THE REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION AND ANRversusBATA SHOE COMPANY (P) LTD.

                                                               639

                                                                      A
                 'IHE REGIONAL DIRECTOll.,EllFLOIEES'.
               STAIE INSURANCE CORPORATION AND ANll..
                                 V•
                    llA'IA SHOE WIPANY (P) LTD.

                         OCTOBEll. 11, 1985                           B


                 [11..S. PATHAK AND A.P. SEN, JJ.]

      Employees State Insurance Act, 1948 - S. 2(22) - 'Bonus' -
Whether part of "wages".
                                                                      c
      The respondent-company has two branch factories. Various
agreements/settlements were entered into between the managements
of these factories and their employaes regarding the payment of
bonus from time to time. The appellant - Regional Director of
Employees' State Insurance Corporation - called upon these
factories from time to time to make requisite contribution to the     D
Employees' State Insurance Fund· Initially the managements of
these factories acknowledged their liability to dei>osit the
amounts as-part of the contract of employment, but subsequently
realising that they were not liable in law to make any such
contribution under the Employees' State Insurance Act, 1948,
                                                                          E
declined to make such payment. The managements of these factories
applied under cl. (g) of sub-s. (l) of s. 75 of the Act for a
decision by the Employees' State Insurance Court on the question
of their liability, and contended that the sum payable or paid by
way of bonus to the employees was not covered by the definition
of the term "wages" in sub-s. (22) of s. 2 of the Act and, there-
fore, the respondent was not liable to make any contribution. The
                                                                          F
Employees' State Insurance Court accepted the contention of the
respondent.

      Against that order the appellant preferred appeals under s.
 82 of the Act, which were diamissed by the High Court holding
·that the Employeea' State Insurance Court was right in taki"!l the
 view that the bonus in question did not form part of the wages as        G
 defined in sub-a. (22) of s. 2 of the Act.

      Dismissing the appeals of the appellant to this Court,

      HEW: l. The bonus in question, in the instant appeals,
does not fall under any category or class mentioned in the
                                                                          H
definition of "wages" set forth in sub-a. (22) of s. 2 of the
Employeea' State Insurance Act, 1948. (645 E]
    640                 SUPRF.ME COURT REPORTS     [1985] SUPP.3 s.c.R.

           In the instant case, the bonus paid by the respondent to
A   its employees is in the nature of ex-gratis payment or, as has
    been described in 'one of the settlements, paid as a gesture of
    goodwill on the part of the respondent. 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
B   relating to it were included in the Standing Orders "nd Rules,
    they were subsequently excluded from them. 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. [644 C-F]
c         2. The concept of bonus has been analysed and described by
    this Court as representing the cash incentive paid in addition to
    wages and given conditionally on certain standards of attendance
    and efficiency being attained. When wages fall short of the
    living standard or the industry makes huge profits part of which
    are due to the contribution which the workmen make in increasing
    production, the demand for bonus becomes an industrial claim. It
D   has not been shown that this Court has subsequently widened the
    concept of bonus to include a payment made by the employer
    ex-gratis or as an expression of goodwill towards its employees.
    (644 F - H; 645 A - CJ
           3, The first category of remuneration falling within the
E   definition of ''wages" in sub-s.(22) of s. 2 of the Act is not
    satisfied by the bonus in question in the i!llltant appeals. The
    second category of remuneration defined within the expression
    ''wages" by sub-s.{22) of s. 2 of the Act speaks of other
    additional relllllleration paid at intervals not exceeding two
    months. The bonus under consideration here is not paid at
F   intervals not exceeding two months. It is payable within "one
    month after the end of each quarter", (645 C-E]

          lilir Mills Co. Ud. v. Sud Mills, (1955] 1 s.c.R. 991;
    ShEee lleenakshi Mills Ud ..... '.Ibeir Wort.en, (1958] s.c.R. 878;
    and Stauds.rd Vacuma BefiniDg Co. of India v. Its Wos:kmen and
G   Anr., (1961] 3 s.c.R. 536 relied on.
            CIVIL APPELLATE JURISDICTION : Civil Appeal No. 741-42 of
    1978.

H
          From the Judgment and Order dated 2.5,1975 of the Patna
    High Court in Appeals from Original Orders Nos. 92 and 93 of
                                                                          t
    1971.
            E.S.I. CQRPN. v. BATA SHOE CO. (PATHAK, J.]         641


     Abdul Khader, R.N. Kapoor and Miss A. Subhashini for the         A
Appellants.

      G.B. Pai, Parveen Ku!IJar, Anil Ku!IJar   Sharma and F.R. Das
for the Reilpondent.

