of the Provident Fund Act. H
757
758 SUPREME COURT REPORTS [1992) 2 S.C.R.

A A Single Judge of the High Court dismissed the Writ Petition, but ;)..._
on appeal a Division Bench set aside the judgment and allowed the Writ
petition, holding that the contribution is to be paid on wages 'for the time
being payable to the employees' and not on wages, the payment of which,
even at a future date, is undecided and does not arise out of the contract
of employment, and that wages payable under an award of the arbitrators
B cannot be termed as deferred wages so as to mean that they had accrued ~
at a particular time but were payable at a later date according to the terms
of the contract.

c
Two appeals were filed against the judgment of the Division Bench
to this Court, one by the Regional Provident Fund Commissioner and the
other by the. workmen of the Board.
--
~

_x
Allowing the appeals, and setting aside the judgment of the Division
Bench, this Court,

D HELD : 1.(i) The expression "basic wages for the time being payable
to each of the employees" under section 6 of the Industrial Disputes Act
means the basic wages at the relevant time. When the existing pay-scales
are revised with effect from the back-date, then the revised-wages posterior
to that date are the "basic wages for the time being payable". The High
E Court fell into error in giving a strained interpretation to the provisions
of the Provident Fund and Miscellaneous Provisions Act. [764 C] ~

1.(ii) When the original emoluments earned by an employee were
"basic wages" under the Provident Fund Act, the substituted emoluments
as a result of the award are to be regarded as "basic wages". [763 E]
F
2. When an award gives revised pay-scales, the employees become
entitled to the revised emoluments and where the said revision is with the
retrospective effect, the arrears paid to employees, as a consequence, are
the emoluments earned by them while on duty. [763 CJ
G 3. The reference to the arbitration, the acceptance of the award' by
the parties and the resultant wage increase with retrospective effect are
the direct consequences of the settlement between the workmen and the
Board. Revision of wage structure as a result of an award under the
Industrial Disputes Act, has to be taken as a part of the contract of
~ -
H employment in the context of the Provivdent Fund and Miscellaneous
MAZDOOR FEDERATION v. STATE ELECIY. BOARD [KULDIP SINGH, J.j 759

• ~
Provisions Act. [763 E]

Harihar Polyfibres v. The Regional Director ES/ Corporation, [1985) 1
A

SCR, referred to.

4. The workmen have inherent right to collective bargaining under
the Industrial Disputes Act. The demands raised by the workmen through B
~ their unions are decided by conciliation, settlement or adjudication under
the Act. These are time-consuming proceedings. When ultimately the dis-
pute is settled/decided in workers' favour, the accrued benefit may be made
available to them from a back date. [764 A]
....... In the instant case, the award given in the year 1985 has been made c
I operative from April 1, 1980. It would be in conformity with the objects of
the Provident Fund and Miscellaneous Provisions Act, which is a social
x._
welfare legislation, to hold that the revised pay-scales have become part of
the contract of employment with effect from April 1, 1980. [764 BJ
D
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1790 of
1992~

From the Judgment and Order dated 30.6.1987 of the Rajasthan
High Court in D.B. Special Appeal (Writ) No. 305 of 1986.
,..
E
A.K. Goel for the Appellant.
..,,~

!
Vijay Bahuguna, V.C. Mahajan, S.K. Jain, M_s. Sushma Suri and Ms.
C.K. Sucharita for the Respondents.

The Judgment of the Court was delivered by
F
KULDIP SINGH, J. Special leave granted.

--1. The question for our consideration in these appeals is whether
arrears. of wages, as a result of wage-increase-award under the Industrial
Disputes Act, 1947 (The Act), would come within the definition of "basic
G
wages" under Section 2(b) of the Provident Fund and Miscellaneous
Provisions Act, 1952 (The Fund Act).

- ).__
A dispute regarding wages and other conditions of service arose
between the Rajasthan State Electricity Board (The Board) and its
workmen. The· parties arrived at a settlement as a result of which· the H
760 SUPREME COURT REPORTS [1992] 2 S.C.R.

