Holding

An attendance bonus that is payable under the terms of a contractual settlement is "wages" within the first part of the definition in Section 2(22) of the Employees' State Insurance Act, 1948.

Summary

Wellman (India) Pvt. Ltd. entered into a settlement with its workers' union in 1966 that created an attendance bonus scheme, which became an express term of the employment contract. The company sought a declaration from the Employees' Insurance Court that the Employees' State Insurance Corporation (ESIC) could not demand employer and employee contributions on the bonus payments. The Insurance Court granted the declaration, but the High Court reversed, holding that the attendance bonus constituted "wages" under Section 2(22) of the Employees' State Insurance Act, 1948, making contributions payable. On appeal, the Supreme Court examined whether the bonus fell within the first part of the definition of wages (remuneration payable under a contract) or the second part ("other additional remuneration"). The Court held that because the bonus is payable under the contractual settlement, it falls within the first part of the definition and is therefore "wages". Consequently, the appeal was dismissed and the High Court's decision affirmed.

Issues considered

Whether the attendance bonus payable under a settlement is "wages" within the first part of the definition in Section 2(22) of the Employees' State Insurance Act, 1948.
Whether the bonus qualifies as "other additional remuneration" under the second part of the definition and is therefore excluded from the wage concept for contribution purposes.

Legislation cited

Employees' State Insurance Act, 1948s. 2(22), s. 39, s. 40
Industrial Disputes Act, 1947s. 12(3), s. 18(3)

Subjects

attendance bonuswages definitionEmployees' State Insurance Actstatutory contributioncontract of employmentindustrial settlementbonus schemeinterpretation of legislation

Judgment

A WELLMAN (INDIA) PVT. LTD.
v.
THE EMPLOYEES' STATE INSURANCE CORPORATION

NOVEMBER 3, 1993.

B (P.B. SAWANT AND YOGESHWAR DAYAL, JJ.J

Employees' State Insu;ance Act, 1948: Sections 2(22), 39 and 40-At-
tendance bonus payable under a settlement-Fonning part of a contract of
employ_ment-Whether "Wages''--Demand for payment of contribution of such
C payment-Validity of.
A Bonus Scheme was formulated as part of a settlement entered into
between the appellant-Company and Union of Workmen in the course of
concmation proceeding before the Conciliation Officer under Section 12(3)
of the Industrial Disputes Act, 1947. According to the Bonus Scheme a
D worker was entitled to be paid an attendance bonus upto a maximum of 4
days wages, depending on the number of days a worker was present during
a quarter. The Bonus Scheme had become an express contract of employ·
ment since the date of the settlement.

E The appellant-Company filed an application before the Employees'
Insurance Court against the respondent-Corporation for a declaration
that the demand of the Corporation of the employees' contribution and the
employer's contribution on the payment made under the Company's
quarterly Attendance Bonus Scheme was not valid. The Insurance Court
allowed the application.
F
The respondent-Corporation preferred an appeal before the High
Court against the Insurance Court's decision. A Single Judge allowed the
appeal holding that the attendance bonus was payable under the terms of
the contract and, therefore, was 'Wages' within the meaning of section
G 2(22) or the Employees' State Insurance Act, 1948. The Division Bench
confirmed the Single Judge's decision. Hence the appeal by the appellant·
Company.

On the question whether the attendance bonus was remuneration
within the meaning orthe first part of the definition of'wages' or was 'other
H additional remuneration' within the meaning of the second part of the said
568
WELLMAN PVT. LTD. v. E.S.I.CORPORATION 569

definition given in Section 2(22) of the Act. A
Dismissing the appeal, this Court.

HELD : 1.1. The attendance bonus payable to the employee is under
the terms of the settlement which has become a part of the contract of
employment. Hence the said bonus will fall within the ftrst part of the B
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 einploym~nt, express or implied, were fulfilled. [576-D-E]

1.2. The expression 'other additional remuneration, if any, paid•...•....' C
in the second part of the said definition implies that the said remuneration
is not payable under any contract of employment, express or implied. This
is so, because while the first part of the definition refers to remuneration
under the contract of employment, the second part does not refer to
remuneration under any such contract. The definition is inclusive and D
includes only such payments outside the contract as are mentioned in its
second part and none other. The expression, 'if any, paid' after the words
'other additional remuneration' will be inconsistent if the remuneration is
payable under the contract of employment since such payment is not
dependent on the will of the employer but on the fulfillment of the terms E
of the contract. The second part of the definition includes only such
contractual payments as are specifically mentioned therein and the ex-
clusionary part does not include the attendance bonus like the present
which is payable as stated above under a contract. Hence, the expression
'other additional remuneration, if any, paid' not only does not refer to
remuneration payable under any contract but refers to such remuneration F
which is payable at the will of the employer. [576-E-H, 577-AJ

1.3. Every remuneration that is payable under the contract would,
therefore, fall under the first part of the definition. [577-B]
G
Bala Subramanya Rajaram v. B.C. Patil & Ors., [1958) S.C.R. 1504;
M/s. Harihar Polyfibres v. Regional Director, ES! Corporation, [1984) 4
S.C.C. 324; Bridge & Roof Co. (India) Ltd. v. Union of India, [1963) 3 S.C.R.
978 and Jay Engineering Works Ltd. & Ors. v. The Union of India & Ors.,
[1963) 3 S.C.R. 995, referred to. H
570 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6019 of
1993.