      The Judgment of the Court" was delivered by                     B

      PATH.U:, J, These appeals by special leave are directed
against the cOlllllOn judgment and order of the Patna lligh Court
dismissing two appeals filed by the Kegional Director, Employees'
State Inaurance Corporation on the question whether the respon-
dent is liable to pay the diaputed bonus to its workmen.              c
       The r<!spondent, Bata Shoe Company (P) Ltd., has a branch
factory at Digha Ghat and 11nother at Mokamah in the State of
l!ihar. At the Digha Ghat branch, the respondent entered into a
settlement with its workmen on May 6, 1947, in which it was
a.greed that production bonµs payable to the workmen would remain     D
unaltered but employees earning less than Rs. 200 " would get an
extra bonus called "good attendance bonus~ at 5% of their yeai;ly
salary provided they comp~eted active service for 265 days
annually inclusive of Saturdays. It was stipulated that atten-
dance bonus would be calculated in the same way as production
bonus. On November 28, 1951 th<!re was an a.greement by which J.t     E
was agreed that "the system of attendance bonus for the year 1952
will be discontinued and the ex-gratia bonus's percentage will be
increased by 5%, i.e. instead of 10% it will be 15% to all
employees," It was also a.greed that corresponding changes would
be made in the Standing Orders and Bules in order to inc9rporate
these changes. Later, another settlement was recorded, this tiioo
before the Chairman, Industrial Tribunal, Bihar, in a pending
Referell<!" of 1955 where it was mentioned that. the respondent had
agreed to increase trno general bonus, effective from the fint
quarter of 1957, from 15% to 16%. Thereafter on July 27, 1961
there was another settlement which provided :-

           "In view of the overall satisfactory settlement on all     G
           the 9utstarlding points of the Union and of tho.e
           points raised by the management, as a gesture of good-
           will the management declared that with effect from 3rd
           quarter of 1961 the General Bonus will be incr-.a•ed
           from lq-1/2% to 17-1/2%. The workmen's rt<pres,.ntativee
           appreciated thia gesture of the management and expre1··
           sed satisfaction on behalf of the wo~n on the              H
           increase of General Bonus.•
        642                   SUPREME COURT REPORTS   [1985] SUPP.3 s.c.R.


        This was followed by a further settlement dated January 9, 1963
A
        arrived at in the course of conciliation proceedings before the
        Conciliation Officer-cum-Deputy Labour Commissioner, Bihar. It
        provided that :

                   "JlONUS:

B
                  The rate of payment of bonus, effect! ve from 4th
                  quarter of 1962 will stand revised at 19% in place of
                  17-1/2% as at present. The paymen': of bonus will be
                  made one month after the end of each quarter at the
                  rate of 19% of the total salary and/or wages paid to
                  each workman and employee during the quarter inmedi-
                  ately preceding (such salary or wages are exclusive of
c                 any other special a11owance or rewards granted to him
                  during such period). Such bonus will be payable only
                  to those who have completed six months' approved
                  service ending on the last day of the quarter; and to
                  those who have completed less than six months' approv-
                  ed service on the last day of the quarter, the bonus
                  will be payable at the rate of 19-1/2% of their total
D
                  salary or wages as aforesaid. The bonus will be avail-
                  able only to those who are in the employ of the
                  company on the last day of tile quarter and who have
                  given regular .and approved service during the quarter
                   to which. the payment of bonus is available."
E
        The last document recording a settlement is dated July 17, 1963,
        and pursuant to it the bonus clause was deleted from the Standing
        Orders and Rules.

             The facts relating to the respondent's l-lokamah factory are
        substantially similar, except that the bonus scheme was not
        incorporated at any time in the Standing Orders and Rules.

              The respondent company at. its two factories, Digha and
        Mokamah, was called upon from time to time by the Regional
        Uirector, Employees' State Insurance Corporation to make the
        requisite contribution to the Employees' State Insurance Fund. At
    G
        first, the managements of the two factories acknowledged their
        liability to deposit the amounts as part of the contract of
        employment, but subsequently realising, as they allege, that they
        were not liable in law to make any such contribution under the
        Employees' State Insurance Act 1948, they declined to make such
            E.S.I. CORPN. v. llATA S~OE CO. [PATHAK, J.j        643


payment. Apprehending coercive methods of recovery on the part of      A
the appellant, the managements of the two factories applied under
the cl.(g) of sub-s.(l) of •· 75 of the Act for a decision by the
Employees' Insurance Court on the question of their liability.
The contention of the respondent was that the S:JIJl payable or paid
by way of bonus to the employees was not covered by the
definition of the term "wages" in sub-s. (22) of s. 2 of the Act       B
and, therefore, the respondent was not liable to make any contri-
bution. The Employees' State Insurance Court accepted the conten-
tion of the respondent. Against that order the Regional Director,
Employees' State Insurance Corporation, Patna preferred appeals
under s. 82 of the Employees' State Insurance Act 1948, and the
appeals have been dismissed by the Patna High Court by its judg-       C
ment and order dated May 2, 1975. The High Court has held that
the Employees' State Insurance Court was right in taking the view
that the bonus in question did not form part of the "wages" as
defined in sub~s. (22) of s. 2 of the Employees' State Insurance
Act, 1948.
                                                                       D
      The contribution payable by an employer under the Employees'
State Insur~nce Act, 1948 is computed with reference to the wages
of the employee, and in these appeals the only question is
whether the bonus paid by the respondent to its employees at the
Uigha Ghat and the Mokamah branch factories under the settlements
mentioned earlier can be regarded as "wages" as defined by sub-s~      E
(22.) of s. 2 of the Act. Sub-s. (22) of s. 2 defines "wages" as
follows:-

           "(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 any payment to an employee in respect of· any      F
           period of authorised leave, lock~ut, strike which is
           not illegal or lsy-off and other additional remunera-
           tion, if any, paid at intervals not exceeding two
           months but does not include -

           (a) any contribution paid by the employer to any            G
           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       H
           employment; or
    644               SUPREME COURT REPORTS        [1985] SUPP.3 s.c.R.