A dispute was referred to the arbitrators under the Act. The arbitrators A
entered upon the reference and gave an award dated May 20, 1985. The
relevant part of the award is re-produced as under:-

"The matters in dispute (terms of reference) are as under:-

B (1) Wages increase :

(a) What should be the Minimum wages for regular unskilled
workmen of Rajasthan State Electricity Board in pay Scales
No.1 with effect from April 1, 1980 ?

c (b) What should be the wage structure of different categories
of workmen of Rajasthan State Electricity Board covered under
pay scale Nos.1 to 6 with effect from April 1, 1980 ?

Decisions on matters in dispute (tenns of reference)
D After hearing the arguments on behalf of the parties and
considering the documents supplied by them, and taking into
account other relevam matters, our decisions on the matters in
dispute are given below:-

E The minimum wages for regular unskilled wd!>kmen of RSEB
in pay scale N9.l with effect from 1st April, 1980 shall be Rs.400
(Four hundred only) with NIL Dearness Allowance or any
other addition to wages in the nature of Dearness Allowance,
henceforth referred to as D .A.

F Revised pay scales: on the basis of minimum basic pay of Rs.400
with NIL DA, Revised pay scales Nos.1 to 6 shall be as per
Annexure-1 to this Award with NIL DA with effect from 1st
April, 1980."

According to the award various categories of workmen were to be paid
G higher wages with effect from April 1, 1980. The arrears of pay and other
benefits accrued to the workmen were to be paid in four equal instalments.
The first instalment was payable on December 1, 1985 and the remaining
thre_si,it an interval of six months each. The Provident Fund authorities issued l
directions-that provident fund contributions be deducted from the arrears
H paid to the workmen. Accordingly when the first instalment was disbursed
MAZDOOR FEDERATION v. STAIB ELECrY. BOARD [KULDIP SINGH, J.] 761

the Board deducted the employees contribution and also made its own A
..."
'" contribution as required under the Fund Act. However, at the time of the
second instalment, the Board filed a writ petition under Article 226 of the
Constitution of India before the Rajasthan High Court «_hallenging the direc-
tions of the Provident Fund authorities on the ground that arrears payable to
the employees as a result of the award of the arbitrators were not the "basic
wages" under Section 2(b) of the Fund· Act. A learned Single Judge of the
B
~ High Court dismissed the writ petition. On appeal, a Division Bench of the
-High Court set aside the judgment of the learned Single Judge and allowed
the writ petition on the following reasoning:-
...,... "If a contract of employment provides for payment of wages at c
-1 a future date then it may fall within the definition of wages as
the same becomes payable "under the contract of employment,
A_
wages payable under some statute or payable under orders of
a Court cannot be said to be wages payable under a contract
of employment. The Scheme framed under Section 6 of the P.F. D
Act provides for calculation of the contribution on basis of the
emoluments actually drawn during a whole month. The
employer has to submit a consolidated statement of the
employees who are members of the Fund alongwith their basic
wages and this return is to be submitted within a prescribed
time. If subsequently there is a change in the basic wages then E
y- there is no provision in the scheme for preparing an amended
I
statement. The contribution recovered from the employees has
to be entered every month by the employer in the contribution
card. A monthly .entry once made will have to remain there
unchanged. Unless there is a specific provision in the scheme F
for payment of contribution to the Fund, the same cannot be
said to be payable by implication. Contribution is to be paid
J_ on wages 'for the time being payable to the employees' and not
on wages, the payment of which, even at a future date, is
undecided and does not arise out of the contract of employ-
ment. Wages payable under an award of the arbitrators cannot G
be termed as deferred wages so as to mean that they had
accrued at a particular time but were payable__at a later· date
according to the terms of the contract. It has also not been
---->
i shown that the reference of disputes to the arbitrators was
under the terms of the employment so as to include wages H
762 SUPREME COURT REPORTS [1992) 2 S.C.R.

A payable under the award into the definition of wages under
S.2(b) of the P.F. Act, Wages payable under the award are
neither in the nature of increments payable to an employee nor
wages which have remained unpaid due to some reason."

These two appeals by the Regional Provident Fund Commissioner,
B Jaipur Rajashthan and by the Workmen of the Board are against the
judgment of the Division Bench of the High Court.