Form the Judgment and order dated 23rd Nov. 1982 of the Bombay
High Court in Letters Patent Appeal No. 60 of 1979.

B M.L. Verl.ifl, G.B. Pai, Soli J. Sorabjee, N.N. Goswami, Dr. S. Ghosh
Tapas Ray, Harish Salve, N.N. Goswami and Dr. Anand Prakash Sr. Advs.
V.J. Francis, Ms. Lekha Mathur, D.N. Mishra, E.M.S. Anam, U.A. Rana,
Rajiv Tyagi, Ms. Nisha Bagchi, R.F. Nariman Ms. A Subhashini, A.K.
Srivastava, O.C. Mathur, P.K. Chakraborty, P.K. Chatterjee, Manoj Swarup
C Suresh A.· Shroff. Ms. Smitba Inna, Meenakshi, Grover C.V. Subba Rao,
S.K. Gambhir Advs. with them for the appealing parties.

The Judgment of the Court was delivered by

SAWANT, J. Special leave granted.
D
The appellant-Company filed an application before the Employees'
Insurance Court under Section 75 of the Employees' State Insurance Act,
1948 (hereinafter referred to as the 'Act) against the Employees' State
Insurance Corporation (the 'Corporation') for a declaration that the
·· E demand of the Corporation of the employees' contribution and the
employer's contribution on the payment made under the company's
quarterly attendance bonus Scheme (the 'Bonus Scheme') was not valid .
The Insurance Court allowed the said application and against· that decision
the Corporation preferred an appeal to the High Court. The learned Single
.F Judge reversed the decision of the Insurance Court holding that the
attendance bonus was payable under the terms of the contract and, there-
fore, was "wages" within the meaning of Section 2 (22) of the Act. In the
Letters Patent Appeal preferred by the appellant, the Division Bench of
the High Court confirmed the said decision. Hence the present appeal.
G 2. To appreciate the controversy between the parties, it is necessary
to understand the salient features of the Bonus Scheme. The Bonus
Scheme was a part of a settlement entered into between the appellant-
employer and the union of the workmen in 1966. According to this Scheme
which was introduced w.e.f. 1.7.1966, if a worker is present for all the
H working days during a quarter, he is entitled to attendance bonus
WELLMAN PVT. LTD. v. E.S.l.CORPORATION (SAWANT,J.) 571

equivalent to four days' wages. If he remains absent for one day in a A
quarter, he is to be paid attendance bonus equivalent to two days' wages
for the first four quarters. If he is absent for two days in a quarter, he is
entitled to attendance bonus equivalent to one day's wages in that quarter.
If a worker is absent for more than two days during a quarter, he is not
entitled to any attendance bonus in that quarter. For the purpose of B
attendance bonus, the quarters prescribed are April-June, July-September,
October-December and January-March. If a worker is newly appointed in
the middle of the quarter he is not entitled to attendance bonus for the
relevant quarter. The attendance bonus is to be paid in the month following
each year. For entitlement to the attendance bonus, further, casual leave
or any kind of leave is to be treated as absence. Only privileged leave taken C
in a single quarter is to be treated as presence in that quarter.

For our purpose, what is necessary to note is that a settlement was
arrived at in the course of the conciliation proceedings before the Concilia-
tion Officer under Section 12(3) of the Industrial Disputes Act, 1947 (the
'ID Act'). It was, therefore, binding on all parties to the dispute as well D
as the successors and assignees of the appellant and the subsequently
employed workmen under Section· 18 (3) of that Act. The settlement could
not be put ~ end to by any of the parties unilaterally. In other words, the
Bonus Scheme had become an express contract of employment since the
date of the settlement. · E
3. In the light of this legal status of the Bonus Scheme, we have to
examine the relevant
. provisions. of the present Act. Sub- section (22) of
Section 2 of the Act defines "wages" as follows :

"2.(22). "wages" means all remuneration paid or payable in cash to F
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- G
(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 conces-
sion; H
572 SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R. _,

., (c) any sum paid to the person employed to defray special expenses
A
entailed on him by the nature of his employment, or

(d) any gratuity payable on discharge;"

Sub-section (23) of Section 2 defines "wage period" in relation to an
B employee to mean "the period in respect of which wages are ordinarily
payable to him whether in terms of the contract of employment, express or
implied or otherwise".