A              (d) any gratuity payable on discharge."

         The entire argument of the appellants before the High Court
    was that the bonus paid or payable to the ""'1loyees by the
    respondent was in the nature of re1111neration paid in cash to the
    employees under the express terms of the contract of ""'1loyment.
B   In other words, the appellants relied on that part. of the
    definition of "wages" which speaks of "all re1111neration paid or
    payable, in cash to an employee, if the terms of the contract of
    employment, express or implied, were fulfilled". Before ue, the
    appellants rely on the same provision in the definition. They
    also rely on that part of the definition which speaks of "w11e1"
    as "other additional re1111neration, if lilly, paid at intervai. not
c   exceeding two months ...... ". The remaining provisions of the
    definition were not relied on. We are, therefore, called upon to
    consider whether the bonus in question satisfie1 the tems of
    either of the two kinds of renuneration mentioned above.

         It is plain from what has gone before that the bonu1 paid by
    the respondent to its employees is in the nature of ax-gratia
D   payment or, as has been described in one of the settlements, it
    is paid as a gesture of goodwill on the part of the re1pondent.
    It is nothing else. Indeed, learned counsel for the parties were
    agreed before the High Court that the bonus in que5tion Wiit
    neither in the nature of production bonus nor incentiva bollUI !!Or
    custnmary bonus nor any statutory bonus. It cannot be regarded a•
E   part· of the contract of employment. Although the provbiQna
    relating to it were included in the Standing Orders an4 Rulea,
    they were subsequently excluded from them. In our opinion, there-
    fore, the bonus paid or payable by the respondent to it•
    employees under the successive settlements and agreement• made
    between them cannot be regarded as re1111neration paid or payabt.
F   to the employees in fulfilment of the terms of the contr111:t of
    employment.

         The concept of bonus haa received the attflnl:l..oll of thia
    Court in a series of cases, and we need mention only eome of
    them. One of the first authoritative decisions rendered by this
G   Court is 11a1r llil1a eo. Ltd. v. Suti lfilJJI, [l.9551 1 s.c.R. 991,
    where N.H. Bhagwati, J., speaking for the Court, analyaed the
    concept of bonus and described it as represent108 the c.allh
    incentive paid in addition to wages and given conditionally on
    certain standards of attendance and efficiency being attained.
    When wages fall short of the lirtng standard or the induetry
H   makes huge profits part of !llblch are due to the i::ontributioo
              E.S.l. CORPN. v. BATA SHOE CO, [PATHAK, J.]       645


.which the workmen make in increasing production, the demand for       A
 bonus, it was said, becomes an industrial claim. The view was
 followed by this Court in the sree Meenalreb1 Mills, I.bl. v. Their
 w..n-, [1958) s.c.R. 878, but the two conditions, that the
 wages paid to workmen fall short of living wages and that the
 industry should be shown to have made profits which are partly
 the result of the contribution made by the workmen in increasing      B
 production were regarded as being of cU1111lative significance.
 Then followed Standard Vacuia llefiDilig Oo. of IDdf.a v. Its
 VoDmen 81ld Anr., [1961) 3 s.c.R. 536, which dealt with the
 concept of bonus elaborately while re-affirming what had been
 said in the earlier two cases. lt has not been shown to us that
 this Court has subsequently widened the concept of bonus to           c
 include a payment made by the employer ex-gratia or aa an
 expression of goodwill towards its employees. lt seems to us
 clear that the first category of remuneration falling.within the
 definition of "wages" in sub-s.(22) of s. 2 of the Employees'
 State Insurance Act, 1948 is not satisfied by _the bonus in
 queation in these appeals.
                                                                       D
     The second category of remuneration defined within the
 expressi~n "wages" by sub-s. (22) of s. 2 of the Act speaks of
other additional remuneration paid at intervals not exceeding two
montha. lt cannot be disputed that the bonus under consideration
here is not paid at intervals not exceeding two months. lt is
payable "one month after the end of each quarter".
                                                                       E
      We have carefully perused the terms of the definition of
 "wages" set forth in sub-s. (22) of s. 2 of the Employees' State
 Insurance Act, 1948, and we are satisfied that the bonus in
 queation in these appeals does not fall under any category or
 class mentioned in the definition.

      In the result, we find ourselves in agreement with the High      F
 Court, and therefore we dismiss the appeals with costs.•




 A.P.J.                                          Appeals dismissed•