Sections 2(b) and 6 of the Act which are relevant are reproduced
hereunder--
c 2(b) "BASIC WAGES" means all emoluments which are earned
by an employee while on duty or on leave with wages in
accordance with the terms Of the contract of employment and
which are paid or payable in cash to him, but does not include-

D (i) cash value of any food concession;

(ii) any dearness allowance (that is to say, all cash payments by
whatever name called paid to an employee on account of a rise
in the cost of living), house rent allowance, over-time allowance,
bonus, commission or any other similar allowance payable to
E the employee in respect of his employment or of work done in
such employments.

(iii) any presents made by the employer".

F (6) "Contributions and matters which may be provided for in
Scheme:- The contribution which shall be paid by the employet"''
to the Fund shall be six and a quarter per cent of the basic
wages [dearness allowance and retaining allowance (if any)) for
the time being payable to each of the employees (whether
employed by him directly or by or through a contractor) and
G the employees' contributions shall be equal to the contribution
payable by the employer in respect of him and may, if any
employee so desires and if the Scheme makes provision there-
fore, be an amount not exceeding eight and one-third per cent
of his basic wages (dearness allowance and retaining allowance
H (if any) ......."
MAZDOOR FEDERATION v. STAIB ELECIY. BOARD [KULDIP SINGH, J.) 763

Reading the above quoted two sections together the expression "basic A
wages" means:-

(i) All emoluments which are earned by an employee while on
duty or on leave;

(ii) With wages in accordance with the terms of the· contract B
of employment;

(iii) which are paid or payable in cash; and

(iv) are payable for the time being to each of the employees.
c
./ When an award gives revised pay-scales the employees become
entitled to the revised emoluments and where the said revision is with
~ r-etrospective effect, the arrears paid to the employees, as a consequence,
are the emoluments earned by them while on duty.
D
We do not agree with the Division Bench of the High Court that the
wages which are substituted from back-date as a result of an award under
the Act are not the basic wages as defined under the Fund Act. If the
original emoluments earned by an employee were "basic wages" under the
Fund Act, there is no justification to hold that the substituted emoluments
as a result of the award are not the "basic wages". The reference to the E
· arbitration, the acceptace of the award by the parties and the resultant
wage-increase with retrospective effect, are the direct consequences of the
settlement between the workmen and the Board. We are of the view that
revision of wage-structure, as a result of an award under the Act, has to
be taken as a part of the contract of employment in the context of the Ftind F
Act. This Court in Harihar Polyfibres v. The Regional Director ES/ Corpora-
tion, (1985) 1 SCR 712 while dealing with the definition of wages under
Employees' State Insurace Act 1948 held as under:-

"Now, under the definition first, whatever. remuneration is paid
or payable to an employee under the terms of the contract of G
the employment, express or implied is wages; thus if remunera-
tion is paid in terms of the original contract of employment or
in terms of settlement arrived at between the employer and the
employees which by necessary implication becomes part of the
contract of employment it is wages." ' a
764 SUP£Etvf:E COURT REPORTS [1992) 2 S.C.R.

A The worF.en have inherent right to collective-bargaining under the
Act. The dem)mds raised by the workmen through their unions are decided
by conciliation, settlement or adjudication under the Act. These are time-
consuming proceedings. When ultimately the dispute is settled/decided in
workers favour the accrued-benefit may be made available to them from
B back-date. This is what has happened in the present case. The award given
in the year 1985 has been made operative from April 1, 1980. Under the
circumstances it would be in conformity with the objects .of the Fund Act,
which is a social welfare legislation, to hold that the revised pay-scales have
become part of the contract of employment with effect from April 1, 1980.

C The expression "basic wages for the time being payable to each of
the employ~es" under Section 6 of the Act means the "basic wages" at the
relevant time. When the existing pay-scales are revised with effect from
back-date then the refiled-wages posterior to that date are the "basic wages
for the time being payable". The High Court in our view fell into error in
giving a strained interpretation to the provisions of the Fund Act.
D
We, therefore, allow the appeals, set _aside the judgment of the
Division _Bench of the High Court and ,dismiss the writ petition of the
Board· with costs. We quantify the co.sts as Rs.10,000 to be paid to the
workmen.

N.V.K. Appeals allowed.