Section 39 of the. Act deals with contributions to be paid by the
employer and the employee. Section 40 provides for payment of contribu-
c tion by the principal employer in the first instance. Relevant provisions of
the saici sections read as under :

"39. Contributions -1. The contribution payable under this Act in
respect of an employee sW comprise contribution payable by the
D employer (hereinafter referred to as the employer's contribution)
and contribution payable by the employee (hereinafter referred to
as the employees' contribution) and shall be paid to the corporation.

2. the contributions shall be paid at such rates as may be prescribed
by the Central G~vernment :

-E Provided that the rates so prescribed shall not be more than
the rates which were in force immediately before the commence-
ment of the Employees' State Insurance (Amendment) Act, 1989.

3. The wage period in relation to an employee shall be the unit in ~

F respect of which all contributions shall be payable under this Act.

4. The contributions payable in respect of each wage period shall
./ ordinarily fall due on the last day of the wage period and where
an employee is employed for part of the wage period is employed
under two or more employers during the same wage period the
G
contributions shall fall due on such days as may be specified in the
regulations.

5 (a) If any contribution payable under this Act is not paid by the
principal employer on the date on which such contribution has
H become due, he shall be liable tQ pay simple interest at the rate of
WELLMANPVf.LID.v. E.S.l.CORPORATION[SAWANT,J.) 573

twelve per cent, per annum or at such higher rate as may be A
specified in the regulations till the date of its actual payment :

Provided that higher interest specified in the regulations shall
not exceed the lending rate of interest charged by any scheduled
bank.
B
(b) Any interest recoverable under clause (a) may be recovered
as an arrear of land revenue or under section 45C to Section 45-1."

40. Principal employer to pay contribution in the first instance. -1.
The principal employer shall pay in respect of every employee,
whether directly employed by him or by or through an immediate C
employer, both the employer's contribution and the employee's
contribution.

2. Notwithstanding anything contained in any other enactment but
subject to the provisions of this Act and the regulations, if any, D
made thereunder, the principal employer shall in the case of an
employee directly employed ·by him (not being an exempted
employee), be entitled to recover from the employee the
employee's contribution by deduction from his wages and not
otherwise:
E
Provided that no such deduction shall be made from any wages
other than such as relate to the period or part of the period in
respect of which the contribution is payable, or in excess of the
sum representing the employee's contribution for the period."

4. The controversy in the present case centres round the question as to F
whether the attendance bonus in question is remuneration within the mean-
ing of the first part of the definition of "wages" or is "other additional
remuneration" within the meaning of the second part of the said definition
given in Section 2 (22) of the Act. If it falls within the first part of the, defini-
tion the appellant's case must fail. However, if it is "other additional G
remuneration", the appellant has also to prove that it is not pl!id under the
contract and that it is paid at intervals exceeding two months. In other words,
if the interval of payment of the additional remuneration is more than two
months, it would not be "wages" within the meaning of the said definition.

5. Shri Salve, appearing for the appellant relied upon two decisions H
574 SUPREME COURT REPORTS (1993] SUPP. 3 S.C.R.

A of this Court in support of his contention that attendance bonus is not
wages. In Bala Subramanya Rajaram v. B.C. Patil & Ors., (1958] SCR 1504,
what fell for consideration was whether the bonus awarded by the industrial
court was wages within the meaning of that word under the Payment of
Wages Act, 1936. There the definition of "wages" leaving aside the part of
the definition which is not material, read as follows :
B
"'Wages' means all remuneration.......... which would, if the terms
of the contract of employment, express or implied, were fulfilled,
be payable, whether conditionally upon regular attendance, good
work or conduct or other behaviour of the person employed, or
C otherwise, to a person employed in respect of this employment or
of work done in such employment and includes any bonus or other
additional remuneration ·of the nature aforesaid which would be
so payable and any sum payable to such person by reason of the
termination of his employment, but does not include ..•......."

D The Cou,rt held that the bonus awarded by the Industrial Court was
not in terms of a contract of employment but as a result of an industrial
dispute raised by the workmen. It would not fall within the definition of
"wages" under that Act.

In M/s. Harihar Polybibres v. Regional Director, ES/ Corporation,
E (1984] 4 sec 324, the very definition of "wages" under Section 2(22) of the
- present Act fell for consideration and it "'.as held that the word "remunera-
tion" occurring in the context of the words "other additional remuneration"
need not be under the contact of employment and that such remuneration
would include house rent allowance, night-shift allowance, incentive al-
p lowance and heat, gas and dust allowance. In this context, the Court held
that the Act is a welfare legislation and the definition of "wages" is desig-
nedly wide. Any ambiguous expression should receive a beneficial con-
struction under the definition. Here again, what fell for consideration was
whether the said allowances were "other additional remuneration" and
G whether such additional remuneration had to be a part of the contract of
employment. The Court held that the said allowances were other additional
remuneration and that such additional remuneration need not be a term
of the contract of employment. .

Shri Salve, learned counsel appearing ·for the appell~t
also relied
H upon Bridge & Roof Co. (India) Ltd. v. Union of India, [1963] 3 SCR 978
WELLMAN PVT.LTD. v. E.S.l.CORPORATION (SAWANT, J.) 575

where the question which fell for consideration was whether the production A
bonus paid by the Company could be taken into consideration in calculat-
ing the contribution under Section 6 of the .Employees' Provident Fund
Act, 1952. The definition of "basic wages" under Section 2 (6) of that Act
was as follows :

'"Basic wages' means means all emoluments which are earned by B
~ 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 •
/
(i) the cash value of any food concession; / c
(ii)° any dearness allowance (that is to say, all cash payments by
whateve~ name called paid to an employee on account of a rise in
the cost' of living), house-rent allowance, overtime allowance,
bonus; commission or any other similar allowance payable to the
employee in respect of his employment or of work ·done, in such D
employment; ·
,.
(iii) any presents made by the employer;"

It would thus be apparent from the above definition that "bonus"
without any qualification was expressly excepted from the term "basic E
wages". It was argued on behalf of the Company that in view of the
unqualified use of the word bonus, all kinds of bonus including production
bonus were excluded from the said definition and hence production bonus
could not be taken into consideration for calculating the contribution. The
Court accepted the said contention and set aside the decision of the F
Central Government that Provident Fund contribution must also be made
on the production bonus.

In Jay Engineering Works Ltd. & Ors. v. The Union of India & Ors.,
(1963) 3 SCR 995, which was also relied upon by Shri Salve, again the
definition of the term "basic wages" under Section 2{b) of the Employees G
Provident Funds Act fell for consideration in the context of a peculiar ·
production bonus scheme. Under the scheme, a certain proportion of the
production was taken to correspond to the minimum basic wages and
dearness allowance fixed by the awards and this was termed as "quota".
The production above the quota was paid at piece-ra~es. There was also a H
576 SUPREME COURT REPORTS (1993] SUPP. 3 S.C.R.

A norm fixed which _was much higher than the quota. Every workman who
failed to produce the norm was to be considered as guilty of misconduct
and liable to be dismissed. The company rel~ng upon the decision of this
Court in Bridge & Roof Co. case (supra) contended that the entire payment
for production above the quota was payment of production bonus and,
B therefore, could not be taken into account for the purposes of contribution
to Provident Fund. It was also contended that even if the payment for such
production was not production bonus, it should be treated as payment in
the nature of "other similar allowance" appearing in the said definition of
"basic wages". The Court held that the real base or standard of production
was the norm and any payment above the norm would be real production
C bonus and any payment upto the norm was "basic wages" for the purposes
of the Act and that the payment made above the norm would alone be
production bonus and would not be available for calculating the contribu-
tion to the Provident Fund.

D 6. As pointed out above, the attendance bonus payable to· the
employees is under the terms of the settlement which has become a part
of the contract of employment. Hence the said 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.
E It is, therefore, really not necessary for us to consider whether it will be
"other additional remuneration" and if so whether further it will be ex-
cluded from the definition of "wages" because it is not payable within a
period of two months from the date it is due. However, if it is necessary
to express our view on the point, according to us, the expression "other
F additional remuneration, if any, paid ............." implies that the said
remuneration is not payable under any contract of employment, express or
implied. This is so because while the first part of the definition refers to
remuneration under the contract of employment, the second part does not
refer to remuneration under any such contract. Secondly, the definition is
inclusive and includes only such payments outside the contract as are
G mentioned in its second part and none other. Thirdly, the expression "if
any, paid" after the words "other additional remuneration" will be inconsis-
tent if the remuneration is payable under the contract of employment since
such payment is not· dependent on the will of the employer but on the
fulfilment of the terms of the eontract. Lastly, the second part of the
H definition includes only such contractual payments as are specifically men-
WELLMAN PVT. LTD. v. E.S.l.CORPORATION [SAWANT,J.) 577

tioned therein and the exclusionary part does not include the attendance A
bonus like the present which is payable as stated above under a contract.
Hence the expression "other additional remuneration, if any, paid" not only
does not refer to remuneration payable under any contract but refers to
such remuneration which is payable at the will of the employer. Every
remuneration that is payable under the contract would, therefore, fall B
under the first part of the definition.

For the above reasons, we agree with the conclusion of the High
Court and dismiss the appeal with costs.

N.P.V. Appeal dismissed .

..